SBP reiterates policy for promotion, development of Islamic Banking

KARACHI: The State Bank of Pakistan (SBP) has reiterated its commitment for promotion and development of Islamic banking in the country.

In order to remove any ambiguity and doubt among the general public, the Central bank has reiterated its commitment for promotion and development of Islamic banking in Pakistan, a statement of SBP said here on Wednesday.

It said, due to persistent efforts of the SBP and the Federal Government, the share of Islamic banking in total deposits of the banking industry has surged to 12.8% as of 30th June, 2015 and is consistently growing with a cumulative average growth rate of over 50% during the past 12 years.

To-date 5 full fledge Islamic banks, one Islamic Banking Subsidiary and 17 banks with dedicated Islamic Banking Branches are operating in the country with over 1700 branches spread all over the country.

Under the close supervision of SBP's Shariah Board, Islamic banking in Pakistan is soundly founded on injunctions contained in the Holy Quran and the Sunnah of the Holy Prophet (Peace and blessings of Allah be upon him).

The SBP has developed regulatory and supervisory framework to ensure Shariah compliance of Islamic banking based on rulings of its Shariah Board.

Further, it has developed Shariah compliant open market operations for managing liquidity of Islamic banking sector, which is quite unique in the Islamic world.

State Bank Shariah Board has also approved structure of Government of Pakistan Ijara Sukuk issued in the past and all such structures for future issues will be approved by SBP Shariah Board before their launch.

In December 2013, the Government of Pakistan had constituted a Steering Committee to promote Islamic banking in the country and appointed Saeed Ahmad as the Chairman of this Committee.

Later on, Saeed Ahmad was appointed as Deputy Governor at State Bank of Pakistan to spearhead promotion of Islamic banking.

This created synergy between the Steering Committee and the State Bank in their efforts to pave way for advancement of Islamic finance.

There is no precedence in the past that a Deputy Governor has been appointed in State Bank of Pakistan with extensive mandate for Islamic banking in the country.

Later on, additional disciplines have been assigned to him for better coordination on Islamic banking in those areas.

After completion of its first year, the Steering Committee has submitted its interim progress report with set of recommendations to Federal Government.

The mandate of the Steering Committee was extended by the Minister of Finance Mohammad Ishaq Dar for another year till December 2015 and it will present its final report to the Federal Government by January 2016.

In order to develop the necessary financial infrastructure and capacity building of Islamic banking industry, State Bank has been collaborating with world renowned international institutions like Islamic Financial Services Board (IFSB-based in Malaysia), Islamic Research and Training Institute (IRTI-a subsidiary of Islamic Development Bank, Jeddah), International Islamic Financial Market (IIFM-based in Bahrain), Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI-based in Bahrain), INCEIF - Malaysia and various central banks of Muslim countries devoted to develop Islamic banking.

SBP has played an active part in development of international standards for Islamic finance industry by institutions like IFSB, IIFM and AAOIFI.

Equity financing provides the route to establish Islamic finance in its true spirits.

Emphasis on participatory modes /equity financing is being made to establish sustainable footings of the industry as well as enable Islamic banking institutions (IBIs) to contribute towards economic growth and financial inclusion.

In the context of Pakistan, Islamic Banking has a great significance as large segment of the population is still financially excluded.

In this regard, the Government has launched National Financial Inclusion Strategy early this year and identified Islamic banking as a key area to focus on besides Agriculture, SME and Microfinance.

It is important to note that promotion of Agriculture, SME and Microfinance is well suited to be carried out by Islamic banking.