17 Jun 2021
Our spotlight is on Pakistan — the Islamic finance leader of the South Asian region — and its quest to stage its comeback to the international Sukuk stage after a three-year hiatus and the many development opportunities that are abound for this progressive nation.
The Islamic finance industry in Pakistan has shown remarkable growth in the last five years and contributed significantly to the country’s banking industry. The State Bank of Pakistan (SBP)’s role cannot be ignored in this regard as it has established a separate Islamic banking division to manage and supervise Islamic banking and finance transactions across the country by imparting new trends, products and services from time to time.
Islamic banking in the country accounts for a 17% share in assets and 18.3% in deposits of the overall banking industry (end of December 2020) — an increase from 14.4% and 16.9% respectively recorded in 2019. The sector has five fully-fledged Islamic banks and 17 conventional banks operating Shariah windows.
In 2019, the third iteration of the Strategic Plan 2019–25 by the SBP, which focuses on increasing the share of Islamic banking with updated legal and regulatory frameworks, was launched. Prime Minister Imran Khan also approved the five-year National Financial Inclusion Strategy, which has provisions to develop Islamic banking to broaden existing levels of financial inclusion in the country.
In 2020, the Pakistani National Assembly’s Standing Committee of Finance formed a special committee to expedite the implementation of a fully Islamic financial system. A comprehensive plan to eliminate Riba from the country’s largely conventional financial industry is currently in the works.
With a strong foundation of Islamic finance in place and tremendous support from the government, many significant opportunities await Pakistan as it executes its growth strategy.
New Opportunities for Islamic Finance in Pakistan
What does the new Strategic Plan for Islamic Banking Industry mean for the Pakistani Islamic finance services industry and are growth targets for the sector realistic?
What does the domestic Islamic finance ecosystem still require from regulators and market participants for it to flourish across multiple product areas and asset classes?
With such measures in place, what would constitute success for Islamic finance in Pakistan? How can regulatory, taxation, Shariah governance and legal frameworks be fine-tuned? Are current liquidity management tools for Islamic banks sufficient?
How can Islamic financial institutions play a more meaningful role funding the Pakistani SME, corporate and government-linked sector, as well as the important housing finance market? How do the SBP’s Islamic refinance schemes work and what do they offer?
What opportunities does the SBP’s recently announced Digital Bank Regulatory Framework offer and where is Shariah compliant Fintech in Pakistan? Is Islamic finance being effectively deployed to promote financial inclusion, sustainability and social impact in Pakistan, and will we see the deployment of products such as green Sukuk? We ask a respected panel for their views.