Islamic Banking Industry in Pakistan A look back at previous year and the road ahead

Adnan Fasih

The previous year 2022 was another exciting year for Islamic banking growth in Pakistan. There were some very important and significant milestones in the industry which continued the momentum forward at a rapid pace.

The Government continued its strong support and State Bank of Pakistan (SBP) provided on-going industry-wide strategic measures based on its progressive Strategic Plan up to 2025. The 6 Strategic Pillars provided in this effective plan provided guidance, benchmarking and encouragement to the Islamic Banking industry to prioritize their objectives and embed them accordingly in their respective business Plans.

Driven by these 6 Strategic Pillars and in order grow the industry further, it is felt that there need to be a regular and multi-platform engagement through dialogue and discourse from the following 6 Stakeholders also. This will pave way for accelerating the momentum. These are: Government, Regulator, Shariah Intellectuals, Customers, Market Practitioners, Academia.

1st Pillar- Government’s role has been progressive in Mainstreaming Islamic Banking in the country. There are effective measures put in place at regular intervals for improvement, efficiencies and sustainability of the industry. The recent one being decision to withdraw appeals against Federal Shariat Court’s (FSC) verdict and forming a high powered steering committee for providing the necessary strategic guidance based on the decison.

2nd Pillar- SBP has been providing a constant enabling environment all along and enhancing conducive regulatory landscape and improving liquidity management framework. They have also been expanding the outreach and market development through human capital deployment and raising constant & constructive awareness across the country. While SECP has also been active in enacting necessary regulations for meeting changing & evolving needs.

3rd Pillar- The Shariah Intellectuals have been instrumental in these pursuits and have been the linchpin for all these efforts. Their individual and collective wisdom has given the much needed impetus at the right junctures and critical moments of this wonderful journey of 2 decades. Our learned scholars are par excellence and their influence and guidance has propelled the industry to the current level and they will continue to form the cornerstone of all the efforts in this pursuit for achieving a critical mass in the near future.

4th Pillar- Customers have been very receptive and extremely responsive. Due to their encouragement and this bottom up approach, the industry has now reached 20% and extended its wings from initially being a faith driven to now as an important and valuable segment of the overall banking pie which now competes on products, service and innovation.

5th Pillar- The market practitioners being Banks & NBFI alike have kept pace with changing dynamics across full spectrum of financial activities. The largest Islamic Bank in the country competes with the Big 5 now solely on the elements alluded above, while recently we witnessed a moment in history in shape of largest conversion of a conventional bank into a full-fledged Islamic Bank. Indeed a proud moment for everyone for us all in the Banking fraternity.

6th Pillar- The role of Academia in the progress of Islamic Banking industry cannot be underscored further. We have acclaimed institutes & educationalist who have been providing the R&D and mentoring new talent to move the needle forward. There are dedicated centers of excellence in the country who are developing a new mindset and challenge the existing norms & practices to channelize & harness new patterns of thought process for the future leaders.

Islamic Banking is for all. Not faith centered but founded on ethical values, financial inclusion, wealth circulation, equitable distribution and ESG lens focused. Therefore, stakeholders’ engagement at all levels and managing the expectations from Islamic Banking will not only help the industry to meet its desired outcomes in line with Government policies, SBP strategic Plan till 2025 and importantly for aligning with FSC decision for the desired direction of the industry.

These collective & combined efforts will put Pakistan on the center stage of Islamic Finance which it deserves based on our population intent, the rich talent pool & adequate resources we possesses as a nation.

Let us together fulfill this potential, promise & deliver together – The World is watching. —The Author is Banker with passion for Islamic Banking