Abstract
This paper addresses the need for reform in AAOIFI standards on murabaha financing, providing a legal analysis and examining compliance by Islamic banks in Pakistan with AAOIFI Shariah Standard No. (8). Through qualitative research involving face-to-face interviews and content analysis, primary data was collected and analyzed using NVivo software. The findings reveal that Islamic banks in Pakistan do not fully comply with AAOIFI Shariah Standard No. (8), specifically regarding the arrangement fee outlined in clause 2/4/4. Additionally, a contradiction is identified between Shariah Standard No. (24) (clause: 7(1)) and Shariah Standard No. (8) (clause: 2/4/4), as the former permits the charging of an arrangement fee while the latter does not. It’s important to note that this study focuses exclusively on murabaha financing as a debt-based product of Islamic banks and is conducted in Karachi, the financial capital of Pakistan, with respondents including Shariah advisors, assistant Shariah advisors, and bank managers from Islamic banks. The findings contribute to the significance of standardizing the international Islamic banking system and recommend reforms in AAOIFI Standards to foster a harmonized and uniform practice among Islamic banks in Pakistan. This research paper provides valuable insights into contemporary Islamic banking practices, assisting the State Bank of Pakistan in evaluating AAOIFI compliance. Additionally, it helps shape the public’s perception of Islamic banks’ adherence to Islamic principles and offers potential guidance for future research in various jurisdictions.