Islamic Banking and Finance Review <div style="text-align: justify;">Islamic Banking and Finance Review (IBFR) is a double-blind peer-reviewed international research journal indexed with well-reputed international indexing agencies (such as EconLit, INDEX ISLAMICUS), and recognized by the Higher Education Commission of Pakistan in Y-Category. The IBFR is an official publication of the Department of Banking and Finance, Dr Hasan Murad School of Management, the University of Management and Technology Lahore, Pakistan.</div> Department of Banking and Finance, Dr Hasan Murad School of Management, University of Management & Technology, Lahore, Pakistan en-US Islamic Banking and Finance Review 2413-2977 <p>Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a&nbsp;<a href="">Creative Commons Attribution (CC-BY) 4.0 License</a> that allows others to share the work with an acknowledgement of the work’s authorship and initial publication in this journal.</p> Impact of the Islamic Modes of Finance on the Profitability of Islamic Banking Sector in Pakistan <p>The persistence of Islamic finance in any economy is arguably essential to <br>address the economic needs of the society. The golden principles of Islam <br>that is, profit and loss sharing, honesty, and doing business keeping in view <br>the welfare of the people can play a vital role in alleviating poverty. The <br>primary objective of the current study is to investigate empirically the impact <br>of the Islamic modes of finance and their contribution in enhancing <br>profitability. For this purpose, time series quarterly data ranging from <br>2014Q1-2020Q4 of the Islamic modes of finance (including Sukuk) were<br>used to find their impact on the profitability of the Islamic banking sector as <br>measured by Return on Asset (ROA). The ARDL and bounds cointegration <br>approach were used to examine the level relationship among the underlying <br>variables. The results provided strong evidence of a long-run equilibrium <br>relationship. The results also showed that Murabaha, Musharaka, Istisnaa, <br>and Diminishing Partnership have a prominent positive and significant <br>impact on ROA. However, the impact of Murabaha on profitability remains <br>significantly higher as compared to the other modes of finance. The second <br>most important determinant of profitability is Musharaka, followed by <br>Istisnaa. The estimated value of error correction term showed a significant <br>adjustment towards the long-run equilibrium. These findings may help the <br>managers of Islamic banks in allocating funds to different modes and <br>portfolios for optimal returns. They may also have a big impact on the ability <br>of policymakers to create policies appropriate for interest-free windows and <br>branches. Moreover, they would allow Islamic banks to retain their <br>competitive edge and improve the quality of their services.</p> Mudeeba Gul Atta Ullah Khan Copyright (c) 2023 Mudeeba Gul, Atta Ullah Khan 2023-05-27 2023-05-27 10 1 1 23 Corporate Cash Holdings and Speed of Adjustment: Does Shariah Compliance Matter? <p>This study examines the impact of the shariah complaint status on corporate cash holdings, the speed of adjustment towards its target cash holdings, and the effect of firm-specific factors on corporate cash holdings. The data of non-financial firms listed on the Pakistan Stock Exchange from 2015 to 2020 has been collected. The panel data methodology is used. The findings imply that shariah-compliant firms hold more cash than non-shariah-compliant firms. The adjustment speed toward its target cash holdings is faster in shariah compliant firms. The financial leverage and cash flows show a negatively significant effect on corporate cash holdings. The working capital, dividend, and profitability exert a significant positive change on cash holdings. Explaining the cash-holding determinants reveals that trade-off and pecking order theories play a central role. This study is beneficial for policymakers, managers, and investors.