Shariah-Compliant Services : Pakistan To Launch Islamic Branchless Banking

Meezan Bank, in collaboration with Ufone, has launched commercial Islamic banking under the name of Meezan Upaisa at 10,000 points of sales across 500 cities/districts. Islamic branchless banking would not only promote microfinancing and agriculture financing to small businessmen but would also encourage savings in general public based on profit and loss sharing model.

According to a study of State Bank of Pakistan (SBP) titles, “Knowledge, Attitude and Practices of Islamic Banking in Pakistan (KAP)”, an overwhelming demand is present for Islamic banking in the country that is evenly distributed among the rural and urban areas.

According to the analysis, overall demand for Islamic banking is as higher as 95% among households at retail level than the businesses, which stand at 73%. In 26 districts, out of 41 covered by the survey for retail respondents of Khyber Pakhtunkhwa (KP), northern Punjab and southern Sindh, exhibited more than 95% demand for Islamic banking.

The survey is based on a nationwide survey of 9,000 households (banked and non-banked) and 1,000 corporate. Focus group meetings with the top management of Islamic banks (100 interviews) were conducted to gain the supply side perspective.

Talking to Daily Times, Ufone Chief Commercial Officer Asher Yaqub Khan said Islamic branchless banking would help accelerate the goal of financial inclusion of economy to a greater extent.

Islamic branchless banking has a potential to tap a largely unbanked market, which is nearly 90% in Pakistan because people belong to middle and lower class are more faith-conscious as against upper class, he added.

The population is reluctant in using banking services based upon conventional mode but their inclining towards Islamic banking is inevitable as identified by the central bank, he said. “Islamic branchless banking is based on interest/riba free business model in line with Sharia-compliant banking, unlike branchless banking which is based on interest-based model,” he added.

He said even basic transactions services of Islamic branchless banking would be different and interest-free as compared with conventional branchless banking that earns profit during the transaction of a payment in short span of sending and receiving money.

Secondly, he said the conventional branchless banking companies do invest their excessive money in lending operations, which also involves the element of interest in earnings, adding that on the contrary, Islamic branchless banking does not earn and invest on the interest based business.

“Similarly, Islamic branchless banking service does not accept bill payment after due date because it involves penalty, which does not meet principle of Sharia-complaint services. This will be an end-to-end Islamic branchless banking service,” Khan added.

With the launch of first Islamic branchless banking in Pakistan, Ufone would have an edge over its rival operators partnering with two banks, that is, U Microfinance Bank and Meezan Bank. The number of products and services would be diversified and based on Sharia-compliant model especially wallet, saving accounts and Takaful products.

The central bank study stated that religious beliefs contribute exclusively 23% to demand for Islamic banking, while the most dominating factor remains the level of satisfaction of customers using Islamic banking.

Originally published on www.dailytimes.com.pk