The pioneer of dedicated Islamic Banking in Pakistan

Marketing Manager, Business Manager,
Housing Finance

Aug 09 - 15, 2004

The global financial services industry is witnessing a rapid rise in the demand for Islamic Banking services. This demand has essentially been fueled by the need of Muslims the world over to ensure that their financial and economic dealings are in accordance with the principles of Shariah. This growing Islamic Banking infrastructure, an answer to this demand, is comprised of various critical stakeholders, namely Shariah scholars, financial institutions, and the consumer. In Pakistan, the Islamic Banking movement has had a checkered history, with an initial noble intention but an ineffective execution, resulting in the dilution of the credibility of this model and the misunderstanding of its essence in the minds of the public. Renewed efforts, supported by extensive global success transfer, have resulted in a new premise with its own regulatory mechanism, track record, and in-built initiatives that seek to illustrate its meaningful difference from the conventional interest-based system. This infrastructure's success is noteworthy with a tremendous growth in assets, a rapidly mushrooming customer base, and the prolific examples of leading banks (both local and foreign) offering their own Islamic Banking windows. At the center of this growth and establishment, lies Meezan Bank Limited, Pakistan's first and only fully scheduled and completely dedicated Islamic commercial bank.

Islamic banking is based on the laws of contract in Islam as laid down in Islamic Fiqh, and the transactions and products offered by Islamic banks are built around the various tenets of such laws. As such, Islamic banking products are fundamentally and conceptually different from conventional banking products, although in order to facilitate customer ease and clarity of understanding, such products often emulate the packaging and presentation of conventional banking products. This does not mean that these products are the same as those offered by conventional banks.

Islam is a complete religion; it provides guidance for each and every aspect of human life. Economics is one of the most important aspects, as every human being needs involvement in some kind of economic activity for survival. Islam has provided a complete economic model for a establishing a healthy society. A very important pillar of this model is the prohibition of Interest or Riba, which is made clear by the following Qur'anic verse in which Allah (SWT) says:

"O, believers, fear Allah, and give up what is still due to you from interest (Riba), if you are true believers. If you do not do so, then take notice of war from Allah and His Messenger. But, if you repent, you can have your principal. Neither should you commit injustice nor should you be subjected to it." (Al Baqra 278-279)

This serious injunction is obviously one that needs to be addressed immediately. It is not contingent upon any prior achievement. The prohibition of Riba and its seriousness has been highlighted several times in the Qur'an and Hadith of the Holy Prophet (SAW), and it becomes imperative for all Muslims to immediately work for the development of an interest-free economic and banking system.

Fortunately, the modern day scenario is one of revival. The Islamic Economic System, as stated earlier has illustrated its viability and success, and is being pursued vigorously with the objective of attaining its desired benefits and therefore evolving society towards the purity that Islam desires. There is no room for an attitude whereby healthy change is sabotaged in the name of idealist perfection that ultimately leads nowhere.

In this regard, Meezan Bank stands today at a noteworthy and critical juncture as the premier Islamic Bank in Pakistan and is truly leading the way forward in establishing a real, stable, and dynamic Islamic Banking system in Pakistan. The foundation of this being the guidance of our highly qualified and globally renowned Shariah Supervisory Board headed by Justice (Retd) Muhammad Taqi Usmani and including renowned scholars from the Middle East, who as a whole bring together a rich knowledge base of Islamic Fiqh accumulated over the past 1400 years. Furthermore, with the able support of the SBP's Islamic Banking Department, all the products offered by the bank are very thoroughly scrutinized by these Shariah specialists in Islamic finance, hence approval of these products is not based on unqualified individual opinion or views, but on very sound assessment and jurisprudence.

Meezan Bank was first established as an investment banking entity in October of 1997, the bank entered the market with the clear but formidable mandate of establishing and promoting Islamic Banking. Embedded within a deep-rooted conventional financial system and faced with a somewhat skeptical public viewpoint doubtful of the effective applicability and even veracity of the Islamic financial model, the Bank faced an uphill task enormous by any measure. But with the mercy of Allah Almighty, Meezan Bank made fundamental and significant progress forwards, and in doing so established a strong and credible management team comprised of experienced professionals, which achieved a strong balance sheet with excellent operating profitability, including a capital adequacy ratio that placed the Bank at the top of the industry, a long-term entity rating of A+, and a short-term entity rating of A1+, the highest short-term rating.

At Meezan Bank, we strive to find commonalties with the conventional banking system with absolutely no compromise on Shariah rulings. The bank has developed an extraordinary research and development capability by combining investment bankers, commercial bankers, Shariah scholars and legal experts to develop innovative, viable, and competitive value propositions that not only meet the requirements of today's complex financial world, but do so with the world-class service excellence that our customer's demand, all within the bounds of Shariah. Furthermore, the Bank has built a strong Information Technology and customer knowledge-based focus that continues to use state of the art technology and systems. The Bank's Corporate and Investment Banking business unit is geared towards nurturing and developing a long-term relationship with clients by understanding their unique financing requirements and providing Shariah compliant financing solutions. On the asset side, the Murabaha product is the most actively used financing contract which enables an Islamic bank to finance the acquisition of fixed capital assets and meet the working capital needs of clients. The essential feature of this instrument is the requirement for an underlying asset that is financed by the bank on a deferred payment basis. This mode of finance provides a fixed rate of return to the bank, which is acceptable from the Shariah perspective. Other financing modes include Ijarah, Mudaraba and Musharakah. One major recent breakthrough for Meezan Bank was the pioneering introduction of an Islamic Export Refinance Scheme, which enables us to provide export refinance at concessional rates under Shariah compliant instruments.

