Islamic banking to get new concessions

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Islamabad—State Bank of Pakistan (SBP) has exempted Islamic banks from using the benchmarks deployed by conventional banks to work out the pricing of their products and instruments.
The announcement said it has been decided that the financing provided on the basis of participatory ‘Musharakah’ and ‘Mudaraba’ and ‘Wakalah’ (agency) modes by the Islamic banking institutions shall be exempted from the requirement of using Karachi inter bank offer rate (Kibor), as the benchmark rate, reported Khaleej Times.
SBP had in 2004 advised all commercial banks in Pakistan to deploy Kibor as the bench mark rate like London inter bank offer rate (Libor). Islamic banks will also have to submit details of Mudarbah, Musharkah and Wakalah-based products for de-linking with Kibor benchmark to SBP’s Islamic banking department.
Such decisions and concessions offered by the SBP are helping the Islamic banking sector to move ahead on a fast track. This is proved by the latest growth statistics of this sector. Islamic banking has by now moved to carve its market share in a big way.
The announcement said the SBP and the government are keen to promote the Islamic banking industry which is in its evolutionary stage. Its share of banking assets is now as high as 11.4 per cent of the overall banking industry. At the same time, its share of the deposits has risen to 13.2 per cent, as of June 30, 2016, the SBP reported last week.
Moreover, Islamic banking growth was recorded at 7.4 per cent in the April-June quarter of the calendar year 2016. The sector’s assets rose to a whopping Rs1.745 trillion in this period while its deposits have risen to Rs1.461 trillion.
The number of IBIs has risen to 22. It includes six full- fledged Islamic banks, while conventional banks now have standalone bank branches. The branch network is growing fast and has gone up to 2,146 branches located in 98 districts across Pakistan, as of June 30 this year. Shaikh Khalid Tawab, senior vice-president of the Federation of Pakistan Chambers of Commerce & Industry, said Islamic banking is the need of the hour because it is risk-sharing and asset- backed. It remains unaffected by periodic global financial crises.
Tawab applauded the role of the SBP in promoting Islamic banking and launching the Islamic Share Index, and laying down the policy framework for establishment of Islamic banking subsidiaries in Pakistan. He proposed that steps should be taken to improve the returns provided by Islamic banks to depositors. He also mentioned that foreign banks in Pakistan have started operating Islamic windows.—APP

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