Islamabad: The central bank of Pakistan is stepping up its push to develop Islamic banking, encouraging lenders to expand their operations in the world’s second most populous Muslim nation.
Pakistan was one of the first countries to introduce Islamic banking at a national level in the 1970s, but the industry’s share of the overall banking system has lagged levels in some other countries.
As of September, Islamic banks held 926bn rupees ($8.8bn) of assets or 9.5 percent of the total, up from 8.1 percent a year earlier, central bank data showed. That compares with around 25 percent in the Gulf Arab region.
The central bank aims to double the industry’s branch network and reach a 15 percent share of the banking system in the next five years, and is taking fresh steps to achieve that. This month, the central bank named a new deputy governor to focus on Islamic banking and enlisted renowned scholar Muhammad Taqi Usmani to its sharia board, part of efforts to improve consumers’ perception of the industry.
“The emphasis on Shariah compliance has increased and there is a demand for more Shariah-based Islamic banking rather than simply Shariah-compliant banking,” Shakir Ullah, a member of the central bank’s Islamic banking focus group, said.
“I expect that Pakistan will soon become a key player in Islamic banking globally and will probably take the role it played in the 1980s as the pioneer of Islamic banking.”
Shariah-compliant banking merely obeys the industry’s rules, while Shariah-based business also follows the spirit of Islamic principles such as an emphasis on transactions based on real economic activity rather than monetary speculation.
Last year, the central bank launched a media awareness campaign and said it would revise rules on sharia governance and liquidity management for Islamic banks.
Pakistani lenders currently include five full-fledged Islamic banks and 14 which operate Islamic windows, and some appear to be responding. A number of conventional banks aim to grow or spin off their existing Islamic windows, while new entrants are expected.
One of them is Summit Bank, which last year said it would convert itself into a full-fledged Islamic bank over a three- to five-year period.
Reuters
