According to the State Bank recent document, over the last few years, the Islamic finance industry is reportedly growing at around 15 percent globally.
Considered a niche market-catering to financial needs of the Muslims-few years back, the Islamic finance (IF) has grown into a full-fledged financial market. Interestingly, the financial solutions provided by Islamic finance both on the asset and liability side are such that can reside on balance sheets of Islamic and conventional banks alike.
The public and private sectors and regional and global financial hubs are collaborating effectively to make investments, build partnerships and alliances and promote transfer of capital flow and knowledge sharing.
In Pakistan, total assets of Islamic banking industry reached Rs313 billion as at end of June 2009 compared with Rs230 billion on June 30 2008.
Similarly financing and investment portfolio of Islamic banks reached Rs194 billion at end June 2009 compared with Rs163 billion on June, 30 2008.
In terms of market share, total assets, financing and investment and deposits reached to 5.2 percent and 4.2 percent and 5.2 percent at end June 2009. Moreover, branch network of 6 full-fledged Islamic banks and 12 conventional banks (having dedicated Islamic banking branches-IBBs) increased to 528 branches in June 2009 compared with around 326 branches in June 2008.
Importantly, to promote IF in Pakistan, SBP has formulated a comprehensive strategic plan for Islamic banking industry. Accordingly, IBIs are envisioned to expand their existing business and explore some new sectors like SME, Microfinance and Agriculture.
Further strengthening of the regulatory and Shariah compliance regime is also planned, primarily through adaptation of standards developed by international Islamic standard setting bodies like Islamic Financial Services Board (IFSB) and Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).
The aim is to align the industry with the international best practices so as to enhance the credibility and international stakeholders confidence in Islamic Banking efforts of SBP.
During the year under review SBP took major initiatives for promotion and development of the Islamic banking industry. SBP has put in place a comprehensive Shariah compliance framework for Islamic banking institutions. For its further strengthening, a number of initiatives have been taken.
For instance, phase wise adaptation of Shariah Standards of Accounting and Auditing Organisation for the Islamic Financial Institutions (AAOIFI) is already underway.
Moreover, a Shariah Advisory Forum (SAF) comprising Shariah Advisers IBIs is working to resolve various Shariah concerns related to Islamic banking industry. Accordingly, different SAF Sub-committees have been formed for the purpose of evaluating the current practices such as those of Commodity Murabaha/ Tawarruq, utilisation of charity and its related issues in IBIs, practice of Hiba, etc.
Furthermore, to strengthen risk management framework for IBIs, SBP has issued Risk Management Guidelines for Islamic Banking Institutions (IBIs) after customising IFSB Standard. These guidelines are in addition to the risk management guidelines already issued for all banking institutions.
These guidelines highlight the peculiar risks faced by the IBIs and recommends adequate risk management techniques. Similarly an impact study has been completed to facilitate the adaptation of IFSB Standard on Capital Adequacy. Moreover, SBP is also in the process of adapting IFSB Standard on 'Corporate Governance in the light of feedback received from various stakeholders and available corporate governance structure.