</p> Affaf Asghar Butt Riffat Sadique Aamer Shahzad Copyright (c) 2023 Affaf Asghar Butt, Riffat Sadique, Aamer Shahzad 2023-05-25 2023-05-25 10 1 24 50 The Determinants of Growth In Banking Sector: Time Series Analysis of Conventional And Islamic Banking In Pakistan <p>A well-developed financial and banking system efficiently transforms<br>savings into investments. The banking system of Pakistan is based on a dual <br>structure of conventional and Islamic banking. The current study aims to <br>identify the factors that determine growth in the banking industry of <br>Pakistan, keeping in view both conventional and Islamic banking. For this <br>purpose, the ARDL model was applied on the time series data of Pakistan<br>for the period 2007-2022. The data was taken from the State Bank of <br>Pakistan (SBP). The variable ‘investment’ was used as a proxy to measure <br>growth in the banking sector, comprising both conventional and Islamic <br>banking sectors. The results of the empirical analysis indicated that growth <br>in deposit, growth in GDP, and population growth are the main <br>determinants of growth in the banking sector of Pakistan. Based on the <br>findings of the study it is suggested that measures must be taken to increase <br>deposits in both systems of banking by giving various incentives to <br>households.</p> Muhammad Saeed Iqbal Sofi Mohd Fikri Copyright (c) 2023 Muhammad Saeed Iqbal 2023-05-28 2023-05-28 10 1 51 67 Financial Development and Firm Leverage in Pakistan: Conventional and Islamic perspective <p>The purpose of this study is to examine the impact of Islamic finance vs conventional finance development on firms’ leverage and debt maturity in Pakistan.</p> <p>We extract the annual data for the period 2010 to 2020. The final sample comprises 325 firms, after excluding financial firms, listed in Pakistan Stock Exchange (PSE). We use OLS and Fixed-Effects regression to estimate the impact of Islamic and conventional finance development on firm leverage and debt maturity. Our findings hold using battery of robustness check.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p> <p>We demonstrate that stock market development has a&nbsp; negative impact on leverage while conventional bank development is positively linked with leverage. Further, we find that overall Islamic finance development (Islamic bank and Sukuk market) is positively associated with leverage and debt maturity, in contrast, conventional finance development is inversely linked with debt maturity. Collectively, our results support the importance of Islamic finance supply-side factors on firms’ capital structure decisions. Our findings require the attention of regulatory bodies for financial development in Pakistan.</p> Irfan Ahmed Zeeshan Ghafoor Muhammad Abid Khan Syed Hassan Jamil Afkar Majeed Copyright (c) 2023 Irfan Ahmed, Dr. Zeeshan Ghafoor, Muhammad Abid Khan, Syed Hassan Jamil, Dr. Afkar Majeed 2023-05-29 2023-05-29 10 1 68 108 Financial Stability and Monetary Framework under Interest-Free DSGE Settings for Pakistan <p>Various small and large, conventional and interest-free, DSGE models have<br>been developed, simulated, and compared. After a large conventional<br>model, an interest-free NK model was prepared with household preferences,<br>retail firms, and capital-producing firms. The deduction of zakat was<br>suggested with appropriate incidence. The model was estimated using<br>quarterly data for Pakistan between 1990 and 2009, a period characterized<br>by the consolidation of monetary and macro-prudential policies besides the<br>opening up of the banking sector. This large-scale model included financial<br>accelerator, systemic risk, the inter-bank market, macro-prudential policy,<br>and monetary policy. Both types, that is, interest-based conventional models<br>and interest-free models, were estimated and compared. The welfare loss of<br>four conventional and three interest-free models was computed and<br>compared, where loss decreased with monetary policy and increased with<br>money in utility. The lower value of welfare loss for the large conventional<br>model exhibited effective financial stability policies in Pakistan, as<br>compared to the basic model. It was found that interest-free monetary<br>models couldn’t reduce welfare loss, when compared with conventional<br>models. The study also evaluated three interest-free rates of return as<br>alternatives to interest rates theorized by Khan and Mirakhor (1989). It was<br>found that the shift towards an interest-free regime for entrepreneurs,<br>banking, inter-bank operations, central banking, and policies can be<br>simulated with Pakistan’s data. The Islamic model showed lesser<br>convergence, so the fit of the model was reduced.</p> Rao Javaid Iqbal Atiquzzafar Khan Hafiz Muhammad Yasin Copyright (c) 2023 Javaid Iqbal 2023-05-26 2023-05-26 10 1 109 151