Dec 22 - 28, 2008

The banking sector in Pakistan has evolved over the years as an efficient and vibrant private sector enterprise, becoming one of the most resilient and profitable sectors of our economy as a result of a number of reform measures taken during the last 7-8 years.

Within the banking sector, Islamic banking in particular has emerged as a strong segment with a tremendous potential for growth and development. Currently constituting around 4% of the overall banking industry, it is projected to capture a share of 15% by 2012.

The Country Head of AlBaraka Islamic Bank, Mr. Shafqaat Ahmed in an interview with Pakistan and Gulf Economist shared his views about AlBaraka Islamic Bank in particular and Pakistan's banking industry in general. He said that AlBaraka Islamic Bank, Pakistan Operations (AIB) has performed quite well, which is evident from its solid results over the last many years. It has the honor of being the oldest Islamic Bank in Pakistan. During 2008, AIB is opening 12 new branches in diverse geographical areas so as to ensure maximum outreach to the masses, leading to an overall network of 30 branches.

He further said that profitability of the bank also showed substantial improvement and registered a growth of 90% during 2007. The aggregate financing portfolio of the bank also grew by a healthy 30% on account of increased financing activities especially in the consumer and SME sector. In line with this, the deposit base also went up by 23% to support the increased business activities. As at year-end 2007, the AlBaraka Islamic Bank had an asset base of Rs. 22 billion, with a combined financing and investments portfolio amounting to Rs. 13 billion. The total volume of foreign trade business generated by the bank during 2007 was Rs. 30 billion. The bank earned a profit of Rs. 324 million during the year.

Following are details of interview:

PAGE: What are the future plans of AlBaraka Islamic Bank to get more market share in Pakistan?

SHAFQAAT AHMED: AlBaraka Islamic Bank has recently embarked on an extensive drive to enhance its market share in the country. Keeping in view the vast potential of Islamic banking in Pakistan and its 15 years of experience in the country, the management of AIB has decided to localize its Pakistan operations, whereby it will be converted into a locally incorporated Islamic bank. This will enable us to build on the expertise and experience of our workforce to further enhance our business and capture a greater market share. This process has been initiated and the locally incorporated bank will be operational in early 2009.

The localized entity will have greater opportunities to explore more business avenues, through expansion in branch network and innovations in product development. At the same time, it will continue to enjoy the support of its parent group, the AlBaraka Banking Group, which is a leading provider of Islamic banking, investment and treasury services world wide. In terms of network expansion, during 2009 we plan to set up 20 new branches in diverse geographical regions, which will take up our branch network to 50 by the end of the year. Further expansion is planned in the coming years which will result in around a 100 branches by 2013.

PAGE: Most of the foreign Banks have acquired local bank to expand their operations in Pakistan. Do you also plan to acquire a local bank?

SHAFQAAT AHMED: It is true that the acquisition of an already established local bank is a convenient and cost effective way to set up a strong foothold in the local market. However, since we are operating as an Islamic bank committed to providing Shariah compliant banking products and services to our clientele, we cannot acquire the operations of a conventional bank since it would be in conflict with the basic tenet of our business philosophy. As far as the existing Islamic banks are concerned, with the exception of one institution, the others are still in a nascent growth stage in terms of their operational outreach to provide any significant value addition through acquisition.

PAGE: The Global financial crisis has affected many a foreign banks world wide. Did it impact your bank as well?

SHAFQAAT AHMED: The current global financial crisis has created a serious impact on many large financial institutions of the world. However, despite having a significantly diverse geographical presence, AlBaraka Banking Group and its subsidiaries have remained unharmed by this global meltdown. We owe this to the Group's prudent and conservative business and investment policies, which discouraged exposure in high risk areas such as those related to sub-prime mortgages, which lie at the crux of this crisis.

PAGE: What is your experience about Pakistani market?

