The swift growth of Islamic banking is amazing economists in
Muslim-majority Pakistan, a boom analysts predict to grow further
due to the big potentials of the sector, according to a report in
“In given circumstances, this is an amazing growth,”
Muzzamil Aslam, a Karachi-based economist, said.
“But it does not amaze me a lot. Not because it is not a big
achievement, but because the growth could me much higher if the
potential of Islamic banking is actually exploited.”
deposits of Islamic banks in Pakistan have grown by 35 percent in
2012 compared to the previous year, according to the State Bank of
Assets of Islamic banks have also increased by 30 percent
in the past five years, taking their assets to 8.5 billion
dollars. The financing in different sectors by Islamic banks have
also shot up by 14 percent in 2012. Currently, the volume of
Islamic banking in Pakistan is estimated at 7.6 trillion rupees
($7.8 billion), which stands 10 percent of the total capital size
of the banking sector in the country.
Aslam opines that due to growing investment in Islamic banks, the
overall share of Islamic banking is increasing in the banking
sector. “Being an economist and a banker, I know that a majority
of Pakistanis do not prefer interest-based banking,” he said.
“Therefore, in order to avoid that,
their majority maintains current accounts in commercial banks,
which make up 40 percent of the total deposits of these banks", he
added. “These deposits (in current
accounts) have turned the Pakistani commercial banks into one of
the highest profit rate earners.”
He said that the growing drift
towards Islamic banking has forced all commercial-local and
international-banks in Pakistan to introduce Islamic banking
branches in order to retain their clients. Meezan Bank was the
first Islamic bank in Pakistan, which kicked operations in 2003.
In 2004, The State Bank established a dedicated Islamic Banking
Department (IBD) by merging the Islamic Economics Division of the
Research Department with the Islamic Banking Division of the
Banking Policy Department.
A Shari`ah Board was also appointed in
2004 to regulate and approve guidelines for the emerging Islamic
Banking industry. In the same year, the government awarded the
mandate for debut of international Sukuk (Bond) offering for 500
million dollars. Currently, six full-fledged Islamic banks are
operating in Pakistan with over one million customers.
is the largest bank with 250 branches in 63 cities across the
country. A total 1079 branches of Islamic banking – owned by both
Islamic and commercial banks- are operating across Pakistan.
Despite the growth, economists believe that the actual potential
of Islamic banking in Pakistan is yet to be exploited.
current growth (in Islamic banking) is amazing in terms that just
a couple of years ago, the total share of the Islamic banking was
5 percent in the banking sector, and now it has been doubled
within two years,” Jabbar Khan, a Karachi-based economic analyst,
told OnIslam.net. “But still, it is not getting what it should
He says if the Islamic banks increase their capital
investment size, they can lure more and more customers of
commercial banks. Currently, five major commercial banks enjoy a
combined share of 70 percent in the banking industry, taking
advantage of current accounts system.
Though these banks too have introduced Islamic banking branches,
they are restricted to big cities and urban areas.
commercial banks have not only much heavier capital size, but much
more number of branches across the country, especially in rural
areas, which make up 70 percent of Pakistan,” Aslam said.
booming business of these (commercial) banks mainly relies on
current accounts system, which they do not want to lose. That’s
why they have not opened Islamic banking branches in rural
Pakistan, where Islamic banks do not exit.
“This is a very tactical move. These commercial banks have opened
Islamic banking branches in urban areas to counter the Islamic
banks, but because Islamic banks do not exist in villages and
small towns, therefore they (commercial banks) do not care about
Islamic banking there,” he said. “If they do that, they will lose
the benefits of current accounts because Islamic banking system
does not exist on the foundation of profit but profit and loss.”
Islam forbids Muslims from usury, receiving or paying interest on
loans. Islamic banks and finance institutions cannot receive or
provide funds for anything involving alcohol, gambling,
pornography, tobacco, weapons or pork.
Shari`ah-compliant financing deals resemble lease-to-own
arrangements, layaway plans, joint purchase and sale agreements,
Islamic banks have proved a success
because of rules that forbid investing in collateralized debt
obligations and other toxic assets that cause financial crises.