Growth of Islamic banking and finance in Pakistan

LONDON: 

A pre-publication copy of the Global Islamic Finance Report 2014, which is expected to be released on April 13 in Washington DC on the occasion of the Global Donors Forum, reveals that Pakistan ranks number nine in the world in terms of development of the Islamic financial services industry in the country.

A London-based Islamic financial advisory company, Edbiz Consulting, has formulated the Islamic Finance Country Index (IFCI), which ranks about 50 countries of the world in terms of their role in developing, promoting and advocating Islamic banking and finance. Pakistan comes after eight countries, namely Iran, Malaysia, Saudi Arabia, Bahrain, Kuwait, United Arab Emirates (UAE), Indonesia and Sudan.

The Global Islamic Finance Report 2014 estimates the size of the global Islamic financial services industry at $1.813 trillion at the end of 2013. This represents 12.3% annual growth over 2012, an increase of $182 billion in absolute terms.

Many Islamic financial institutions appear among top five banks in their respective countries. In Pakistan, the largest Islamic bank is Meezan Bank, which is fast assuming mainstream prominence.

Growth of Islamic banking in the country has been over 30% in the last few years, which is certainly above the average global growth rate of Islamic banking and finance. If this trend continues, then one should expect that in the next three years Islamic banking assets will at least double from its current size of Rs926 billion.

New strategy

The newly unveiled Islamic banking strategy by the State Bank of Pakistan attempts to double the number of Islamic banking branches from 1,200 in the next four years, and to increase its market share from 10% to 15%.

Given the huge potential the country has in terms of Islamic banking, increasing the share to 15% is a modest aim. Indeed, if Islamic banking fails to achieve 20% share in the market by 2018, by all indicators, it has failed to reach its potential.

Given that a number of banks are showing renewed interest in Islamic banking, the industry should target an increase of 2% in market share every year through Brownfield growth, ie cannibalisation of conventional banking and through conversion of conventional into Islamic banks.

Once Summit Bank is converted into a full-fledged Islamic bank, it will become the second largest Islamic bank in the country, taking the number two position from BankIslami (assuming that BankIslami does not grow further). Only this will give 8% additional market share to Islamic banking over the next four years.

If Islamic banks exhibit Greenfield growth, more than the growth in conventional banking, it should be able to double its market share. Greenfield growth is not only possible but is in fact needed in Pakistan where there is widespread financial exclusion.

If Islamic banking is used as a tool for promoting financial inclusion, there is no reason that Islamic banking should not be able to achieve the important milestone of 20% market share.

If that happens, the country will stand next to a number of Gulf countries and Malaysia where Islamic banking represents between 20% and 30% of the market share. Pakistan, however, will become the most important player in Islamic banking and finance, if it attains 20% market share. This is so because the country is the second largest Islamic market (population-wise) after Indonesia.

The writer is an economist and a Phd from Cambridge University

Islamic finance 

Country                                  IFCI Rank

Iran                                            1

Malaysia                                     2

Saudi Arabia                               3

Bahrain                                       4

Kuwait                                        5

UAE                                            6

Indonesia                                    7

Sudan                                          8

Pakistan                                      9

Qatar                                           10

Bangladesh                                 11

Turkey                                        12

United Kingdom                        13

Egypt                                          14

USA                                            15

Jordan                                        16

Brunei Darussalam                    17

Yemen                                        18

Lebanon                                     19

Singapore                                   20

(The Express Tribune / 02 March 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Zakat is the only way to effectively fight poverty

Poverty in the simplest terms can be defined as a lack of basic necessities like food, clothing and shelter. In other words, it is the absence of the means, of course money, to fulfill those needs. 

It is a matter of great concern that poverty is rampant in the Muslim world. What is the reason behind that and how to eradicate poverty? Muslim intelligentsia must think about this issue. 

As a matter of fact, poverty among Muslims should have been nonexistent because Islam strongly advocates helping others and encourages philanthropy. There are five pillars of Islam. Of them, four deal with one’s relationship with Allah. The fifth, which unfortunately Muslims tend to forget, deals with ties between fellow Muslims. In numerical order, it is third in number. It is Zakat. Although, it is also between Allah and His servant but directly impacts others. As a matter of fact, Islam has created this institution to fight poverty. This is why Allah has put Zakat after Shahadah and prayer but before Fasting and Haj.

