By Abdul Wajid Khan ISLAMABAD, Feb. 04 (INP-WealthPK): Amidst the COVID-19 challenge to the global financial market, Islamic banking and finance in Pakistan is witnessing impressive growth due to the efforts made by the State Bank of Pakistan (SBP). According to the latest data compiled from the SBP by WealthPK, Islamic banking in Pakistan continued to maintain its impressive growth, and assets and deposits of Islamic banking grew year-on-year (YoY) basis by 28.2% and 26%, respectively, by September 30, 2021. During this period, the market share of Islamic banking assets and deposits stood at 17% and 18.6%, respectively, of the overall banking system in the country. Currently, the Islamic banking industry in Pakistan 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 with dedicated Islamic banking branches and windows. WealthPK reported that the SBP’s efforts for the promotion of Islamic finance are getting international recognition as it has recently won Islamic Finance News (IFN) global award for the second consecutive year as the best central bank in promoting Islamic Finance for the year 2021. The central bank highlighted that it has consistently promoted and encouraged Islamic finance within Pakistan and has taken several significant steps. These include the launch of 3rd five-year Strategic Plan for Islamic banking 2021-25, Shariah-compliant standing ceiling facility and open market operations, strengthening of Shariah governance mechanism, Shariah compliant regulations for the lender of the last resort (LOLR) facility and licencing regime for digital banking covering the Islamic segment; besides taking initiatives for promoting better awareness amongst the masses and strengthening international linkages. 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 taking Islamic banking share of 30% in terms of assets and 35% in terms of deposits in the overall banking system. Role in public welfare Islamic finance is one of the fastest growing sectors of the international financial system and has emerged as an effective instrument for financing development globally. It promotes risk sharing, links the financial sector with the real economy, and stresses social welfare. Financial experts say that sustainable growth of Islamic finance provided benefits for economic growth, reduced poverty and promoted shared prosperity. They believe that Pakistan still has a great potential to avail the benefits of growing global Islamic banking and finance, which has an estimated market of $3 trillion. Director General Cambridge Institute of Islamic Finance Dr Humayun Dar in his recent interaction with journalists said that Islamic banking has become an emerging market as the international financial institutions including International Monetary Fund (IMF) and Asian Development Bank (ADB) are taking keen interest to do business in the Islamic banking sector in Pakistan. He added that the World Bank and the IMF are more interested in adopting Islamic banking structure for dealing with Muslim-majority countries. Financial experts further say that the Islamic banking and finance industry needs to play its due role in the 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 its real potential. Former central bank governor Dr Ishrat Husain in his recent remarks advised the Islamic banking sector to change its mindset and allocate more share for public welfare areas. He highlighted that currently about 69% of Islamic banking assets go to the corporate sector and are spent (in the form of financing) in big cities. He also advised the sector to increase financing to small and medium enterprises (SMEs) and agriculture sectors because according to him, currently only 2.6% of portfolios allocated to SMEs and 1.2% of Islamic banking financing are reserved for agriculture. In these circumstances, the country’s Islamic banking and finance sector needs to take concrete measures to contribute more positively to the financial system to meet the expectations of the society. It should also adopt innovative tools and technologies to improve its services and support the government’s agenda regarding sustainable development and poverty alleviation and allocate more financing for the projects related to these areas.