Backing to Islamic banking admirable, but much work still needs to be done
Interview with Mr. Irfan Siddiqui — President & CEO, Meezan Bank
Mr. Irfan Siddiqui is the founding President and Chief Executive Officer of Meezan Bank. His educational background includes a Foundation Course in Accountancy from Sunderland, UK and he is a Fellow Chartered Accountant from Institute of Chartered Accountants England and Wales. He has served at a number of senior management positions including Chief Executive Officer at Al-Meezan Investment Bank Limited, as a General Manager at Pakistan Kuwait Investment Company, Manager Finance and Operation at Abu Dhabi Investment Company and Senior Business Analyst at Exxon Chemical (Pakistan) Ltd.
PAGE: YOUR COMMENTS ON THE ROLE OF REGULATOR IN TERMS OF COMPLIANCE AND REGULATION:
IRFAN SIDDIQUI: State Bank of Pakistan (SBP) regulates the monetary and credit system of Pakistan with a view to securing stability in the financial sector. This is achieved by promulgating various frameworks/guidelines/regulations over period of time from Corporate Governance to different segments of the bank. SBP issued comprehensive guidelines on AML/CFT regulations and Guidelines on Risk based Approach with the view to mitigate various risk arising from money laundering and financing of terrorism.
With respect to the financing, SBP issued comprehensive Prudential Regulations on different segments such as Corporate, Commercial, SME, Agriculture, Consumer and Housing Finance to ensure that credit discipline is maintained in the financial sector. Recently, SBP has developed a framework on ‘Enterprise Technology Governance & Risk Management in Financial Institutions’ in order to provide baseline technology governance and risk management principles to the banks. Further, SBP has developed guidelines on ‘Compliance Risk Management’ to provide the industry a uniform benchmark for identification, assessment and management of compliance risk in their operations. SBP has also recently updated the Foreign Exchange Manual.
SBP also focuses in enhancing financial literacy to the banking customers and providing them a platform for their complaints. Various measures have been taken by SBP such as issuance of Consumer Grievance Handling Mechanism, Financial Consumer Protection, Guiding Principles of Fairness of services charges etc. establishment of dedicated helpline, awareness program etc. As a result, Consumer empowerment and protection through financial literacy enhances public confidence and trust in financial markets.
Introduction of Asaan Accounts confirms SBP’s aim of promoting financial inclusion in the country by expanding outreach of banking services to all segments of the society through conventional and innovative channels. Last but not least, SBP issued Shariah Governance Framework to give confidence to the general public about Shariah conformity of Islamic bank’s product and services.
PAGE: WHAT IS YOUR DEFINITION OF A GOOD BANK?
IRFAN SIDDIQUI: For me, a good bank is one that has clean financial statements. It is important that our clients are able to easily understand the practices and philosophy of the bank, as they rely on us for their financial needs. For Meezan Bank however, this definition is not just limited to our financial statements and capital position but also extends to the transparency of our operations and how our customers perceive our transactions. In my opinion, a clean and comprehensible balance sheet based on the Bank’s commitment to Shariah compliance is one of the most important factors that define its success.
PAGE: WHAT ISSUES AND CHALLENGES KEEP YOU AWAKE AT NIGHT?
IRFAN SIDDIQUI: Islamic Banking in Pakistan is a relatively new concept. The Bank was envisaged and established without first developing a financial feasibility, since the purpose behind the establishment of Meezan Bank was to establish and promote Islamic Banking in Pakistan; however, Alhamdulillah, ever since our inception, the Bank has been profitable since the very first month of its operations. As with any new industry, especially one that is as unique and based on religious principles, there are a number of challenges that need to be overcome. Islamic banking in Pakistan faces the challenge of creating last mile connectivity of translating Government’s support for Islamic finance into reality. It is worth mentioning here that while the Government of Pakistan has shown keen interest in the development of Islamic banking in this region through its strategic 5-year plan. However, there is still a dearth of Islamic capital market instruments and this needs greater Government support. For Islamic Banks, there is a critical need for the provision of adequate liquidity tools, an area where the government can play a major role by offering Islamic Banks with instruments to place the excess liquidity of the entire Islamic finance sector at the same rate which is being offered to conventional banks. There still exists an asset/ liability gap management problem for this industry given the dearth of these instruments; and this challenge does not merely pertain to Islamic banks but to Islamic mutual funds, Islamic Takaful as well as to Islamic investors. In Pakistan, the government and regulators have taken great strides for the expansion of Islamic finance in the region, but much work still needs to be done.
PAGE: WHAT IS YOUR TAKE ON THE RECENT TREND OF VARIOUS CONVENTIONAL BANKS GROWING THEIR SHARE IN THE ISLAMIC BANKING SEGMENT?
IRFAN SIDDIQUI: Meezan Bank has always worked with the Vision of establishing Islamic banking as banking of first choice. Keeping true to this Vision, we have never consciously tried to differentiate ourselves from the Islamic banking industry. We believe that Islamic banking offers a distinct customer centric value proposition and underlying these operations are the attributes of complete transparency. Our aim and wish is that the Islamic finance market in the country should grow. I believe that the Islamic banking industry in Pakistan is well poised to expand. Instead of seeing other Islamic banks or windows as direct competition, we work with them and support them. We share good assets with our peer Islamic banks, which is how the market will gain depth and growth. The differentiating factor is up to the consumer, we grow as the industry grows. For some it would be the pricing, for others it would be accessibility or environment – it all depends on the consumer. We would never advertise saying how we are different from other Islamic banks.
PAGE: YOUR VIEWS ON THE SUPPORT OF THE GOVERNMENT OF PAKISTAN FOR ISLAMIC BANKING:
IRFAN SIDDIQUI: The Government has shown keen interest in developing Islamic banking through its strategic five-year plan. As a member of the Government’s Steering Committee of Islamic Banking, I have strongly advocated that the government should place the excess liquidity of the entire Islamic finance sector at the same rate offered to conventional banks. There still exists an asset/liability gap management problem for this industry and this does not merely pertain to Islamic banks, but to Islamic mutual funds, Islamic Takaful and Islamic investors. The Government and the regulators have made great strides in expanding Islamic finance, but much work remains to be done.
PAGE: MOST OF THE MID TO SENIOR MANAGEMENT IN ISLAMIC BANKS IS DRAWN FROM CONVENTIONAL BANKS. YOUR VIEWS:
IRFAN SIDDIQUI: This is a challenge and there is a significant learning curve for people coming from conventional banks. Meezan runs rigorous training initiatives to enhance our staff’s knowledge and skills on Islamic banking and its products and processes. These include a comprehensive orientation program for new staff (senior and junior), certificate programs on Islamic banking and refresher programs on Islamic banking products and their underlying concepts. We have four dedicated learning centers and we support institutions such as the Centre for Islamic Economics (CIE), SBP and National Institute of Banking and Finance (NIBAF) in conducting Islamic banking training sessions.
PAGE: WHY DON’T ISLAMIC BANKS ADVERTISE AS AGGRESSIVELY AS CONVENTIONAL BANKS?
IRFAN SIDDIQUI: Again, it’s a 90-10 rule. Conventional banks are almost 90%. If those banks run one ad each, it will seem a lot. And if the 10% advertise –even throughout the year, it will seem much less in comparison. Also, marketing budgets have a direct correlation with an organization’s overall profitability – we are not huge so our marketing budgets are not huge. However, in the last couple of years a forum was created by the SBP in which all 22 banks pooled and collected funds to raise awareness about Islamic banking. The SBP also initiated a mass media campaign last year to raise awareness about the value proposition of Islamic finance.