Govt plans ministry’s division for Islamic finance industry

KARACHI: Government is mulling a dedicated division at the finance ministry to deal with the affairs of fast-growing Islamic banking industry in Pakistan, Adviser to Prime Minister on Finance Miftah Ismail said on Monday.

“We will soon create a post at the ministry of finance that would solely deal with the Islamic finance Industry,” Ismail said, addressing a two-day World Islamic Finance Forum 2018. Institute of Business Administration hosted the conference.

The finance adviser said the government would soon convene a meeting of steering committee for the promotion of Islamic banking in Pakistan and to implement its recommendations. Ismail said the country is set to achieve a six percent economic growth in the current fiscal year, “which is the highest growth rate for the last one decade”.

Finance adviser hoped that growth would create lots of job opportunities. The economy grew 5.3 percent during the last fiscal year of 2016/17. “Pakistan has the potential to achieve eight to 10 percent growth rate in the years to come,” he said.

Deputy Governor Jameel Ahmad at State Bank of Pakistan (SBP) said Islamic finance industry needs to expand its product menu with special focus to reach out to unserved/underserved sectors and regions of the economy.

“This demands Islamic finance industry not only to capitalise on its equity based financing but also to develop adequate risk management framework to make use of this without adversely impacting the stability of the system,” Ahmad added. “Fintech… can play a critical role in enabling Islamic financial institutions towards enhancing financial inclusion.”

SBP Deputy Governor said Fintech is transforming the overall experience of financial system by extending frictionless experience at customer interface level while streamlining all processes at back-end level.

“This in turn enables financial industry to be more efficient, cost effective and transparent,” he added. “I would like to emphasise on Islamic finance industry to leverage on technology to increase its penetration to unserved sectors and regions which are otherwise considered costly.”

Ahmad said development of all components of Islamic finance industry is imperative to achieve inclusive economic development. However, the growth and development of components other than Islamic banking industry is relatively slow, he said.

“The SBP believes that growth and development of Islamic capital markets, mutual funds and Takaful, is essential not only for Islamic banking industry but also for the overall growth and development of the country,” he added.

“The SBP is collaborating with Securities and Exchange Commission of Pakistan to promote Islamic finance as a whole.” Shariah scholar Taqi Usmani said people of Pakistan’s origin are holding key positions in Islamic banking around the world, making contribution in developing regulatory framework and above all developing products that are meeting the emerging needs of trade and business.

Usmani urged the government to take concrete steps to get rid of interest from the economy in ‘absolute terms’. Shaikh Ebrahim, chairman of Accounting and Auditing Organisation for Islamic Financial Institutions Board of Trustees said it is heartening to note that Pakistan is striving hard to become another hub of Islamic finance.

“It has all the basic ingredients i.e. a population of 200 million predominantly Muslims, a robust banking and finance sector, vibrant agriculture, industrial and services sectors,” Ebrahim said. “The apex regulators State Bank of Pakistan and Securities and Exchange Commission of Pakistan are playing proactive role.”

President Irfan Siddiqui Meezan Bank demanded the government to set a target to acquire at least 25 percent of the local funding through Islamic banking as Islamic financial institutions have excess liquidity and limited avenues for investment.

“A dedicated desk should be established at the ministry of finance for Issuance of sukuk headed by additional secretary for targeting a sukuk issue of Rs500 billion in the next six months period,” Siddiqui said.