As all of us know the five pillars of Islam are: 

l Shahadah: There is no god but God and Muhammad is the messenger of God.

l Salah: The five daily prayers.

l Zakat: Social responsibility is considered part of one’s service to God; the obligatory act of Zakat enshrines this duty. Zakat prescribes payment of fixed proportions of a Muslim’s possessions for the welfare of the entire community and in particular for its neediest members. It is equal to 2.5 percent of an individual’s total net worth, excluding obligations and family expenses.

l Sawm: Fasting from sunrise to sunset during Ramadan.

l Haj: A once in a lifetime pilgrimage to Makkah if one can afford it.

After understanding the concept of Zakat a bit, the question arises as to why then there is poverty among Muslims. Despite being rich in all kinds of natural resources and with a fairly large number of billionaires, majority of Muslims are living in poverty. Zakat on one billion dollars is around $25 million and this amount can go a long way in helping many to manage for food, clothing and shelter. Zakat can eradicate poverty and when you eradicate poverty, you can eradicate corruption, social injustice, human trafficking, reduce crimes and and most important is that you save the dignity of a human being. 

There are many countries in the Muslim world that are rich in resources but poverty is beyond imagination. Somalia and Yemen are examples of how poverty is destroying the social fabric. In the past, these two countries were the main food and livestock exporters of the region. We can also cite the examples of Iraq and Libya, which are two of the richest countries in natural resources and still people are suffering from poverty. 

Poverty can be eradicated from the Muslim world if all Muslims start taking the institution of Zakat seriously, which is mandatory. It would be pertinent to mention here that Sadaqah is not obligatory but a form of charity that even the poor can give the poorer. Muslims around the world have simply forgotten the third pillar of Islam.

Zakat and Saqdah cannot only help eradicate poverty but can also bring people closer — not only Muslims but also even people from other faiths. Omar Bin Khattab, one of the rightly guided caliphs of Islam, helped an old Jew from the Bait Al-Mal. Omar Bin Al-Khattab once said: If poverty were a man, I would have killed him. It is a shame to see many cities across the Muslim World full of beggars. And I am not talking about the organized phony beggars. I am talking about those who are left with no other choice. The Muslim world is full of resources and has many rich people but it is very important to be part of society and pay our dues. It is our responsibility to fight poverty and Zakat is the Islamic solution to this problem.

(Arab News / 26 Feb 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Dubai to develop integrated halal zones

DUBAI: Dubai plans to develop two world-class Halal Zones to position itself as a hub for the trillion - dollar global halal product markets.

The Economic Zones World (EZW) will develop the clusters in collaboration with Dubai Islamic Economy Development Centre (DIEDC) at Jafza and TechnoPark to serve international and regional markets respectively.

"Since Halal products and services are one of the key components of Islamic Economy, the EZW's move is a major step forward in that direction. EZW aspires to become one of the world?s key hubs for halal products trading, services, and manufacturing," said Chairman of the EZW Hisham Abdullah Al Shirawi while formally rolling out the initiative.

He said the move will meet the longstanding demand of the EZW's existing over 700 leading companies in food & beverages, pharmaceutical and cosmetics sectors.

"A large number of these companies are engaged in the business of production, marketing and distribution of halal products in their respective sectors," he said.

Chairman of Dubai Financial Market, EssaKazim said halal sector was one of the key pillars in the global islamic economy.

"The importance of Halal to the overall Islamic economy can be gauged by the fact that the global Halal market is valued at USD 2.3 trillion and it is estimated that one out of every four human beings consumes halal products.

"Given the latent demand, the potential market for Halal products and services is huge and will continue to grow," he said.

Multi-phased EZW Halal Zone Development Plan will also identify laws, regulations, and licencing needs of the Zone and draft laws and regulations accordingly. It will also setup the internal processes and systems to automate different processes.

The trillion-dollar global halal market accounts for 20% of the total food sector in the world.

(The Times Of India / 28 Feb 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com