Managers’ Attitude Toward the Application of Musharakah Financing: An Empirical Study of Islamic Banks in Pakistan

The consensus among Islamic scholars, banking specialists, academicians, and practitioners is that a financial system based on Profit & Loss Sharing (PLS) principles would serve as a legitimate alternative to interest-based (ribawi) banking. Nonetheless, the real world diverges from this innovative and concrete perspective. The predominant academic literature currently published on this topic examines the issue philosophically, with a scarcity of research performing empirical examination. This study is specifically designed to empirically investigate the issues and challenges that Islamic banks would face while adopting musharakah-based financing from the standpoint of management. The research concentrates on Islamic banks in three major cities in the Punjab province of Pakistan. The data is collected through questionnaire from 50 respondents, who were managerial-level employees from the main branches of five full-fledged Islamic banks. The results show that Internal Shari'ah Review and risk factors do not significantly influence Islamic bank managers' attitude towards adopting musharakah financing. However, other factors such as customer preferences, operational challenges, moral hazard, government policies, and the internal control system of the organization exert a significant impact. This study has practical implications for Islamic bank managers and government authorities to comprehend the internal and external elements influencing managers' attitude toward using musharakah financing. This action enriches the existing body of literature on Islamic banking theory and practice related to musharakah financing practice.