Karachi—The global Islamic financial system which is multiplying on a fast track basis will touch $6.5 trillion by 2020 projected by the International Financial Service Board.
The volume expanded from a meagre $150 billion in 1990 to $1.8 trillion in 2015, the board reported. “Asia is expected to be the key driver in advancing the growth of Islamic finance industry,” says the International Financial Services Board (IFSB) Report-2015. “Pakistan is among the potential leaders of Islamic finance,” it says. Citing these exciting statistics regarding the expansion of Islamic finance, Ashraf Mahmood Wathra, Governor, State Bank of Pakistan (SBP), the central bank, reported this to the inaugural session of the World Islamic Financial (WIF) Forum 2016.
Wathra, while citing the IFSB, also said Pakistan is the potential leader of the world’s Islamic Financial systems. The forum was hosted by Karachi’s Institute of Business Administration and Centre for Excellence in Islamic Finance (IBA-CEIF). The objective of holding the forum was “to evolve a viable path to promote Islamic financing and to identify solutions for challenges in Islamic Finance.” A big boost to the Islamic Financial system is also expected to be led by the government of Pakistan plans to “utilise the surplus equity of the Islamic banks to fund the infrastructure development in Pakistan,” Finance Minister Ishaq Dar informed the inaugural session of the World Financial Forum. Dar, while explaining the government’s role to expand the system, said his ministry has issued instructions that wherever there is the government’s need to raise funds, the first priority should be given to Islamic financial system. Liquidity will also be used to fund the projects under the China-Pakistan Economic Corridor (CPEC),” he said.
The industry players should come up with innovative products, in view of energy and infrastructure projects, under CPEC. Beijing plans to invest $46 billion on CPEC. Multi-billion Dollar investments will be made by other foreign and domestic investors, besides the Chinese, over the first phase of the project, between now and up to 2020, and beyond. The first phase, under implementation now, will cover $34 billion energy projects and $12 billion infrastructure projects. The government has formed a committee to prepare a roadmap to expand Islamic financial system. Pakistan strongly feels the need to support and expand Islamic system because, during and after, the global Financial Crisis of 2008, Pakistan remained unaffected by it.
Rather than being hit by the crisis, it stayed safe, and it pioneered and started to promote the Islamic system. But it was with limited success. Now it speeding up the expansion of the Islamic system, and helping it to grow in parallel to the conventional system. But, the constraints, facing the industry will have to be addressed, and the system helped to gain further momentum. Both the ministry of Finance and the State Bank of Pakistan (SBP), along with the Islamic banks, and sectors, other officials operating in Pakistan are also pushing for the expansion of the Islamic financial system in Pakistan, as well as abroad through Pakistani bank branches. It includes introduction of new modes and products, as well as home-based research. One of the several of such actions is, that the government has amended the SBP Act, and allowed the central bank to issue Islamic financial instruments. Another key step is that Sukuks bear the same taxation as the conventional bonds. Dar also asked the forum to use modern technology to reduce the cost of its operations.
The government will also like the system to cover more sectors and expand its operations. The SBP has issued regulatory framework to improve the legal structure and enhance disclosure requirements. Wathra said, the Islamic finance Industry lacks professionals and desired skills. “The industry also needs attention and ownership. Islamic finance will increase the financial inclusion among the poor and reduce inequality.” He proposed a dialogue at the global level, for harmonization and standardisation of practices across Islamic finance industry. The strategy of Islamic banking industry should become-customer-centric in its proposition, delivery and service.
He said Islamic banking is expanding outside its traditional borders of Muslim countries, and into western economies which is testified by its growth. Taqi Usmani, chairman of Meezan Bank, said the financial inclusion is improving and deposits are increasing, but investment opportunities are scarce. Dr Abbas Mirakhor of the International Centre for Education in Islamic Finance, said all members of the Orgnisation of Islamic Cooperation (OIC) depend on the conventional, interest-based banking.