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Islamic banking is bound to prosper in Pakistan in both letter and spirit

Islamic banking is bound to prosper in Pakistan in both letter and spirit

To keep dominance in Islamic banking Meezan Bank bringing in more novel products with handy to younger generation
Interview with Mr Irfan Siddiqui — President & Chief Executive Officer, (Meezan Bank)

PAGE: Kindly tell us something about yourself and your organization:

Irfan Siddiqui: I am the founding President and Chief Executive Officer of Meezan Bank. My educational background includes a Foundation Course in Accountancy from Sunderland, U.K. and I am a Fellow Chartered Accountant from Institute of Chartered Accountants, England and Wales. I have served on 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.

In 2002, Al-Meezan Investment Bank stepped into the domain of Islamic commercial banking through the acquisition of Pakistan operations of Societe Generale and was issued the first Islamic commercial banking license and Al-Meezan was renamed Meezan Bank Limited.

Meezan Bank was Pakistan’s first Islamic bank offering products and services in line with the principles of Shariah. As we grew, we brought in new and innovative Riba-free products and solutions in an industry that was solely based on interest. Meezan Bank, however, took up the challenge and through determination, perseverance and hard work of a team of well-rounded members, managed to emerge as Pakistan’s premier and largest Islamic bank offering Shariah-compliant banking products that are at par with conventional offerings in the country.

PAGE: Meezan Bank has been declared the best bank. Share your views, please:

Irfan Siddiqui: First and foremost I am immensely grateful to Allah (SWT) for bestowing us with such an honor and privilege. I do, off course owe a large portion of this achievement to my team and the people around me who have worked towards our Vision of ‘Establishing Islamic banking as banking of first choice…’ and dedicated their best efforts to achieve what we have achieved today. Meezan Bank’s journey towards Islamic banking is merely 16 years old. We started off from just one small office in 2002 and a staff of 30 individuals. From a bank that started operations without first developing a financial feasibility, we have grown to become the 7th largest bank in the country in terms of deposits and have the largest Islamic financial products portfolio. Our consistent commitment to quality and Shariah-compliance has not only helped individual customers but also corporates to move away from the conventional interest-based modes of banking.

And, offcourse, this would not have been possible without the support of our customers who have trusted us with their money and trust. Given Meezan Bank’s humble beginnings, to be recognized as the ‘Best Bank’ by Pakistan Banking Awards – the country’s highest banking accolade, is indeed a matter of immense pride for the Bank. As we continue to grow we realize that Meezan Bank’s name and brand is widely recognized not just for a niche but for a mass market in Pakistan that offers immense potential for Islamic finance. Our key objective is to focus on the entire bankable population of the country and convert them to Islamic banking. We believe that Islamic banking offers a distinct customer-centric value proposition and underlying these operations are the attributes of complete transparency. It is this focus that has brought us closer to our clientele, because we have been able to reach out to our customers with the right services and products. Our aim and wish is that the Islamic finance market in the country should grow to allow a Riba-free economy. From Pakistan’s first Islamic bank to the fastest growing and now the best bank in the country, Meezan Bank is no longer a niche-focused player but a full-fledged commercial bank with an inherent expertise and positioning that can be exploited further.

 

PAGE: What are the future plans of Meezan Bank?

Irfan Siddiqui: One of the most important aspects/areas of Meezan Bank’s future strategy is its focus on technology. We are forging ahead with an aggressive determination to embrace digital banking and building more digital customer engagements. We already have well-established alternate delivery channels. Our aim is to now move towards a level that enhances the services we already provide to our customers. We have been collaborating with other partners in our ecosystem to enable our customers to seamlessly embed Islamic banking into their daily life. We are aiming at innovation coming from Fintechs that can benefit our customers. With other similar plans in pipeline, we aim to optimize our resources, improve efficiency and most importantly, enhance our customers’ experience. We are also looking at some of the macro trends such as leveraging data to garner customer insights, branch processes automation etc.

Another big priority for the Bank is its focus on service standards. As banking is in essence a service industry, we realize that it is our people and their dynamism that determines our success. We shall continue to provide our customers with services beyond expectation and like none other. Last, but not the least, the Bank also aims to design new deposit-based products for the youth and, attract greater number of people towards Islamic finance. We realize that the environment we are in now is a lot different than the one several years ago. Our future plans therefore must be more holistic and sustainable in nature and in line with our Shariah-compliant practices and values. With this aim in mind, we want to bring in products that make it more convenient for the younger generation to bank with us.

