Islamic finance — the uphill journey continues – Newspaper

The Islamic finance industry continued its impressive growth journey in Pakistan in 2021. Pakistan was ranked 8th in the list of global Islamic economic indicators with the sustained growth of Islamic institutions in the financial sector and economy.

In 2021, Pakistan’s Islamic finance industry has witnessed strong growth, made significant developments and received global recognition. Here are summaries of some major developments in 2021.

Global recognition

The State Bank of Pakistan (SBP) has been voted the best central bank for promoting Islamic finance for the fourth time in a poll by Islamic Finance News, Redmoney Group Malaysia.

In 2021, SBP Governor Dr Reza Baqir was appointed as the new Chairman of the Board and General Assembly of the IFSB (Islamic Financial Services Board) for 2022.

In 2021, Islamic banking in Pakistan grew at an annual rate of 30%, the highest growth in the sector since 2015, with Islamic banking assets expected to reach 5.5 trillion rupees by the end of the year. year 2021.

The Islamic Financial Services Council is an international standards body for regulatory and supervisory agencies that promotes the soundness and stability of the Islamic financial services industry, covering banking, capital market and insurance.

Banking

Since its inception in the 2000s, Islamic banking in Pakistan has seen continuous growth.

There are five fully-fledged Islamic banks (Al Baraka Bank Pakistan, Bank Islami Pakistan, Dubai Islamic Bank Pakistan, MCB Islamic Bank and Meezan Bank) and 17 conventional banks with autonomous Islamic banking branches in the country. Faysal Bank is transforming into an Islamic bank.

As of June 2021, Pakistan’s Islamic banking assets and deposits accounted for 17% and 18.7% of the country’s total bank assets and deposits, respectively. In 2021, Islamic banking in Pakistan grew at an annual rate of 30%, the highest growth in the sector since 2015, with Islamic banking assets expected to reach 5.5 trillion rupees by the end of the year 2021.

In 2021, SBP published its 3rd strategic plan for Islamic banking. Goals include achieving a 30% share in the assets and deposits of all banks by 2025.

In order to improve the liquidity management framework of the Islamic banking sector and to recognize the importance of the Islamic banking sector in improving the effectiveness of the implementation of monetary policy, the SBP has put in place a facility Sharia-compliant permanent ceiling (funding of day-to-day integrated banking information systems against Sharia-compliant collateral) and open market operations (injections) for Islamic banking institutions.

This is a historic move, as it would lead to a significant increase in liquid investments by Islamic banks, as well as creating a whole new segment of the Islamic money market for the industry.

Capital markets

The Pakistan Stock Exchange (PSX) has won the Best Islamic Stock Exchange 2021 award by the Global Islamic Finance Awards. The PSX has a total listed capital of Sharia-compliant companies of Rs 770 billion, or 53% of the total listed capital (including modarabas, Islamic banks, Islamic mutual funds and electronic funds transfer).

With the issuance of new Ijarah Sukuks of around 736 billion rupees (around $4.13 billion) during the year, 5% of governments’ domestic debt is Islamic financing compared to 3% last year . The Federal Government of Pakistan plans to issue sukuks under an asset-light structure as part of its goal to increase the share of Shariah-compliant instruments in government securities to 10% by the end from 2022-23.

The size of the Islamic capital market in Pakistan is growing rapidly and with this plan, the prospects for growth are bright.

The Securities and Exchange Commission of Pakistan has given approval for the registration of the country’s first-ever Islamic development real estate investment trust program – Silk Islamic Development REIT by Arif Habib Dolmen REIT Management, which has successfully partnered with leading business groups (Yunus Brothers Group, Fatima Group, Arif Habib Corp, Liberty Group and Arif Habib Dolmen) for the project.

The Shariah-compliant REIT program provides investment in undeveloped land in Karachi, aimed at uplifting the region and developing real estate, including the construction and sale of apartments and commercial units by the management company REIT to generate income for unitholders.

During the year, Pakistan’s leading Islamic bank, Meezan Bank, worked with the National Clearing Company of Pakistan Limited (NCCPL) to develop new Sharia-compliant products for the country’s capital market. Through this collaboration, NCCPL and Meezan Bank have introduced the Murabaha Equity Financing System, which will help extend Shariah-compliant equity financing facilities to stockbrokers and their clients.

Takaful

InsurTech 100 is a prestigious list that recognizes the most innovative and technology-driven companies of the year that are tackling the challenges of digital transformation in insurance. More than 1,400 companies were vying under FinTech Global’s radar for 2021. Pakistani company Takaful Salaam Takaful Limited was in the said list.

It is the largest dedicated general takaful operator and the 1st Shariah compliant InsurTech in Pakistan. The company offers general takaful offerings backed by state-of-the-art technology and digitized processes. not

Ahmed Ali Siddiqui, Director, Center of Excellence in Islamic Finance, IBA. Maryam Tariq, Research Associate

Posted in Dawn, The Business and Finance Weekly, January 7, 2022

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