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Sunday, 9 June 2013

Islamic financing grows in Pakistan

KARACHI: Pakistan’s Islamic financing industry achieved a modest increase in its market share over the last decade, underdeveloped Islamic capital and money markets still pose substantial challenges to the industry, a recent draft report issued by the State Bank of Pakistan (SBP) revealed.

The State Bank has formulated a draft for Islamic Banking Strategic Plan 2013-17 and identified a number of problems, impeding the growth of Islamic banking industry in the country.

The draft document casted concern over the limited ownership and belief in the utility of Islamic finance by the policymakers, saying that the country lacks consensus national policy and strategy for development of Islamic financing.

It said that the macroeconomic model is not aligned with the Islamic principles-conventional monetary and fiscal environment.

According to the draft, insufficient collaboration between the State Bank, government, Securities and Exchange Commission of Pakistan and the Federal Board of Revenue and division in the Shariah boards on the acceptability of the current Islamic banking paradigm are also acting as major weaknesses to the development of the Islamic banking and finance industry.

It said that Islamic banking industry will be encouraged to enhance its advance to deposit ratio by 60 percent in various sectors to achieve the underlying targets.

The SBP plans to increase the branch network of Islamic banks by 100 percent to 2,000 by 2017 with the aim to increase the Shariah-based banking in untapped areas across the country.

The number of branches will be added by Islamic banks and conventional bank’s Islamic divisions alike on the directives of the central bank. This will increase the market share of the Islamic banking industry up to 15 percent of the overall banking industry by 2017 from the current volume of 10 percent.

The penetration of Islamic banks will be increased in the rural areas to facilitate agriculture.The aim is to increase the agriculture credit through Shariah-based financing, which has been largely dominated by commercial banks and traditional ways of financing in the rural areas.

Similarly the Islamic banking industry will extend its financing to small enterprises by at least five percent of the overall financing to provide lending facilitates to small businesses and build their confidence over Shariah-based economy.This will not only flourish businesses of small entrepreneurs but will also improve the financial inclusion and documentation of the economy with the passage of time.

The strategic plan of the SBP also focuses on housing and construction industry with significant surge being planned to be targeted in the metropolis and small cities through Islamic banks on easy installments and relaxed terms and conditions.

The central bank plans to provide incentives to housing mechanism through the Islamic banking industry for low-cost Islamic financing, which will allow the middle and lower middle classes to fulfill their housing needs with easy loans.

(The International News / 08 June 2013)
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