DEMAND FOR T-BILLS, BAITUP MAAL CERTIFICATES

2nd Day of 3rd World Asia Islamic Capital Conference.

SADAF AURANGZAIB
Nov 12 - 18, 2007

The Islamic banks have demanded the government to issue the shariah compliant T-bills (Baitul Maal certificates) to facilitate them on moving on to more investment opportunities.

The non-availability of such instruments has been posing as a liquidity management issue for Islamic banks. As a result Islamic banks are at a disadvantage compare to conventional banks in terms of optimizing returns on excess liquidity. These views were expressed by the Islamic banking sector stakeholders while speaking at the second day of 3rd World Asia Islamic Capital Conference.

Islamic Banking grows tremendously since mid 1970s and they have an increased presence on the world financial markets. There are now over 200 financial institutions world wide which adhere to Islamic banking and financial principles. These banks operate in more than 60 countries encompassing most of the Muslim World, along with Europe, North America and various off shore locations. Islamic Banking shows many interesting features like equity participation, risk and profit and loss sharing arrangements from the basis of Islamic financing.

Head of Islamic Banking State bank of Pakistan, Mr. Pervez Said pointed out that the success factor behind Islamic banking growth is the supportive regulatory framework of state bank of Pakistan. He said that Islamic banks have seen phenomenal growth in last five years and they also have a sizeable pipeline of sukuks for near future, which has enormous potential in Pakistani market. He said that Islamic banks must jointly workout a future plan of action with the regulators for the issuance of Baitul Maal certificates.

It was also brought about that Islamic banking industry needs 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 of Pakistan has allowed the Islamic banks to execute any transaction only with the approval of their Shariah boards without getting prior approval from SBP, the regulators can review and approve the transactions later on.

It was also announced by the Islamic capital partners that they would organize an investor forum in Dubai in May 2008. This investor forum would help bring gulf region investors and Pakistani corporate to explore the investment opportunities in Pakistan. They would organize this conference again in November 2008 in Karachi and they hope that it would also serve to be a good platform for Pakistani financial sector.

Financial experts said that current 3% share of Islamic banking industry needs to grow to up to 25% percent in next decade.

Experts pointed out the four different challenges that the Pakistan Islamic Banking Industry is facing at the moment are:

* Trained human resource is the biggest challenge being faced by Pakistan Islamic banking industry right now. Qualified human resource is needed to keep the current pace of growth intact.

* They also emphasized the need of standardization of guideline documents for Islamic financial sector that would enable the industry to work in harmony.

* The Islamic Banks need to work upon Product Offering as at the moment they are just focusing on the conventional products.

* Baitul Maal Certificates to come up as soon as possible.

Speaking at a session on emergence of takaful in Pakistan, the Takaful experts said that we need to move out of niche market syndrome and grab the maximum potential available in the market. They informed that 63% Islamic banking and takaful consumers in Malaysia are non-Muslims, which show the benefits for consumers available in Islamic mode of finance.

Pak-Qatar Family Takaful emphasized the need of synergy in Islamic banks and takaful companies. We have a very low insurance penetration in Pakistan. The takaful products should be competitively priced and be available with best services as being halal must being an added benefit into it. The takaful operators need to bring innovation in business process and product distribution. and focus on the development of human resource for the Islamic financial sector.

Earlier, on the first day of the conference Dr. Ishrat Hussain Chairman National Commission for Govt Reforms pointed out the salient steps with which Islamic Banks can work for a better progress and for a better society.

1. Islamic banks can spread their geographical presence by locating their branches or other delivery channels in the potentially attractive but underserved areas and use IT tools and alliances with Post Offices, and other distribution outlets to develop cost effective business model as most of the conventional bank lacks their presence in those areas and their presence is limited to metropolitan areas and big cities. .

2. One of the missing elements on the spectrum is the combination of Microfinance with Islamic Finance as Microfinance is catching on quite rapidly in Pakistan. The State Bank of Pakistan (SBP) has recently taken the initiative and issued the guidelines for Islamic Microfinance.

3. In order to win the confidence of their future clients Islamic banks have to take extra precautions and safeguards to ensure that they meet the exhaustive requirements to be Shariah compliant.

4. Fourth, the role of the Islamic bank is not limited to a passive financier concerned only with timely payments and loan recovery. The bank is in fact a partner in business and has to concern itself with the nature of business and profitability position of its clients.

All and all, the conference turns out successful as it was attended by all walks of life concerning Islamic Banking. Many prominent personalities were present at the occasion. Out of which Faizan Mitha, Senior Executive Vice President Habib Bank, Anwer Sheikh, Chief Executive Access Finance, Irtiza Kazmi, Head of Capital Markets & Syndication, Dubai Islamic Bank Pakistan, Anthony Dutton, of Norton Rose, Captain Jamil Akhtar, Chief Executive Takaful Pakistan, Abdul Rahim Abdul Wahab, Executive Director & Actuary- Acturial consulting Sidat Hyder Morshed Associates (Pvt) Ltd., Mufti Muhammd Mohibul Haq, Shariah Advisor, Mansoor Shakel, Head Central Shariah Group HSBC Ammanah, UAE, Asif Kamal Chairman Trust Investment Bank, Zaigham Mahmood Rizvi, chairman and Managing Director HBFC, Akmal Jamil, CEO Arif Habib Private Equity Fund, Justice Khalilur Rehman, Mufti Zubair Usamani and Mufti Irshad also spoke on the occasion.