Speaking as chief guest at the inaugural session of the two-day 2nd International Conference on Islamic Business (ICIB- 2012) organised by Riphah International University at National Institute of Banking & Finance (Nibaf), Governor SBP regretted that Islamic banks have not been able to come out of the conventional shadow and lack better risk management and due diligence.
Islamic banks have been working both in international and domestic market in the conventional shadow.
He said the agriculture sector and SMEs are of paramount importance for the growth but these were highly ignored, urging Islamic banks to tap huge opportunities available in the agriculture sector.
The agriculture sector is contributing 21 percent to the Gross Domestic Products (GDP) and provides 40 per cent of the employment whereas Pakistan is fifth milk producer in the world.
He said Nestle and other international companies have realised the opportunity and making investment in the dairy sector.
He said huge opportunities exist for Islamic banks in agriculture sector and they must make efforts to tap these through agriculture financing.
He said inclusive growth is beneficial only and Islamic banks are required to be more aggressive and increase their outreach beyond major cities and deplored that 70 percent of their branch network was confined to 12 major cities of the country.
He said the SBP is working to provide Islamic interbank market to Islamic banks and regulator has been taking measures to help Islamic banking in Pakistan.
He said the Islamic banking system has to come out of the conventional shadow and overcome the lack of understanding about risk management and training and capacity obstacles.
Yaseen said that Islamic banking has been growing at a very robust rate of around 30 percent for the last six years and constitutes 8.5 percent of the total deposits of banking sector.
Yaseen said over 886 branches of Islamic banks have been working in the country but the industry is still facing challenges that are required to be addressed.
The debate, he said has now started how the Islamic banking system should move towards stability.
He said Islamic finance is a profitable economic opportunity and the country is required to learn a lesson from the global financial crisis.
Yaseen said despite financial crisis, the fundamental of the economics of Western countries are very deep and it would be a misconception that their system has collapsed.
He said financial institutions have to be cautious and prepare themselves to show resilience against any sort of crisis.
Yaseen said the Islamic financing has been lacking in better risk management and due diligence and key challenge for them was their working both in international and domestic markets in conventional shadow.
He said despite all this, he was optimistic about global and domestic role of the Islamic banking and considers it most dynamic area of financial services today.
Financial and economic devastation caused by the recent financial crisis has provided further impetus to the healthy growth momentum, as the Islamic financial system is increasingly being looked at as a prudent, stable and viable alternative against the conventional system.
He said despite all the positive developments during the last decades there exist many critical issues, which needs to be addressed to sustain the growth momentum on long-term basis.
The Governor State Bank said it is very encouraging to see that Riphah International University has arranged the second International Conference to discuss the critically important issues pertaining to Islamic finance product, monetary policy in an Islamic economic system and liquidity management.
He said the State Bank, being the regulator as well as the promoter and facilitator of the industry, will look into the recommendations of the Conference for possible adoption and implementation.
He congratulated Riphah International University for organising such an important event at international level on regular basis.
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