Islamic finance future of financial system in Pakistan
Karachi—The State Bank of Pakistan foresees an overwhelming potential demand for Islamic banking going forward if proper awareness is created significant number of new entrants in the Islamic banking industry. According to a report, the Islamic banking industry was in a growth momentum from 2003 to 2013 attracting net financing and investments have seen impressive growth from Rs10 billion to Rs709 billion. By end of December 2013, total size of net financing and investment reached by 8.5 per cent. Since 2008 the growth of investments in federal government securities has increased from Rs9.62 billion to Rs267 billion by the end of December 2013. Out of the total Islamic banks investments, government securities approximately account for 70 per cent. The report based on knowledge, attitude and practices of Islamic banks in Pakistan has forecast a bright future of the Islamic banking in Pakistan and suggested few recommendation for the Islamic banking system to leave the conventional banking system behind.
The report finds that overall 74 per cent respondents who have bank accounts either in conventional banks or Islamic banks are willing to switch to Islamic banking system thus showing there is a strong willingness to switch whereas 26 per cent stated that they would not switch or unsure of switching to Islamic banking. It will not be out of place to mention that despite cheaper conventional products compared Islamic products 62 per cent of the respondent were willing to pay more for Islamic banking products because the Islamic Banks products were Shariah compliant.
It will be interesting to share that one of the conventional bank branch located at I.I. Chundrigar Road Karachi was almost neglected as the branch failed to attract the customers, however the brilliant idea of putting a notice that this branch also deals in Islamic banking proved a paradigm shift in customer base as that branch suddenly become a busy banking branch as soon as the board of Islamic banking was placed outside the bank branch that shows how people having leaning towards Shariah compliance in the financial sector.
As much as 51 per cent of banked respondents prefer to be customers of only full fledged Islamic bank while remaining 49 per cent expressed that they would accept the option to bank with Islamic branch/window model. However, among the later mentioned group, 14 per cent stated that they were comfortable in dealing with the conventional bank offering Islamic services whereas 22 per cent expressed better customer services to be necessary condition for choosing an Islamic bank while remaining 14 per cent said that they would use an Islamic window only if it was guided by Shariah scholars that they trust. The survey revealed yet another important aspect that the willingness of majority of the corporate (more than 50 per cent) to access PLS based financing. This is contrary to the perception that there is no demand for such financing among corporate.
There is no second opinion about that fact that there is a significant demand for Islamic banking amongst retail and business in Pakistan. While highlighting the Islamic financing portfolio, the report says, more than 70 per cent of total Islamic financing portfolio is represented by the corporate sector, followed by consumer finance (11.6 per cent). Most of the corporate financing is extended textile 19.1 per cent, energy 8.9 per cent and chemicals and pharmaceutical 6.3 per cent. The SME sector represents only 5 per cent of the total financing along with the agriculture and these two sectors are the most neglected sectors.