We are also implementing robust and aggressive strategic and tactical initiatives on the consumer banking side. The Bank will have grown its branch network to 15 branches across the country, by 2004. Providing our customers accessibility and convenience is a prime target, within an atmosphere and culture of dedicated service and recognition of their needs. Our expanding product menu provides a range of depository products that ensure easy accessibility, unmatched stability, and strong return on investment. This also includes Meezan Providence, a long-term investment opportunity specifically designed to cater to the needs of corporate and business concerns for investing their Provident, Gratuity and Pension funds.

On the financing side, we provide Islamic auto finance with Car Ijarah, a product that offers very competitive pricing and quick turn around time. We have also launched our Islamic Home Finance proposition, Easy Home, a very comprehensive product that provides the market a long awaited totally Shariah-compliant mortgage facility that allows home purchase, building, renovation, and even replacement of an existing mortgage. In fact, the market response to EasyHome has been phenomenal, as people have been very desirous of a Halal facility with which to acquire their own homes.

Our call center is now geared to attain the next level in alternate distribution by ensuring dedicated convenience and personalized customer attention, while nation-wide ATM access is also being put in place at the moment. We are hence very excited and eager to provide the market with a broad range of consumer banking products and services, ones that not only meet our customers needs, but do so in a veritably confirmed Shariah-compliant manner coupled with dedicated service excellence.

There is also another critical area facing Islamic banking, namely the place of insurance. Many skeptics of the present Islamic banking system state that the presence of an element of insurance in Islamic banking transactions makes such transactions totally 'unislamic', as insurance is prohibited in Islam. A number of clarifications are required in this regard.

Firstly, insurance is resorted to under compulsion of law, as the law of the land, namely the Prudential Regulations and other directives of the State Bank of Pakistan oblige all commercial banks to have the insurance of certain assets in place. For example, in auto leases undertaken by commercial banks, the Prudential Regulations place a mandatory requirement for insurance of the vehicle leased. Meezan Bank being a commercial bank operating in this market is also therefore subject to these regulations. In Shariah, the concept of 'Dharurah' or necessity is a recognized fact, which applies incidentally to many areas of life. However Meezan Bank also enters into a contractual arrangement with its customers whereby the parties agree that as and when an Islamic alternative to insurance (namely Takaful) is available, the conventional insurance will be immediately replaced.

Apart from this one regulatory and supportive necessity, one cannot ignore the entire scope and nature of Islamic banking products and transactions? Can we allow this one aspect to liquidate and nullify the essence and practice of how this system differs from the conventional one and why? Do we ignore the essence of the contract; the processes adhered to, as well as the functionality of the Islamic institution, which brings together the providers of capital and the users of capital in accordance with Shariah?

It is also important to note that Islamic Banking's recent revival has occurred after a significant period of dormancy, and this revival has raised itself in the present conventional system (a diametrically opposed scenario) and a rapidly evolving one. Therefore, the establishment of many of the proposed (and required) changes will themselves be subject to an evolution or gradual implementation. This is the case with Takaful.

However, we at Meezan Bank are focusing significant efforts towards the availability of Takaful, and in this regard our efforts are underway for setting up a Takaful provision with the Pak Kuwait Investment Company. But this absence of Islamic insurance has in no way restricted the Bank's aim to offer Islamic financial products as an alternative choice to a market that demands an alternative to the interest-based financial system. The eminent scholars in the Shariah Supervisory Board of the Bank have also allowed the Bank to utilize the conventional form of insurance in cases where it is made mandatory by the SBP and GoP regulations, in order to begin Islamic Banking. Furthermore, the SBP and the Shariah Supervisory Board of Meezan Bank have also confirmed that the Islamic financial products offered by Meezan Bank are completely Halal. Therefore, for those who desire such financing, these services (even in their present form) represent a clear and superior alternative to any interest based options.

We would also like to take this opportunity to inform the readers that the Insurance Ordinance of 2000 had for the first time in the history of Pakistan made provision for the business of Takaful or Islamic cooperative insurance, based on the concept of mutual assistance. The incorporation of such changes demonstrates the genuine desire of the government to promote a platform for the availability of Shariah-compliant financial products. However under the Insurance Ordinance, the Takaful business may only be conducted in accordance with rules prescribed in this regard by the Securities & Exchange Commission (SECP), which is currently in the process of formulating the relevant rules and it is expected that Takaful will be a reality in Pakistan very soon.

We gratefully acknowledge the unwavering commitment and support demonstrated by the State Bank of Pakistan to Meezan Bank, and in particular Dr. Ishrat Husain as well as the Federal Minister for Finance, Mr. Shaukat Aziz, in setting the path for Islamic Banking in Pakistan. We believe that the future of Islamic Banking is bright and with the support of the Government and our customers, Meezan Bank will successfully fulfill its responsibility to play a pioneering role in setting the true foundation of Islamic Banking in Pakistan, Inshallah.

Meezan Bank continues to educate the market in a transparent and open manner, as to what Islamic Banking is all about, how does it differ from the conventional system, and what are its many benefits and advantages. We welcome and in fact urge all members of society to come and see for themselves as well. Visit any Meezan Bank branch across Pakistan or log onto our website at, and allow the clarity and funtionality of the Islamic Banking model to speak for itself.