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RIBA-FREE BANKING OFFERS ENORMOUS POTENTIAL
Excerpts from an exclusive interview with Najmul Hassan, General Manager, Corporate and Business Development, Meezan Bank
By SHABBIR H. KAZMI
Nov 17 - 23, 2003
For a long time people were interested in undertaking Riba-free commercial banking services and establishment of Meezan Bank has fulfilled this need. Now people have option either to go Riba-free or conventional and interest-based banking. The central bank has also established Islamic Banking Department to oversee and facilitate Riba-free banking in the country. The level of acceptance can be gauged from two facts, increase in deposits maintained with Meezan Bank and number of its branches. However, a lot more has to be done to create awareness about Riba-free banking among the public. The success of Riba-free depends on accepting the fact that the system not only offers Halal return but it is also better than the conventional interest-based commercial banking system.
Meezan Bank commenced its operations in March 2002. The growth in its deposits is the single largest evidence of faith of public in Riba-free banking. Its profit is also growing, meaning better return on deposits and higher dividend for the shareholders of the bank. Meezan Bank is listed at local stock exchanges. Our duty is to create the enabling environment and to facilitate. Meezan Bank commenced its operations with five branches and within a short span of time the network comprise of ten branches. The bank has lately launched car Ijarah (leasing) and will shortly launch housing finance.
As I stated earlier the response from general public has been tremendous, exhibited by the growth in deposits. I also believe that potential is unlimited and we can exploit it as much as we are ready by offering complete range of services being by conventional banks. The tremendous response from public is due to the fact that they earn not only Riba-free return but the rates are also above the average return offered by conventional banks.
We have overcome the first phase, raising of deposits, and now we have to utilize each rupee very prudently. Since we cannot place our funds in the inter-bank market, we have to look for other high yielding options. As a make shift arrangement, Meezan Bank has been investing in the shares of companies enjoying strong economic fundamentals and offering better dividend prospects. Meezan Bank has also provided seed-money for Meezan Islamic Fund. The criteria for selection of companies for investment by the Fund are very stringent. The guiding principal is that activities of the company should be Shariah compliant.
The management of Meezan Bank is really thankful to State Bank of Pakistan for being cognizant of the importance of Riba-free banking in the country. It has not only been helping us be quickly removing the impediments but being proactive. This is also evident from the fact that while the maximum allowable limit for investment in shares of listed companies for conventional bank is 20% it is 35% for Islamic banks (banks offering Riba-free services). However, the growing perception is that the central bank must offer more incentives for banks offering Riba-free commercial banking services. At present Meezan Bank is considered the only bank in the country offering Riba-free banking. However, as more and more banks establish separate branches or windows for Islamic Banking, all of them deserve better treatment by the central bank, to facilitate and build confidence of people in Riba-free banking.
Riba-free banking was introduced in other countries much earlier before the GoP decided to Islamize financial system in Pakistan. The Religious Board of Meezan Bank comprises of eminent scholars from Pakistan as well as outside. Since they enjoy the insight and have also been associated with the process of elimination of Riba from banking globally, they have been able to come up with a better model. However, the process does not stop here and research is going on to further improve the model.
It may be of some satisfaction that the players and the regulators have done a marvelous job by creating enabling environment for Riba-free banking. However, success of the system depends on the active participation of general public. Unless they repose confidence in the system, not much of success can be achieved. We must not shun or tell people not to ask questions for seeking clarifications. The same question may be asked again and again. It is the duty of all of us who know about Riba-free banking to let others also know.
The potential of Riba-free banking is enormous. However, this cannot be exploited without offering solutions and building faith in the system. One must not be shy of taking the first step. Only following of the system can help in its improvement.