Master of Science in Islamic Banking & Finance
Department of Finance
Faculty of Business Administration (FBA)
Date of Award
Dr. Irum Saba, Assistant Professor, Department of Economics and Finance, Faculty of Business Administration, Institute of Business Administration (IBA), Karachi
Dr. Syed Aun Raza Rizvi, Assistant Professor/ Associate Dean Academic, Lahore University of Management Sciences (LUMS), Lahore
Dr. Imam Uddin, Associate Professor, Institute of Business Management (IoBM), Karachi
MS IBF Thesis
The main challenge faced by the Islamic banking industry in Pakistan is the scarcity of Shariah-compliant investment instruments and the absence of a lender of last resort (LOLR) facility for Islamic banks. Due to liquidity surplus, returns for Islamic banks in Pakistan are lower as compared to the conventional counterparts. Hence Islamic banks have a competitive disadvantage with respect to their competitors. Though Sukuk are in high demand due to liquidity surplus lying with the Islamic banks, its issuance is associated with a high cost of issuance and legal complexity, problems that could be solved by the application of blockchain technology. With the advent of cryptocurrency and developments around blockchain, technology experts, industry professionals along with Shariah scholars have been working to introduce FinTech in Shariah-compliant financing products and services. This research applies a qualitative approach.
The study relies on primary data from interviews and secondary data from published sources, academic journals, government and private-sector reports, and public domain including newspaper articles, and websites. Interviews are conducted from blockchain technology experts along with banking & commerce industry professionals. This study highlights financial instability, lack of financial education, and the absence of political will being the main reasons for low Sukuk issuance in Pakistan. This study proposes a low-cost smart Sukuk structure to address the liquidity problem Islamic banking industry in Pakistan. It is found that smart Sukuk issuance and transaction fees are much lower than the current Sukuk issuances and are expected to be more secure and marketable internationally. Blockchain-based smart Sukuk are practicable to solve the problem of standardization and huge issuance and maintenance cost for the Sukuk industry. The proposed structure could be adopted by governments and organizations to issue Sukuk promising transparent, economical, efficient, and reliable business transactions for both parties.
Iftikhar, S. (2018). A comparative analysis of cost and benefits of blockchain based smart sukuk vs. traditional sukuk (Unpublished Master's thesis). Institute of Business Administration, Pakistan. Retrieved from https://ir.iba.edu.pk/etd-ms-ibf/19