PAGE: Your views on the taxes on the banking transactions:

Irfan Siddiqui: We appreciate that the corporate tax rates for sectors other than banking have been gradually reduced to 29%, with 1% reduction every year till the tax rate is reduced down to 25%. On the contrary, the tax rate for banking companies is 35% flat which in my opinion is very high. In addition, the rate of super tax on banking sector is currently 4% which is also 1% higher than the rate of super tax applicable to other corporate sectors. I believe that the taxes imposed on the country’s banking sector need to be rationalized. Banking sector being one of the most documented sectors of the country should be taxed at par with other corporate sectors. The banking industry being a major contributor for collection of taxes on their own income and also being withholding agents, expects a rationalization of taxation on its income in line with other corporate sectors from the government.

PAGE: Your views on the receptivity of Islamic financial/banking products in Pakistan:

Irfan Siddiqui: Alhamdulillah, Islamic banking has received commendable acceptance from the majority of the country’s population. Furthermore, the growth of Islamic banking amongst the Muslims has made evident the potential to convert Pakistan into an Islamic banking hub. Keeping in mind this change in consumer behavior over the past decade, it is expected that Islamic banking is bound to prosper in Pakistan in both letter and spirit. In the context of this growth at local and global levels; the banking sector is going through a paradigm shift; resulting in an intense competitive environment in a dual banking industry. Perhaps this is why a number of conventional banks are already offering Islamic finance products through window operations. When it comes to receptiveness, we know that almost 10-15% percent of the population will always be strong Islamic banking customers and there would be another 10 percent who might not be. This leaves us with the remaining 80 percent.

For Meezan Bank, the goal is to be able to provide all such customers with the right service, pricing and environment; leaving no reason why they should not opt to make the switch from conventional to Islamic banking. For greater receptivity, you must make a conscious effort to let your product known. The product positioning and availability are critical for achieving success and that is what Meezan Bank has done. An edge that Meezan Bank has in the market is that we deliver what we promise, not only in terms of product but the overall environment as well. Deep inside their hearts people have to be convinced on what they are working for.

PAGE: What role is the banking sector playing for the promotion of the official channels for foreign remittances?

Irfan Siddiqui: There is little doubt the role that remittances play in financial development. Particularly for the banking industry since its paves way for recipients of the remittances to gain access to other financial services and products that they might not have otherwise. For the same purpose specific accounts related to home remittances are being offered to beneficiaries in which only the remittance received can be credited. These are tax free and are being offered in both saving and current type. The main objective is to persuade the customers already obtaining cash remittances via local banks, to open accounts to inculcate the concept of saving. Additionally, it is difficult to offer other facilities to cash customers unless they open accounts. Our aim therefore is to encourage this conversion to facilitate them in provision of other services as well.

Every year banks visit major home remittance markets, like UAE, Saudi Arabia, Kuwait etc. to increase their remittance influx to Pakistan. Visits are made to labor camps abroad to guide blue collar Pakistani staff in these countries, to send remittances via legitimate channels and to avoid funds being transferred via Hawala and Hundi. It is worth mentioning the role of local banks here, who under the guidance of the State Bank of Pakistan are providing fast and reliable services to home remittance customers and have managed to settle payments in same as Hawala and Hundi system. For using the banking channel, customers are also given benefits which include mobile top-ups, vouchers, etc.

One disadvantage for obtaining remittance via banking channel is that the kerb market rate is more than the bank rate. Therefore, local banks have now started offering fine pricing to remittance clients to provide them with better pricing. Moreover, under the PRI scheme by State Bank of Pakistan, remittance companies are disallowed to charge any amount for the remittance and thus people get full amount that has been remitted. We feel that branch expansion is imperative to further surge the business. Local banks therefore are setting up branches in rural areas given the high inflow of remittance in these areas. Banks are also working towards providing ease of remitting through technology like M-Wallet, Internet banking. All this, coupled with aggressive marketing through various channels aims to establish the dominance of official channels for foreign remittances.

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