KHADIM ALI SHAH BUKHARI INSTITUTE OF TECHNOLOGY

An Optimistic Approach towards Islamic CreditCards and Its future

KARACHI

A Thesis submitted to the Department of Finance Faculty of Management Sciences In partial fulfillment of the requirement for the degree of MASTER OF BUSINESS ADMINSTRATION (MBA) MARIUM GHIAS ID NO. 2018

INTRODUCTION OF BANKS

A publicly listed company, was incorporated on January

27, 1997Meezan Bank has clearly established itself as the largest

Islamic Bank in PakistanMeezan Bank has been one of the fastest growing banks

in the history of Pakistans banking sector. Average growth in deposits has been 55% per annumThe Bank has an internationally renowned Shariah

Supervisory Board Chaired by Justice (Retd.) Maulana Muhammad Taqi Usmani,

BankIslami , is the second full-fledge

Islamic Commercial Bank in Pakistan, was incorporated on October 18, 2004 in Pakistan. BankIslami is the first Bank to receive

the Islamic Banking license under the Islamic Banking policy of 2003 on March 31, 2005. Initial public offering of BankIslami were

9 times higher than offered, received overwhelming response from the general public as the applications

LITERATURE REVIEW

WITH A VIEW OF CONVENTIONAL CREDIT CARDS High Interest Rates The higher the interest rate of the credit card you are

carrying a balance on, the higher the minimum monthly payment is going to be The credit card companies charge huge interest rates when a person withdraws cash using credit cards

Penalty or Default Problem occurs when the repayment of this loan is

delayed, missed, or defaulted. This incurs a penalty, late payment charges, and increased interest rates

Terms and Conditions Annual Fee Balance Transfer Fee Over limit Fee Per Transaction Fees

+ Per Transaction Fees + Interchange + Interest rate cap

PEOPLE WITH LOW CREDIT SCORES ARE SQUEEZED OUT That leaves consumers with bad credit with few options - expensive subprime

credit cards, secured credit cards, prepaid credit cards, or no credit cards at all

WITH A VIEW OF ISLAMIC CREDIT CARDS

PROHIBITION OF INTEREST CONFORMING TO SHARIAH MORE STABLE ECONOMIC ENVIRONMENT RELIGIOUS RISK BONUS POINTS AND REWARDS CUSTOMER CREDIT BEHAVIOR ISLAMIC CREDIT CARDS BASED ON BAIINAH AND WADIHA SHARIAH CREDIT CARDS STRUCTURE CHALLENGES OPPORTUNITIES: THE FUTURE

BENEFITS OF ISLAMIC CREDIT CARDS Shariah card is Riba free and easy to use as a medium of payment. Shariah credit cards uses a lease system of Islamic contract or Aqad as

compliance to the Shariah principle, such as Ijara its not loan contract as provided by the conventional credit card issuer. Less expensive as compare to the conventional credit cards in term of

annual payments, late payments, and interest which is compounded. Competitive and fair in pricing as it employs a fee calculation which

appreciates partial payments. Insurance covered from Takaful operator in case the customer does not

have the capability to pay off their outstanding balance due to misfortune the insurance company will take this place.

PROBLEM STATEMENT How Islamic credit cards are more advantageous than conventional credit cards

METHODOLOGY

RESEARCH DESIGN AND METHODS RESPONDENTS OF THE STUDY RESEARCH INSTRUMENTS USE OF DATA

RESEARCH DESIGN AND METHODS This project covers all the important aspects related to the matter. Furthermore, the data will be gathered from various

sources in order to achieve the objective. THE PURPOSE OF STUDYThe purpose of study is descriptive type of research

TYPE OF INVESTIGATIONThe research type of investigation is causal study

STUDY SETTINGStudy setting of this research is Non-Contrived because researcher has to visit various organizations government or private for data collection, that is, research will be conducted in natural environment

EXTENT OF RESEARCHER INTERFERENCEThe researcher interference is moderate

UNIT OF ANALYSISThe unit of analysis is individual

TIME HORIZONTime Horizon will be Cross Sectional.

SAMPLING DESIGNAs we are coordinating with different employees and customers for sampling, so therefore the sample size was take of 25 samples.

HYPOTHESISHo: Islamic Credit card system is not better than conventional credit cards Ha: Islamic Credit card system is better than conventional credit cards Ho: Increase in number of Islamic credit card users do not shows its bright future Ha: Increase in number of Islamic credit card users shows it bright future Ho: Islamic plastic money cannot control credit crunch crises Ha: Islamic plastic money can control credit crunch crises

DATA COLLECTION PROCETURES This research would be based on the information and data

collected through primary and secondary sources. Primary and Secondary sources are used to make this report effective. Primary and Secondary sources are as follows: Interviews Observations

PRIMARY SOURCES

SECONDARY SOURCES

News papers Web sites Computerized and online data base Search Engines

DATA ANALYSISQ8: Islamic credit card system is better than conventional?* YES/NODATA YES20 16

NO5 9

Data Analysis:Through the collected data we can easily evaluate that most of the people think that there is no big difference between Islamic and conventional credit cards I also found that as Islamic credit cards are becoming more popular in U.A.E, the people of Pakistan are less interested in Islamic Plastic Money.

