International experts identified that the international trade has historically grown much faster than worldwide Gross Domestic Product (GDP), nearly doubling in the 20 years prior to the pandemic and representing 60 percent of worldwide GDP. Although the pandemic led to a fall in the worldwide trade of 9.2 percent during 2020, the setback is predicted to be temporary, with continued growth forecasted for 2021 and beyond (WTO). It is also predicted that 47 percent of worldwide trade relies on bank-intermediated trade finance. As worldwide trade enlarges, trade finance is of central significance. During 2019, the worldwide trade finance market worth to US$8.94 trillion. Because of Covid-19, the worldwide trade finance market dropped through 14.83 percent during 2020 to US$7.62 trillion but is predicted to recover and reach US$10.43 trillion by the end of 2026, growing at a rate of 5.37 percent yearly from 2020-2026.
They also identified that the worldwide size of the Islamic Trade Finance (ITF) currency at US$186 billion, less than 5 percent of total predicted trade finance activities by OIC member countries and a small fraction of global statistics. ITF is, however, growing both in scale and in relevance as Islamic finance plays a larger role in OIC countries.
Statistics showed that the Islamic Trade Finance Corporation (ITFC) has approved US$5.8 billion in 2019. In the developing countries like Pakistan, according to the State Bank of Pakistan (SBP), assets of Islamic Banking Industry (IBI) in Pakistan 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 recorded a quarterly growth of Rs 365 billion and were witnessed at Rs 3,822 billion. The Year on Year (YoY) growth of assets and deposits of IBI was registered 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 of June, 2021.
Historically from its inception in the 2000s, Islamic banking in Pakistan has had a continuous growth journey. There are 5.0 full-fledged Islamic banks and 17 conventional banks with stand-alone Islamic banking branches in Pakistan.
Pakistan has been ranked 8th in the Global Islamic Economic Indicator list with the sustainable growth of Islamic institutions in the financial sector and economy.
The Islamic finance industry of Pakistan in 2021 attained high growth, effectuated significant developments, and received worldwide recognition. Sources recorded that SBP has also been voted as the best central bank in promoting Islamic finance for the 4th time. IFSB (Islamic Financial services board) is an international standard-setting body of regulatory and supervisory agencies that enhances the soundness and stability of the Islamic financial services industry, covering banking, capital market and insurance.
SBP issued its 3rd Strategic Plan for Islamic banking in 2021. The targets include attaining a 30 percent share in both assets and deposits of overall banking by 2025. To enhance the liquidity management framework of the Islamic banking industry and recognise the significance of the Islamic banking sector in improving the effectiveness of monetary policy implementation, SBP has introduced Shariah Compliant Standing Ceiling Facility and Open Market Operations (injections) for Islamic Banking Institutions.
SBP also recorded that during the end of June, 2021, total 79 branches were added in branch network of IBI. As a consequence, the branch network of IBI increased to 3,583 branches by end June, 2021. It is also recorded that the number of Islamic banking windows operated by IBBs reached at 1,562 by end June, 2021. Investments (net) of IBI recorded growth of Rs 17.6 billion during the period under review and were registered at Rs 1,363 billion by end June, 2021.
It is also recorded that the size of the Islamic capital market in Pakistan is also growing rapidly, and with this plan, the growth prospects are promising. Pakistan Stock Exchange (PSX) bagged the Best Islamic Stock Exchange Award 2021 by Global Islamic Finance Awards. Statistics identified that PSX has total listed capital of Shariah-compliant companies of Rs770 billion, making up 53 percent of the total listed capital. With the issuance of fresh Ijarah Sukuks of around Rs736 billion during the year, 5 percent of the governments’ domestic debt constitutes Islamic financing as against to 3 percent previous year. The federal government of Pakistan is looking to issue Sukuks under an asset-light structure as part of its target to raise the shares of Shariah-compliant instruments in government securities to 10 percent by the end of 2022-23. Experts also recorded that last year (2021) saw the highest issuance of Government of Pakistan Ijarah Sukuk in Pakistan’s history. Sukuk worth Rs 736 billion were issued during the calendar 2021. Moreover it is also said that the year 2020 was also a big year for Sukuk; with Rs 561 billion of Gop Ijarah Sukuk were issued.
The cumulative value of GoP Ijarah Sukuk issuance in the period 2020-2021 stands at approximately Rs 1.29 trillion as compared to Rs 936 billion issued during the period 2008 to 2017. There was no Sukuk issuance during 2018 and 2019.
The current series of Sukuk has been issued on various assets counting Jinnah International Airport, M1 Motorway, M4 Motorway, E-35 Motorway, M3 Motorway and M5 Motorway. Furthermore, the Securities and Exchange Commission of Pakistan (SECP) gave its approval for the registration of the country’s 5-ever Islamic developmental Real Estate Investment Trust scheme.