Abdul Wajid Khan

The Ministry of Finance said the government is taking concrete steps to further encourage and facilitate Islamic banking and financial system in the country. According to an official brief of the Ministry of Finance, a copy of which is available with WealthPK, the government is committed to fulfilling its constitutional obligation as envisaged in Article 38 (f) of the Constitution of Islamic Republic of Pakistan to promote Islamic banking and finance industry in the country.

It said the Council of Islamic Ideology (CII) has already recommended to the government that there should be gradual change in the financial system to bring it in conformity with the injunctions of Islam, because any abrupt or sudden change would create numerous difficulties for the country.

The council also recommended that efforts in the direction of establishing an economy free from interest should not be unduly delayed.

The Ministry of Finance said that Islamic banking has been witnessing robust growth over the years on the back of the State Bank of Pakistan’s (SBP) leading role in creating a conducive environment for the expansion of Islamic banking industry.

Owing to the facilitative role of the SBP, the industry has shown significant annual growth since its re-launch in 2001-02, and now it accounts for around 20% of market share and a steady growth of approximately 24-30% annually.

According to latest figures provided by the SBP, Islamic banking assets recorded the highest ever growth of Rs1.3 trillion in calendar year 2021.

The SBP said that the Islamic banking industry has reached new peaks during CY2021 as its assets surpassed the 5 trillion mark to reach Rs5.577 trillion with the highest ever increase of Rs1,308 billion, whereas deposits reached Rs4.211 trillion with an increase of Rs822 billion.

Islamic banking has been witnessing robust growth over the years on the back of the SBP’s leading role in creating a conducive environment for the expansion of Islamic banking industry.

The ministry said that besides developing a supportive regulatory and supervisory framework, the SBP is actively engaged in promotion, training and capacity building of the industry.

The SBP has already taken key initiatives to promote Islamic banking and finance industry, which include issuance of the third five-year strategic plan 2021-25 for Islamic banking industry providing a roadmap and headline targets. It contains introduction of Shariah-compliant standing ceiling facility and open market operations, and development of transaction structure of the government domestic Ijarah Sukuk for fresh issuance and its reopening with multiple assets. It also includes issuance of Shariah-compliant regulations for the lender of last resort facility, issuance of instructions on non-compliance risk management instructions, and strengthening of Shariah governance mechanism.

The SBP has also introduced numerous initiatives for enhancing awareness of general public and capacity building of relevant stakeholders to promote this industry.

Apart from this, the central bank has also been playing an active role in promotion of Islamic banking globally at international fora.

Currently, the Islamic banking industry operates through a huge network of 3,651 branches and 1,579 Islamic banking windows (dedicated counters at conventional branches) steered by 22 Islamic banking institutions (IBIs) which include five full-fledged Islamic banks and 17 conventional banks having dedicated Islamic banking branches and windows.

The SBP’s efforts in promotion of Islamic finance is getting international recognition as it has won Islamic Finance News (IFN) global award for second consecutive year as best central bank in promoting Islamic finance for the year 2021.

The industry is growing on the back of continued support by the government which is committed to providing an enabling platform for this industry to operate.

The Strategic Plan 2021-25 developed by the central bank envisages to take Islamic banking share of 30% in terms of assets and 35% in terms of deposits in the overall banking system.

Analysts said that the sustainable growth of Islamic finance provided benefits for economic growth, reducing poverty and promoting shared prosperity.

Experts believed that Pakistan still has a great potential to avail the benefits of growing global Islamic banking and finance industry, which has an estimated market of $3 trillion. Analysts further said that Islamic banking and finance Industry needs to play it due role in promotion of welfare of the underprivileged segment of the society because current figures indicate that the sector’s role in this regard is far below than its real potential.

Credit : Independent News Pakistan-WealthPk