State Bank of Pakistan evolves comprehensive five-year strategy to promote Islamic mode of banking in country: Deputy Governor

Lahore, April 30, 2014 (PPI-OT): The State Bank of Pakistan has evolved a comprehensive five-year strategy to promote Islamic mode of banking in the country.

This was stated by the Deputy Governor of the State Bank of Pakistan Saeed Ahmed while speaking at the Lahore Chamber of Commerce and Industry on Wednesday. The LCCI President Engineer Sohail Lashari brought to the limelight the challenges being faced by the business community with regard to various components of the Islamic banking while the Vice President Kashif Anwar, Executive Committee members Mian Zahid Javaid Ahmad and Talha Tayyab Butt also spoke on the occasion.

The Deputy Governor said that since the present government has shown its seriousness in Islamic Banking therefore all possible measures were being put in place to revitalize it. He said that under the five year strategy, the SBP would strive to get 20 per cent market share during this period which is 10 per cent at the moment.

He said that it was not the business community alone that was being taken on board but the educational institutions were also being motivated to initiate research on this important segment of the banking that was gaining currency with every passing day.

He said that the SBP was in regular contact with the Institution of Business Administration (IBA) Karachi for the establishment of Centre of Excellence on Islamic Banking. He said that as soon as the first Centre is established, three more such centres would also be established in Lahore, Islamabad and Karachi respectively.

He said that Islamic finance was one of the fastest growing segments of the global as well as domestic financial sector. “Islamic finance is all set to establish itself as a better alternative to the conventional financial system having capacity to ensure financial stability and inclusive economic growth.”

The Deputy Governor said that global financial crisis in 2008/09 had made western financial experts to look for an alternative under which the international financial system could overcome the weaknesses of the conventional system based on fixed predetermined return in the form of interest.

The search was for a system, which led to equitable treatment of all stakeholders under all circumstances. A lot of attention was focused on solutions, which are not far from the Islamic financing where system allows fairness of return, sharing of risk and reducing income inequalities. Ahmad said that Pakistan was amongst the first few countries that undertook the ambitious aim of Islamising the banking system.

Speaking on the occasion, the LCCI President Engineer Sohail Lashari that there was a need to make proper projection of Islamic banking to improve general acceptability and also to encourage and motivate the general masses to consider it as a good option over conventional banking services.

He said that Islamic banking is not just limited to Mudarabah and Musharakah. It covers all the banking functions ranging from Agriculture Credit and Microfinance, Housing and SME Finance, Investments in International and Domestic markets and Monetary Management.

Engineer Sohail Lashari said it is not the case of any doubts on the feasibility of Islamic financial model but low success is the result of unfamiliarity with the various Islamic modes of financing.

He said that the money market is largely interest bearing and most of the government treasury bills, approved securities and local banks bills are not Riba free. You may enlighten us about such investment opportunities where Islamic banks can invest their surplus funds.

He said that the Malaysian government has given certain incentives for investors in Islamic Finance industry till the year 2016 to make Malaysia a regional hub for investment. Similarly, Pakistan can also become a regional hub for Islamic finance if proper regulatory reforms are introduced.

He said that to achieve this goal, the government needs to revamp the existing structure of taxes and duties to make them conducive to Islamic finance.

Moreover, he said, to encourage people to invest in Shariah compliant products, the government should introduce incentives in the form of tax credits.

He said that the pace of development of Islamic banking can be expedited through public awareness campaigns, joint lectures of economists and religious scholars and by offering special courses at college and university levels for the students of business administration.

The LCCI president said that the proper documentation of business activities is essential for investments made on the basis of profit-and-loss-sharing. We need to provide a conducive business environment to the businessmen for being encouraged to adopt best business practices.

He said that there is a perception among the public that some banks who offer certain financing schemes for loaning under Islamic banking mix up some clauses which are related to conventional banking just to secure their own side.

He that all such financing schemes for housing, business and vehicle etc. must be verified by SBP with least possible discretionary power exercised by banks to decide in case of any default.

Engineer Sohail Lashari said that there are reports that the bankers refuse to entertain some negotiation for LC 90 days or DA 90 days on the pretext that State Bank has stopped Islamic Banks to negotiate as there is no such Islamic instrument available to negotiate these issuance documents. It is causing difficulties for them therefore there is a dire need to look into the issue.

For more information, contact:
Shahid Khalil
Information Department
Lahore Chamber of Commerce and Industry (LCCI)
Lahore -54000, Pakistan
Tel: +9242 111 222 499
Fax: +92 42 636 8854

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