Islamic banking is growing in Pakistan. This is the view of Islamic scholars who spoke at a seminar arranged by the Securities & Exchange Commission of Pakistan (SECP), the official regulator of Islamic banking in the country.
At the same time, the World Bank and the Islamic Development Bank, in their first global review of the fast-track movement of the Islamic banking system, have reported that Pakistan is among those countries in which the government and the central bank are “not taking Islamic banking lightly”.
The SECP reports that “there is an even stronger growth of Islamic assets in the non-banking financial institutions. Their market share is now approaching 33 per cent, – up from 14 per cent in 2012”.
What’s behind this growth? One, the persistently strong demand from customers of the country of 200 million, largely Muslims, and two, the fact that the State Bank of Pakistan (SBP), the central bank, the government of Pakistan and the SECP “created the enabling regulations environment for this fast track growth”.
These were the views made at a seminar held at the SECP in Islamabad. Hayat says “the priority and responsibility of the regulator like SECP is to develop [an] Islamic capital market.”
The SECP on its part, recently had two sessions for consultation with banking sector participants to help investment in issuing sukuk and real estate investment trusts (Reits).
As of now, the SECP is analyzing the proposals from the financial and banking sector to formulate necessary amendments into the regulations to further reduce the cost for such investment. The SECP is also considering the banking sector and investors’ proposals regarding the existing tax problems relating to sukuk and Reits and to overcome such problems.
Top leadership of the Islamic banking and finance sectors are also working with the SECP and SBP on further evolving and promoting Islamic banking across Pakistan. Ghulam Muhammad Abbasi, chief of the Islamic banking department of the SBP, has also made, at the SECP event, a detailed presentation on the basis and evolution of Islamic banking in Pakistan.
The bankers and Islamic scholars also debated at the SECP seminar as to which model is to be adopted, because in 2001 policy makers had decided to allow both Islamic and conventional banking in Pakistan. This policy continues as of now.
As at now, 21 banking institutions are providing Islamic banking services and products, through their 2,322 branches in 112 districts across Pakistan. Abbasi said: “The SBP has a holistic approach for the promotion of Islamic banking, and is providing the enabling policy environment for Shariah governance, risk management and capacity building.” The Islamic Finance News, in 2015, adjudged the SBP as the “Best Central Bank for Promoting Islamic Finance”.
Another Islamic scholar, Dr Shafiullah Jan, says: “The economic substance in Islamic banking may seem to be the same as that of the conventional banking, but the underling process is different.”
Dr Jan said along with the growth of the Islamic banking industry, more attention should be given to ask as to why this industry was created, and whether it is delivering along the Islamic vision of development that it is associated with.
Now let us go back to the first-ever Islamic banking report issued last week by the World Bank and Islamic Development Bank. It says: “The fact that a strategic roadmap on a national level is in place in jurisdictions. These jurisdictions include Indonesia, Malaysia and Pakistan, [and] shows that the governments in those countries are no longer taking Islamic financing lightly.”
It says, “Indonesia and Pakistan are, perhaps, the strongest proponents of incorporating financial inclusion as a policy objective.”
As the banking sector expands as a result of financial inclusion, Islamic banking is projected to expand more significantly in Pakistan.
Originally published on www.khaleejtimes.com