Expected Observed

25 20 15 Expected 10 5 0 YES NO Observed

Q9: What do you think Islamic credit cards will be successful and having

bright future as they are more effective and Shariah complaint?* YES/NODATAExpected

YES15 16

NO10 9

Data Analysis:The future of Islamic cards is indeed bright in Pakistan if we observed the data as there is demand for it. It will take a while for consumers to understand the structure of the products, but once they see and appreciate them, the growth rate of the Islamic products is going to be even better. Many Islamic Banks are optimistic about the demand for Islamic products with good hopes.18 16 14 12 10 8

Observed

ExpectedObserved

64 2 0 YES NO

Q10: Islamic credit cards are the solution of credit crunch?* YES/NO

Data Analysis:Through graph we can easily identify that, the Islamic institutions are doing better than conventional bank. Credit Default Swaps are a major problem of conventional banking system and they involve pure speculation and gambling while in Islamic Banking a customer becomes a partner with the bank and opposed to being ones who are lending their money for the sake of interest and eventually they cant pay bake or off their money and debt become out of control therefore most of the people give higher preference to the Islamic Banking products.

DATA ExpectedObserved

YES 1114

NO 1411

16 14 12 10 8 6 4 Expected Observed

20 YES NO

General SurveyDo you feel that there is a need of Islamic credit in Pakistan? OR would you like to use an Islamic Credit Card? YES/NO/I DONT KNOWDATA Do you feel that there is a need of Islamic credit in Pakistan? OR would you like to use an Islamic Credit Card YES NO DONT KNOW

8

5

12

Do you feel that there is a need of Islamic credit in Pakistan? OR would you like to use an Islamic Credit Card

DONT KNOW 48%

YES 32%NO 20%

CONCLUSIONThis general survey exhibits that only 32% knows that what is the Islamic credit card and how they need to be introducing in the current synerio and how they like to use that while 48% doesnt know that what is this? Many banks have introduced theses type of products in different Arab Countries Like in Dubai, Dubai Islamic Bank have introduced AL-ISLAMI credit card in Malaysia, Bahrain even in UK the Islamic Banking Structure has launched but in Pakistan Only Standard Chartered is launched and other banks are not currently approaching because they even dont know about the proper concept of Islamic credit card and still they are not working on it. Regardless of the understanding that there is need of one common rule for the Islamic credit cards to make it a useful tool for the Islamic banking era and successful Economy.

USE OF STATISTICAL TOOLQUESTION- 8 Ho: Islamic Credit Card System is not better than Conventional Banking SystemFORMULA:

Ha: Islamic Credit Card System is better than Conventional Banking System

Conclusion: As we observed that the calculated value is less than the tabulated value at alpha= 0.05 and degree of freedom is 24. It means that our null hypothesis is accepted and alternative is rejected. It shows that according to general public there is no difference between Islamic credit cards and conventional credit cards because they dont have the awareness or complete knowledge about the structure of the Islamic banking. The main reason is unawareness while if we notice the number of users are increasing in Arab Countries for Islamic plastic money and they are giving higher preference to this system.

QUESTION- 9 Ho: Increase in number of Islamic credit card users do not shows its bright future

FORMULA

Ha: Increase in number of Islamic credit card users shows it bright futureConclusion: Again we are observing that the calculated value is lesser tan the tabulated value at alpha = 0.05 and degree of freedom is 24. It means that our null hypothesis is accepted and alternative is rejected. It shows that if the number of users increases it would not give any effect to the future of Islamic Credit Cards. Islamic credit cards are emerging tool for the Islamic banking industry. Now these cards are widely used in Gulf and the popularity is increasing but in Pakistan different banks uses different laws and rules to support their activities. Therefore in Pakistan the concept of Islamic credit cards is not introduced or cleared yet.

QUESTION- 10 Ho: Islamic plastic money cannot control credit crunch crises Ha: Islamic plastic money can control credit crunch crises Conclusion: Here we are noticing from the collected data from different sources that the risk profile of Islamic Banks is generally lower than conventional banks which can be very helpful in order to get rid off from credit crisis, this presents that dealings with Islamic financial institutions with their products will grow dramatically as people switch to more secure products in this environment. But in our country due to lack of knowledge there is need of one common rule for the Islamic credit cards to solve the controversy and make it a useful tool for the Islamic banking era so that we can save our economy and make it more stable.

FORMULA

Final conclusion Islamic credit card offers all features of a credit card, easy purchases and

repayments. lacking in advertisement, poor understanding, and non-availability of promotional

campaigns Every new product need to be advertised in a correct way so that the perception of

the people might change about the image of the product. majority is willing to own/ switch this product lack of knowledge even not in the

public in the employees is an important factor which creates unwanted place for Islamic credit card in Pakistani market institutions are doing better than conventional banks, they are not immune to poor

investments. Its one of the true facts that Islamic Banking is the only solution to current

economic crises

Recommendation Banking Industry needs to make its place more powerful, successful, and full of

knowledge so that consumers can get rid off from there negative perceptions and the poor old image of the Islamic Plastic money Meezan Bank is the first Islamic bank of Pakistan must observe how product can be

introduced must have knowledge about their competitors and their strategies BankIslami is the leading authentic financial institution they should come up with

more develop a program so as to clear the misconceptions amongst most consumers The banks must keenly watch the programming structure of Standard Chartered

that being a conventional bank they opened an Islamic window for their loyal customers and gave them an opportunity to meet with their needs and satisfy their selves by using an Islamic product named as Sadiq Credit Card.