Wednesday December 08, 2021

Islamic banking shares expected to reach 30pc: SBP

April 06, 2021

KARACHI: The State Bank of Pakistan (SBP) on Monday projected share of Islamic banking industry in assets and deposits to increase at 30 percent in five years from the existing around 18 percent.

In its third five-year strategic plan for Islamic banking industry, the SBP expected share of Islamic banking industry to reach 35 percent in branch network of overall banking industry and 10 percent and 8 percent of SMEs and agriculture financing, respectively.

The SBP said the Islamic banking industry has shown significant annual growth since its re-launch in 2001-02, and it accounted for 17 percent share in assets and 18.3 percent share in deposits of overall banking industry as at December-end last year.

“The strong growth momentum witnessed by the industry in Pakistan may be attributed, among others, to the key role played by SBP in providing an enabling environment. Besides developing a supportive regulatory and supervisory framework, SBP is actively engaged in promotion, training and capacity building of the industry,” it said in a statement.

“However, the expanding breadth and depth of Islamic banking industry and new market developments necessitate a holistic approach to prudently tackle key challenges faced by the industry in order to realise its full potential.”

The SBP said there is a need of improving regulatory oversight, balancing tax treatment, promoting standardisation, ensuring effective liquidity management, and establishing sound risk management practices. Equally important would be the need for effective dissemination of information to facilitate standardisation and harmonisation process in Islamic banking industry.

SBP has been providing proactive guidance through issuance of strategic plans for the Islamic banking industry; so far, two five-year Strategic Plans have been issued. This third strategic plan for Islamic banking industry (2021-25) aims to set a strategic direction for the industry to strengthen the existing progressive momentum and lead the industry to the next level of growth.

The plan has been developed in close coordination and consultation with all key relevant stakeholders. The strategic plan envisages achieving the specified targets by focusing on six strategic pillars by strengthening legal landscape, enhancing conduciveness of regulatory framework, reinforcing comprehensive shariah governance framework, improving liquidity management framework, expanding outreach and market development, and bolstering human capital and raising awareness.

The Islamic banking industry has widened its footprint in banking system of the country. Currently, 22 Islamic banking institutions (5 full-fledged Islamic banks and 17 conventional banks having standalone Islamic banking branches) are offering shariah-compliant products and services through a network of 3,456 branches and 1,638 Islamic banking windows (dedicated counters at conventional branches) spread across 124 districts of the country.

State Bank aims at making Islamic banking one third of the overall banking industry by 2025. Keeping in view the potential towards ensuring broad based economic growth and development, Islamic banking has remained a top priority area for the SBP. The plan provides a consensus based agenda and strategy to make Islamic banking an efficient and practical solution for consumers. It also contains an extensive focus on improving the public perception of Islamic banking as a distinct and viable system capable of catering to the varied financial services needs of various segments of the society that would significantly contribute to increasing overall financial inclusion in Pakistan.

The plan also emphasizes that Islamic banking institutions must develop innovative products based on distinctive shariah characteristics to cater to underserved sectors particularly SMEs and Agriculture, which are critical for growth of the country’s economy.

The Islamic banking industry is expected to fully capitalise on the potential of Islamic finance to attain the shared vision of a vibrant and sustainable Islamic banking sector, said the SBP.