There has been large scale growth into the Islamic banking in Muslim countries and around the world during the last twenty years as the performance growth is influenced by factors including the introduction of broad macroeconomic and structural reforms in financial systems, the liberalization of capital movements, privatization, the global integration of financial markets, and the introduction of innovative and new Islamic products. Islamic finance is now reaching new levels of sophistication. However, there has been presence of Islamic financial system with its identifiable instruments and markets is still very much at an early stage of evolution. Many problems and challenges relating to Islamic instruments, financial markets, and regulations must be addressed and resolved. In Islamic banking rules apply which differ from those in traditional banking as there consequences of Islamic banking for financial operations as there goes in examining in several Islamic procedures as being introduced by Pakistan's banking sector ever since the year 1985. Considering the drastic change in procedures, (Cornelisse and Steffelaar, 2008 p. 687) the effect of Islamization on the banking sector performance has been moderate. One reason for the reality, is that banks in Pakistan have consistently opted for financial instruments closely resembling interest based finance aside, certain behavior did have determined within large extent by the fact that these banking sectors are owned by the state of Pakistan (Cornelisse and Steffelaar, 2008 p. 687).
Objectives
The need to provide comprehensive comparative review of the literature on the Islamic banking sector in Pakistan, to discuss basic features of Islamic finance and banking, there is a need to introduce Islamic financial instruments in order to compare such to existing Western financial instruments and discuss the legal problems that investors in Pakistan can encounter. Indeed, there is