Islamabad—Growth momentum of Islamic banking industry in the country continued during FY15 as both assets and deposits of Islamic Banking Institutions (IBIs) witnessed increase of more than 37 percent during the review year. A statement of the State Bank of Pakistan (SBP) issued here Friday said that as of end June 2015, the industry’s asset base reached Rs 1,495 billion and constituted market share of 11.3 percent in overall banking industry.
Similarly, deposits of Islamic banking industry increased to Rs 1,281 billion having a share of 12.8 percent in overall banking industry deposits. The SBP said that the outreach of IBIs also expanded and, as of June 2015, the branch network of IBIs consisted of 1,702 branches spread across 95 districts of the country. It added that SBP remained actively engaged in facilitating development of Islamic banking in the country through various promotional and regulatory initiatives.
Highlighting some of the key measures and steps taken during FY15, the SBP said that government set up Steering Committee for Promotion of Islamic Banking. The Government of Pakistan (GoP) has demonstrated strong commitment for supporting development of Islamic finance in the country. To this end, a high level Steering Committee for promotion of Islamic banking has been set up chaired by Deputy Governor SBP. The steering committee comprises renowned Shariah scholars, senior government officials, industry experts (local and international) and business leaders.
The Committee was to carry out an objective review of the current paradigm of Islamic banking and to formulate a comprehensive policy framework for an Islamic financial system in conformity with Shariah principles. To accomplish its mandate, the Committee has shown significant progress on various top priority areas including; review of legal, regulatory and taxation frameworks; developing liquidity management tools; developing solutions for conversion of government debt into Shariah compliant financing; development of an Islamic capital market; reforms in Mudaraba sector; and several initiatives for capacity building and creating awareness among masses to have a better understanding about Islamic finance.
Shariah Compliant Open Market Operations OMOs – Bai Muajjal of Sukuk. The SBP is working on providing multiple liquidity management solutions for the industry. In this regard the Shariah compliant OMOs (Bai Muajjal of Sukuk) utilizing Sukuk issued by the GoP was introduced during FY15. This transaction is helping SBP in mopping up excess liquidity from the market and improving implementation of monetary policy stance of SBP.
The SBP said that to strengthen the overall Shariah compliance environment in IBIs, a comprehensive Shariah Governance Framework was issued during FY14. In view of the feedback received from various quarters and deliberations of SBP Shariah Board, the Framework has been further refined and issued for compliance to IBIs.
The Framework has come into force with effect from July 1, 2015. It aims at institutionalizing Shariah compliance function in IBIs. Regarding the rationalization of Minimum Capital Requirements (MCR) for Islamic Banking Subsidiaries, the SBP said that in order to provide a level playing field to IBIs, SBP developed a proposal for rationalization of MCR for Islamic banking branches (IBBs) and Islamic banking subsidiaries of conventional banks. Accordingly, SBP has revised the MCR for Islamic banking subsidiary from Rs 10 billion to Rs 6 billion.
However, the intending Islamic banking subsidiary shall be required to raise its paid-up capital (net of losses) up to Rs 10 billion within a period of 5 years from the date of commencement of its operations. For awareness Creation and Capacity Building Programmes for Islamic Banking Industry, the SBP said that Islamic banking industry in collaboration with SBP has been running a mass media campaign for promotion of Islamic banking.
Originally published on www.pakobserver.net