Despite worldwide financial unrests especially under the declining oil prices in 2016, Islamic Shariah-compliant banks continue to take strong position in the Islamic financial market. Between 2000 and 2016, Islamic banks’ capital rose from $200 billion to $3 trillion and with this statistics it is predicted that the Islamic banks capital will stand at $4 trillion by the early 2020s. Now growing at an annual rate of 19.7 percent, this market’s growth far outpaced the conventional banks.
According to a recent survey, greater than half of Islamic banks are in the process of investing between $5 million and $20 million in new digital initiatives. This digital drive is chiefly crucial in the Gulf Cooperation Council (GCC) region, which boasts a large youth population. Among these tech-savvy young people, smartphone usage has stood a staggering 98 percent, but 46 percent of consumers still find mobile banking difficult to access.
Presently, the Government of Pakistan has launched many regulatory reforms to facilitate Islamic finance counting REIT (rules for Islamic Real Estate Investments Trust) and principles creation of Takaful windows. During October-December 2016, State Bank of Pakistan (SBP) reported that the assets of IBIs (Islamic Banking Industry) registered a growth of Rs65 billion and reached to Rs1,853 billion in Pakistan. Deposits of IBI also grew by Rs97 billion during the review quarter to reach Rs1,573 billion. SBP also reported that the market share of Islamic banking assets and deposits in the entire banking industry reached at 11.7 percent and 13.3 percent whereas, PAT of IBI was registered at Rs11.8 billion, respectively.
Currently, various Islamic and conventional banks are providing Islamic banking products and services by Islamic banking windows, but BankIslami Pakistan Limited (BIPL) is being recognized a leading Islamic bank by offering authentic, Shariah-compliant and technically advanced products and services. In its 13th annual report (December 31, 2016), the management mentioned that over 321 branches in 105 cities providing banking connectivity. BIPL intends consolidating the network in this ongoing year also further enhancing the deposit per branch to almost Rs600 million per branch. It is mentioned that the year 2016 was a year of consolidation for the Bank after regulatory merger of the defunct KASB Bank with BankIslami. The management’s focus remained on rationalizing deposits by shedding high cost deposits and enhancing its CASA mix which enhanced to 71.58 percent from 66.71 percent.
The management also analyzed that the cost of deposits resultantly was declined by 110bps to 2.99 percent in December-2016 from 4.09 percent in December-2015. The gross spread or net spread before provisions enhanced to 42.82 percent from 42.06 percent.
BIPL added 74,586 new customers resulting in its customer base to reach 623,633 relationships, a growth of 13.58 percent. BIPL raised focus towards raising its consumer financing commerce and also the share of consumer financing as a percentage of total financing increased from 10.88 percent during 2015 to 14.75 percent. It is also analyzed that total growth in the consumer financing portfolio was recorded 47.69 percent which is predicted to enhance the spreads more in this year.
BIPL is presently engaged in supporting SME business with all the products and services available through its branch banking network. The products and services are provided to SME customers strictly under Shariah modes.
I would like to conclude here that more Shariah-compliant banks must enhance their levels of consumer engagement in order to compete and takeover their conventional competitors. No doubt, BIPL is taking deep pride in offering consumer financing to its valued customers in Pakistan whereas more Islamic mode of financing and banking will truly strengthen the public reach and investment.