June 23 - 29, 2008

Financial sector experts have called for expediting efforts towards issuance of Islamic treasury bills in the shape of Baitul Maal certificates to provide the Islamic banks an opportunity to invest.

They told PAGE that non-availability of instruments like Baitul Maal certificates has been creating a liquidity management issue for Islamic banks. As a result of non-availability of these investment opportunities, Islamic banks are at a disadvantaged side against conventional banks in terms of optimising returns on excess liquidity.

They were of the view that Islamic banks must jointly work out a future plan of action with the regulators for issuance of Baitul Maal certificates. The success factor behind Islamic banking growth is supportive regulatory framework of the central bank, they said, adding that there is enormous potential in Pakistani market. The Islamic banks need to have standardization of guideline documents so that the industry could work in harmony. In order to facilitate the operations of Islamic banking industry, State Bank has allowed the Islamic banks to execute any transaction only after the approval of their Shariah Boards. "The regulator can review and approve the transactions later on," they said.

Financial experts said that current share of Islamic banking industry needs to grow in the next decade. They added that trained human resource is the biggest challenge being faced by Pakistani Islamic banking industry. They said Islamic banks need qualified human resource to keep the current pace of growth intact.

Regarding emergence of Takaful in Pakistan, experts said that there was need to move out of niche market syndrome and grab the maximum potential available in the market. They said 63 percent Islamic banking and Takaful consumers in Malaysia are non-Muslims, showing the benefits for consumers available in Islamic mode of finance.

They also emphasised the need of synergy in Islamic banks and Takaful companies. "The Takaful products should be competitively priced and available with best services and being Halal should be an additional benefit," they said.

Takaful operators need to bring innovation in business process and product distribution. "We also need to focus on development of human resource for the Islamic financial sector," they said.

According to sources in the SBP, the Islamic-banking sector continues to grow at a rapid pace in the country, which is reflected by the increasing branch network of the Islamic Banking institutions.

The central bank has since advised all banks operating Islamic branches to introduce Islamic windows. 'There is now a growing trend among banks to open Islamic Banking Windows (IBWs). In order to strengthen regulatory framework and maintain information about window operations, all conventional banks having Islamic Bank Branches (IBBs) should submit the required information before starting IBW operation," an SBP notification said.

The banks, SPB said, will be required to provide details about services to be offered by IBWs, including details of systems and controls put in place in compliance with the central bank's previous instructions. They are to also provide particulars of banking commissions or fees to be charged, and details of training of human resources to operate Islamic banking.

According to experts, Islamic banking took roots in Pakistan and it can be used as a powerful tool for inclusive growth and amelioration of conditions of the poor in the Muslim world. The capitalist model has failed to deliver help to the poor. It's time ripe that Islamic finance model comes to help them, they said.