Islamic banking in Pakistan has emerged as a
promising, viable business having capacity to offer total financial
solutions in all areas where the conventional banking system was
operating so far, yet it gives a sense of satisfaction to the clients
being free from exploitation especially in respect of financial
So far the Islamic Banking system has yet to
establish itself as the popular financing system at the micro-level as
people at the individual level have yet to shift from decades old
conventional system. However, the Islamic Banking is taking its roots
at the macro level, which is reflected in the flow of Direct Foreign
Investment, mostly coming under the Islamic financial norms.
Robust growth in deposits with Islamic banks
indicates that the deposit base is likely to reach Rs 780 billion (US$
13 billion) or 10% of the total deposits of the banking system in
Pakistan by next 7-8 years. In comparison, there was
Rs 30 billion (US$ 0.5 billion) in Islamic deposits
with these banks in 2004.
Flushed with liquidity from strong oil prices, Gulf
investors are increasingly looking towards neighboring markets, such
as Pakistan, India and Egypt for investment avenues. Islamic banking
remains the preferred mode.
Pakistan is set to reinforce its role in the global
Islamic banking industry with the debut international conference on
Islamic Banking and Money Market in Karachi next month, focusing on
innovation and new product development, including new investment
techniques in Islamic money market, such as sukuks or Islamic bonds
The event, that would be the single largest
aggregation of investors, bankers and beneficiaries of Islamic banking
in Pakistan, will attract more than 300 delegates from key
institutions in Pakistan, Middle East and Malaysia.
The event being jointly organized by Ferguson
Associates and International Islamic Financial Market (IIFM) scheduled
for 14 & 15 September.
Khalid Rafi, Chairman Ferguson Associates (Pvt.)
Ltd. said that the objective of the conference is to provide a
platform where local and international players can share their
experiences and discuss new initiatives in Islamic finance.
Experts from thirty institutions and six countries
would share their experiences in Islamic banking.
The event is taking place at a time when Islamic
finance is becoming an increasingly important source of FDI for the
country. In particular sizeable investment from Arab countries and
multilateral institution like Islamic Development Bank are being
routed through Islamic modes of financing.
Over the past months, all major conventional banks
have launched or are in the process of launching focused Islamic
banking initiatives. Pakistan has two full-fledged Islamic banks
already operational, and the State Bank has licensed two more
institutions that are expected to become functional by later this
Mr.Ijlal Alvi, visiting Chief Executive of IIFM,
said that as part of its initiatives with regard to Islamic finance
industry at large, IIFM plans to bring global experiences into local
perspectives through organizing conferences, forum and workshops with
emphasis on Islamic Capital and Money Market. The IIFM was established
by a number of central banks, monetary agencies and Islamic
Development Bank, with the mandate to create and develop Islamic
capital and money markets on a global scale.
The Pakistan Conference will discuss new investment
techniques with a special emphasis on liquidity management in Islamic
banks. In particular, Islamic bonds, or sukuks, are of great relevance
to the market, given its ideal fit in funding infrastructure,
government and corporate borrowings.
The global sukuk volume tripled in 2004 to US$ 6.7
billion from its modest start just under four years ago, said Ijlal
Alvi. The total value is expected to touch US$ 10 billion by 2006, a
historic milestone for the industry.
In the Gulf countries, non-sovereign borrowers
issued US$ 2.1 billion worth of Islamic bonds between January and June
2005 alone, said a research report published recently. In Pakistan,
WAPDA is planning to launch its debut Rs 8 billion sukuk to part fund
the Mangla dam project.
We hope this conference would be a valuable
learning experience for the investors, bankers and corporates alike,
said Mr Khalid Rafi, and would come up with focused recommendations
for the industry. He commended the role of infrastructure institutions
like IIFM that are taking keen interest in linking Pakistan's Islamic
financial market with the global mainstream industry.
The response from the local market has been very
encouraging. Those financial institutions which have shown their
willingness to participate in the conference are including State Bank
of Pakistan, Standard Chartered Bank, Bank Islami Pakistan, Islamic
Development Bank, ABC Islamic Bank, UBS Noriba, Dubai Bank, HSBC
Amanah, Dubai International Financial Center, ABN Amro, Malaysian
Islamic Banking & Finance Institute, Arif Habib Investment
Management, MCB Bank, AMZ Securities, Clyde & Co., Norton Rose and
Ernst & Young, amongst others.