Pakistan’s key experts recorded that the Islamic banking industry could play a vital role in eradicating poverty and inequality from Pakistan. A lot of work still is needed to educate the public about the difference between Islamic and conventional banking in Pakistan. In 2001, historically, Islamic banking was predicted to achieve 25 percent market share by 2021. No doubt, it is noted that Islamic banking was not only Riba-free, but it was also different from conventional banking.
| Pakistan: Mode Wise Financing (Share in Percent) | |||
|---|---|---|---|
| Mode | Jun-20 | Mar-21 | Jun-21 |
| Murabaha | 13.4 | 13.5 | 15.3 |
| Ijarah | 5.1 | 4.9 | 4.8 |
| Musharakah | 21.2 | 24.8 | 21.4 |
| Diminishing Musharakah | 31.0 | 34.2 | 35.0 |
| Salam | 1.8 | 2.4 | 2.1 |
| Istisna | 10.5 | 8.9 | 7.6 |
| Others | 17.0 | 11.3 | 13.8 |
| Total | 100.0 | 100.0 | 100.0 |
According to the State Bank of Pakistan (SBP) assets of Islamic Banking Industry (IBI) enlarged by Rs 408 billion during the quarter April to June, 2021 and reached at Rs 4,797 billion by end June, 2021. Deposits of IBI also witnessed a quarterly growth of Rs 365 billion and were recorded at Rs 3,822 billion. The Year on Year (YoY) growth of assets and deposits of IBI was recorded at 32.0 percent and 29.7 percent, respectively by end June 30, 2021. This has been the highest YoY growth in assets and deposits since June, 2015.
Market share of Islamic banking assets and deposits in the overall banking industry reached at 17.0 percent and 18.7 percent, respectively. On profitability side, profit before tax of IBI was recorded at Rs 42.6 billion by end June, 2021. The network of IBI consisted of 22 Islamic Banking Institutions (IBIs) including 5 full fledged Islamic Banks (IBs) and 17 Conventional Banks having standalone Islamic Banking Branches (IBBs) by end June, 2021. During the quarter under review, 79 branches were added in branch network of IBI.
As a consequence, the branch network of IBI grew to 3,583 branches by end June, 2021. The number of Islamic banking windows (dedicated counters at conventional branches) operated through IBBs reached at 1,562 by end June, 2021. Presently SBP recorded that the worldwide Islamic financial services industry needs digital transformation for growth, with need to focus on innovative service delivery that aligns with predictions of tech-savvy and convenience-driven customers. SBP emphasised that the Islamic finance industry also needed to digitise their financial services and transform their processes to enhance efficiency, reduce intermediation cost and raise outreach to a wider segment of society.
It is also said that digitalisation of Islamic financial services offers tremendous opportunities in attaining a more inclusive financial system for Islamic states, where a considerably large number of adult population was unbanked than the rest of the world.
Of course, the continued growth of Islamic finance is translating into increased prominence within worldwide finance markets, mainly in Muslim-majority countries in the Middle East and South-east Asia. For example, in the GCC statistics showed that world’s largest Islamic finance market, with approximately 45 percent of the worldwide share – Shariah-compliant banking assets as a proportion of total banking assets have increased considerably in present years.
In Saudi Arabia, sharia-compliant assets grew from just 29 percent of total banking assets during 2018 to 50.6 percent in 2020, while the corresponding statistics grew from 37.9 percent to 42.5 percent in Kuwait and 19.7 percent to 26.6 percent in Qatar. Elsewhere, in Malaysia, the world’s third-largest Islamic finance market, the proportion of sharia-compliant finance grew from 22.8 percent to 30.1 percent over the corresponding period. However, it is recorded that this trend is not universal, with Islamic banking assets in the UAE experiencing a slight decline in terms of their proportion of overall assets, and the corresponding statistics in Bahrain and Oman only growing by a small margin. Furthermore, the development of Shariah and prudential standards related to fintechs and digital banking, by the international standards setting bodies like AAOIFI and IFSB, would prove pivotal for the fast-paced development of global Islamic financial industry and recommended to organize a technical working group to specifically work on these standards. It is said about the key initiatives taken through SBP during the last few years on the digital front, mainly in the wake of the Covid-19 pandemic. Sources recorded that the SBP’s initiatives pertaining to National Payment Systems Strategy, digital on boarding framework to bring banking services to the fingertips of the customers, digital on-boarding of merchants to facilitate the growth of digital payments and Roshan Digital Accounts for offering innovative banking solutions to millions of Non Resident Pakistanis (NRPs).