Abstract

Purpose: This paper critically and empirically 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 a circular in 2012 aimed at strengthening transparency and standardization in profit-sharing mechanism adopted by the IBIs. This study empirically evaluates the outcomes of profit-sharing regarding implications for enhancing equitable justice in the economy.
Design/Methodology: Specifically, this study addresses the underlying issue by gathering the opinion of different stakeholders through expert interviews with Shariah advisors, bankers and regulators, and a structured questionnaire on pool management, profit and loss sharing mechanism, and issues related to Hiba distribution. To evaluate the profit and loss distribution mechanism among the Islamic banking sector in Pakistan, the study employs a mean difference t-test that quantify the performance and distribution of key factors from 2015 to 2024.

Keywords

Islamic Contract; Smart Contract; Institutional theory; Design Science Research Method; Financial Inclusion.