The issue of grade inflation has been studied in many countries across the globe, yet it remains under-researched in Pakistan. This study aims to understand grade inflation in Pakistani universities by examining the contributing factors and its consequences. The data for this study was collected through in-depth interviews of 20 professors from four (two public and two private sector) universities in the federal capital of Islamabad, Pakistan. The data reveals that the major cause for grade inflation in the selected universities was the competition between public and private universities to recruit students without giving due consideration to merit. Additionally, the culture of hiring untrained candidates as visiting faculty who aspire to be hired in permanent positions was a key contributing factor that led to grade inflation. Other factors include the limitations of the semester system and individualised directed studies. This study recommends the need to monitor and revisit the examination and grading system in Pakistani universities to enhance imparting quality education and to compete at the international level.