A Critical Analysis of Profit Distribution Practices by Islamic Banks in Pakistan

Abstract

This paper critically evaluates profit distribution practices of Islamic banking institutions (IBIs) in Pakistan for the period of 2015–2024. In this context, the State Bank of Pakistan (SBP) issued in 2012 a circular aimed at strengthening transparency and standardization in profit-sharing mechanism adopted by the IBIs. It is also to empirically evaluate the outcomes profit-sharing regrading implications for enhancing equitable justice in the economy. The study also addresses the underlying issue by gathering the opinion of different stakeholders through qualitative methods (expert interviews with Shariah advisors, bankers and regulators, and a structured questionnaire on pool management, profit and loss sharing mechanism, issues related to Hiba distribution and assigning weightages). For quantitative investigation of published financial data to analyse the profit-sharing ratios, Hiba disbursement, and pool management, it used several statistical tests such as ANOVA, paired t-test, and Levene’s test.