Pakistan pushes ahead with full implementation of Islamic finance

KARACHI: Finance Minister Miftah Ismail has said Pakistan was moving in the right direction to convert from conventional banking to full-fledged Shariah-compliant banking as it pushed ahead with the Federal Shariat Court’s ruling that an Islamic country’s economic system should be interest-free.

Recently, the Federal Shariat Court has ruled that all banking in Pakistan should convert to Islamic banking.

“The honourable court has given five years for this conversion. Though perhaps these five years is too ambitious a timeframe,” Ismail said at the World Islamic Finance Forum virtually on Tuesday.

Admitting that perhaps it would require a little longer, he said there was an effort to convert 35 percent banking to Islamic banking by next year or so.

“We are working in the right direction, our speed may be much slower,” that is warranted, but “I think Pakistan as a country is moving towards full implementation of an Islamic finance system and riba-free banking,” the minister added.

The government’s cost of borrowing has been falling due to selling Islamic debt.

Islamic papers saved the government up to 2 percent.

He said Islamic finance allows a lot of Muslims around the world to participate in banking and in purchase of government papers and auctions. Many people would do banking only if it was Shariah-compliant, and if we stick to conventional banking we ignore a large segment of the population.

“For us to have inclusive growth means that we (allow) people to do non-interest banking and therefore this step by the Shariat court,” Ismail said.

State Bank of Pakistan (SBP) Acting Governor Dr Murtaza Syed said to develop practical solutions on Sukuk structures specially Asset Light Sukuk Structures, the SBP was constituting a working group comprising SBP, Securities and Exchange Commission of Pakistan, Finance Ministry, Pakistan Banking Association, shariah scholars and centres of excellence in Islamic finance.

Islamic banks face challenges due to irregular issuance of Sukuk. “SBP is working with all stakeholders to ensure regular availability of Sukuk,” Syed said.

He said Islamic finance was widely recognised as one of the fastest growing segments of global finance.

The central theme of this forum underscores a critical global shift ie revamping financial services. He said it was likely to play a role in the economy.

Islamic economic system focuses on providing decent and prosperous lives for all human beings, while ensuring that everyone has a minimum level of welfare. The Islamic finance industry's future was indivisibly dependent on the ability to keep pace with the largest developments and align its strategies accordingly.

Islamic fintech is exactly in line with the central bank’s vision of digitalisation and financial inclusion. According to the global Islamic fintech report 2021, the Islamic fintech market size for OIC countries stands at $49 billion in transaction volume.

Now this only represents about 0.7 percent of the global figure, but it is projected to grow at 20-21 percent to $128 billion by 2025. The Islamic financial institution should embrace digital transformation wholeheartedly.