Pakistan Eyes Bigger Islamic Finance Share

ISLAMABAD – Seeking to double its share of the growing Islamic banking, Pakistan is turning to rural areas to drive growth of the booming industry.

“Islamic banking, primarily being a faith-driven industry, has a significant potential in Pakistan as the concept directly appeals to the religiously sensitive segment of the society,” Saleem Ullah, director of the Islamic banking department at the State Bank, told Reuters on Sunday, August 14.

“The share of the industry in the banking system has risen to over 7 percent from just 0.5 percent in 2002.”

The south Asian Muslim country, home to 180 million Muslims, plans to double its share to 12 percent by 2015.

To help achieve this, Pakistan has ordered Islamic lenders to open 20 percent of all new branches in rural areas, where clients traditionally shun conventional banks due to concerns over interest which is forbidden under Islam.

“Historically, the poor and oppressed in a society are more inclined to follow the norms of their religion than the affluent,” said Muddassir Siddiqui, an Islamic scholar and partner at law firm SNR Denton in Dubai.

Islamic banking currently accounts for 497 billion rupees ($5.74 billion), or 7.3% of Pakistan’s overall banking system.

Pakistan has six Islamic banks, Meezan Bank, Bank-al-Islami, Global Islamic Bank, Al-Barka Bank, Dawood Islamic Bank and Global Emirates Islamic Bank.

They have around 500,000 customers in consumer financing and deposits sectors and hold 5 percent share in the overall banking sector in the country.

Meezan is the first full-fledged Islamic bank in Pakistan and was issued license by the State Bank of Pakistan in 1997.

The Asian country also has twelve conventional banks with Islamic operations, creating a network of 800 branches in Pakistan.

Another 150 branches are expected to open in Pakistan by the end of the year.


The anticipated boom in the Islamic banking industry is already drawing interest from both conventional banks in Pakistan and foreign institutions.

“The new regulatory requirements are a good first step by the government to reaching those in rural areas, where there is little trust for banks and people prefer to keep money under their pillows,” said Zahid Mansoor, treasurer at DIB Pakistan, a unit of Dubai Islamic Bank.

Mansoor said Dubai Islamic Bank, which has subsidiaries in Pakistan with a record of 59 branches throughout the country, plans to have 80 branches by the end of the year.

“If you create awareness in the minds of these people, there is significant potential to take Islamic finance beyond a niche market and make it the main choice for banking.”

Bahrain’s Al Baraka Bank is also seeking to launch more branches in Pakistan.

“We currently have 100 branches in Pakistan and consider it to be a growth area for us,” said Adnan Ahmed Yousif, chief executive of Bahrain’s Al Baraka Bank.

“At our bank, we are looking to get to 200 branches over time.

“The country definitely has a lot of potential within Islamic finance.”

The Standard Chartered Saadiq, the Islamic arm of UK-based Standard Chartered, also launched operations in the country.

Islamic banking, which began almost three decades ago, has made substantial growth and attracted the attention of investors and bankers across the world.

With estimated 300 Islamic banks and financial institutions worldwide, the industry expands by 15-20 percent a year and entered recently new markets from Australia to South Africa.

Western financial institutions, including Citigroup, Deutsche Bank, HSBC and UBS, are increasingly offering Islamic products.

Islamic banking operates by sharing profit or loss between the bank and its clients, instead of interest, which is forbidden.

Islam forbids Muslims from receiving or paying interest on loans.

source : onislam net

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