Pakistan Islamic Finance: the success story.

Byline: Ahmed Ali Siddiqui

The Islamic finance industry continued the growth momentum in Pakistan in 2021 proving its viability supported by strong public demand and focus on real economic activities. The industry which re-started the journey in Pakistan with the first Islamic banking license granted to Meezan Bank with almost a zero-based is growing day by day and expected to reach Rs 5 trillion mark in terms of assets by end of December 2021, while the market share of conventional banking sector is on a constant decline. Pakistan is ranked 8th in the Global Islamic Economic Indicator list with the sustainable growth of Islamic institutions in the financial sector and economy of the country.

During 2021, Islamic Finance Industry of Pakistan achieved applaudable growth, effectuated major significant developments, and received global recognitions.

The key developments during 2021:

Islamic Banking

From its inception in 2000s, Islamic Banking in Pakistan has had a swift and continuous growth journey. There are five full-fledged Islamic banks (Al Baraka Bank Pakistan, BankIslami Pakistan, Dubai Islamic Bank Pakistan, MCB Islamic Bank and Meezan Bank) and 17 conventional banks with stand-alone Islamic banking branches in the country. Faysal Bank is in the process of converting into a fully-fledged Islamic bank.

As of June-2021, Pakistan's Islamic banking assets and deposits constitute 17.0% and 18.7% of total banking assets and deposits of the country, respectively. During 2021, Islamic banking in Pakistan grew at annual rate of 30%, which has been the highest ever growth of the industry since 2015, with Islamic Banking Assets expected to reach Rs 5.5 trillion by awaited financials of year end 2021.

During 2021, SBP issued its 3rd Strategic Plan for Islamic banking. The targets envisage achieving a 30% share in both assets and deposits of overall banking by 2025. The SBP Strategic plan outlines 6 pillars for the promotion of Islamic banking sector in Pakistan.

SBP Islamic Banking Strategic Plan 2025 - 6 main Pillars

(1) Strengthening Legal Landscape(2) Enhancing Conduciveness of Regulatory Framework

(3) Reinforcing Comprehensive Shariah Governance Framework

(4) Improving Liquidity Management Framework

(5) Expanding Outreach and Market Development

(6) Bolstering Human Capital and Raising Awareness

In order to improve the Liquidity Management Framework for Islamic Banking Industry and recognizing importance of Islamic banking sector in enhancing...