Setting up a committee on Islamic banking, the appointment of a deputy governor at the State Bank of Pakistan (SBP) for the promotion of Islamic banking, bringing in Mufti Taqi Usmani to advise the government on the Islamisation of the economy, and intent shown by the Prime Minister through offering a new youth business finance programme in compliance with Shari’a – all are steps in the right direction in Islamising banking and finance in Pakistan. The market is upbeat on the prospects of further growth and development. Muslim Commercial Bank (MCB) has already announced its plans to restructure its Islamic window operations into a subsidiary Islamic bank. Summit Bank has gone one step further announcing that it will become a fully-fledged Islamic bank Above all, the active involvement of Ministry of Finance, led by Mr Ishaq Dar, provides conclusive evidence that the government is truly interested in promoting Islamic banking in Pakistan.

All these are welcome steps and developments. However, Islamising banking and finance in Pakistan still has a long way to go. There remain a number of challenges; the most pressing is that of developing a conducive environment to ensure efficient and effective Islamic banking operations in the country. Currently, the human resource landscape is rather bleak. While there is adequate expertise in Shari’a matters in the headquarters of Islamic banking institutions, by and large at branch level staff workers are not even aware of fundamental Shari’a requirements. Hence, a well thought out talent development programme needs to be developed in the country to ensure that the human resource pool available to the Islamic banking industry is adequate in number and quality.
Another important area is capital adequacy of Islamic banks. In the last fourteen years, only one Islamic bank, namely Meezan Bank, is sufficiently capitalised. . The capital of the other four fully-fledged Islamic banks is inadequate which are indeed struggling to expand their capital base. In these circumstances, while it is encouraging to see the likes of MCB intending to set up Islamic subsidiaries, the regulator must ensure that such banks meet capital requirements. MCB has foreign shareholding (i.e., from the Malaysian Maybank), but this is not enough. The regulator has to help and support MCB in attracting more capital from its foreign shareholders.
Nevertheless, Pakistan cannot allow inertia to creep in. Once a weakness has been identified, it has to be swiftly rectified otherwise stagnation and a failure to sustain the positive efforts will result. Also, inaction will present a negative image to countries that can assist in the development of the indigenous Islamic banking and finance industry. The recently held Round Table Conference on Islamic Banking in Karachi was a successful event in which representatives of Maybank also participated. Mr Salem Ghandour, Vice President of Maybank Islamic, who attended the Round Table, was really impressed by the engaging and proactive attitude of SBP. It is expected that Maybank will inject more capital into MCB to expand its Islamic banking operations. There are other Malaysian Islamic banks that are looking for profitable opportunities in Pakistan, and it will be a good idea to organise a follow-up event in Malaysia to present Islamic banking opportunities in Pakistan to Malaysian Islamic banks. The newly appointed Deputy Governor of SBP, Mr Saeed Ahmed, should play a role in this respect.

To intensify efforts to promote Islamic banking in the country, there is a need to widen membership of the Committee on Islamic Banking by bringing in people with greater exposure to international practices in Islamic banking and finance. The present composition of the said committee is highly skewed in favour of people involved in Islamic banking in Pakistan. But there is a number of highly capable Pakistani Islamic bankers and other experts with impressive experience and credentials who should be involved in the committee to share their profound technical knowledge with Pakistani stakeholders in Islamic banking. Furthermore, there is a greater need for Pakistan to play a prominent role in the likes of Islamic Financial Services Board (IFSB) and Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). Greater involvement of Pakistan in international forums on Islamic banking and finance will ensure that the country is seen as a serious player on the global Islamic financial services landscape. Mr Yaseen Anwar, outgoing governor of SBP, was one of the committed governors to the cause of Islamic banking. “I haven’t seen a more engaging governor of a central bank than Mr Anwar,” commented Mr Salem Ghandour after attending the Round Table on Islamic Banking. Now that Mr Yaseen Anwar has already resigned, it may very well be an opportunity for Mr Saeed Ahmed to play a bigger role in promoting Islamic banking in Pakistan and attracting more capital into Pakistan’s Islamic banking sector.

Finally for the first time in the history of Pakistan, all the building blocks are in position to develop a comprehensive framework for Islamic banking. There is now an urgency to give it a real push in order to make Pakistan regain its position as a global leader in the Islamic financial services industry.

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