SHAFQAAT AHMED: Over the last several years, Pakistan's financial market has evolved into an efficient and competitive system, on the back of improved legislative framework and supervisory capacity, and a pre-dominantly private sector ownership. This has resulted in a financial sector that is sound and exhibits an increased resilience to shocks. Our financial market has acquired a depth in terms of the availability of new and innovative financial products and instruments. Over the years, technology has become an integral part of the banking business by making it a more convenient and hassle free experience. With the aim of enhancing its competitiveness in this area, the banking industry in Pakistan witnessed a tremendous influx of IT based products and services in the last 4-5 years, in the form of ATMs, credit cards, internet and mobile banking etc.

Efforts are also being undertaken in terms of infrastructure development and legislation to further improve and expand such technology driven services in the country.

PAGE: As per information AlBaraka is operating in Pakistan for a long time but your operation is still limited compared to other foreign banks here. What is the reason?

SHAFQAAT AHMED: Being the oldest full fledged Islamic bank in the country, initially we had to face a lot of challenges in competing with conventional banks in terms of market acceptability, availability of comparable products and services, and lack of rules and regulations applicable to Islamic banks. All these factors hindered the full-throttle growth of the bank during the 1990s. However, the past 6-7 years have witnessed a marked change in the landscape of Islamic banking in the country, especially at the regulatory front, which made it conducive for existing and new Islamic banks to expand their operations and create acceptability of this concept among the masses. AIB has also capitalized on the opportunities afforded by these changes, and has managed to increase its market share, making up 14% of total assets and 15% of deposit base of full fledged Islamic banks. This is expected to increase further in the coming years, following the completion of the localization process mentioned earlier.

PAGE: Islamic banking has become a buzz word in Pakistan. But people think that source of funds and mark up bench marks both for lending and borrowing are similar to those of conventional banking. What is your point of view?

SHAFQAAT AHMED: This, and other, misperceptions about the working of an Islamic bank are mainly due to lack of understanding on part of the general public. We believe Islamic banks need to make a collective effort to educate people regarding the principles underlying the concept of Islamic banking and how it is different from the conventional mode. With regard to the source of funds, it is important to understand that in an Islamic bank, its resources in the form of deposits are taken on the basis of profit and loss sharing under the principles of Mudaraba and Muskaraka, which are Shariah compliant. These resources are then utilized in various financing activities which are also admissible under Shariah rules and principles. Currently, we are using a benchmark of conventional banks to price our asset and liability side products. However, this in no way impacts the authenticity and Shariah compliant nature of the products since this is just a tool employed to make our products comparable with those of conventional banks in terms of pricing and returns. Going forward, as the Islamic banking market matures further we expect the development of a dedicated Islamic benchmark to be used for this purpose.



MCB is offering a number of Sharia compliant Islamic banking products to clients and along with all other conventional banking services including, ATM facility, On-line banking and e-banking.

Islamic Banking Division in MCB was formed in 1st January 2003, which in a short span of time has developed sufficient expertise, necessary infrastructure, information technology, and manpower to run Islamic Banking Operation and offer Islamic Banking products.

MCB has played a dynamic role in promotion of Islamic Banking and has been winning the customers trust through providing all time Sharia compliant financial services. MCB looks forward to become a leader among Islamic Banks of the country in the coming years capturing major share of the domestic Islamic financial market. MCB is constantly coming up with the different value added products offered by Islamic Banking Branches, and is improving them not only to make them competitive and practicable but also make them truly Sharia Compliant.

Dr. Muhammad Zubair Usmani, working as Sharia Advisor in MCB since July 2000 is a prominent scholar having Ph.D. degree in Islamic Finance as well as Fazil Takhassus from Jamia Darul Uloom Karachi is providing expert advises on Islamic Fiqha and Fatawa. He has attended and addressed several international and local seminars / conferences as guest speaker sessions in Pakistan as well as abroad. He has also worked as Research Scholar and member of various forms and committees formed for promoting the cause of Islamic Banking in Pakistan and abroad.

All products are approved by MCB's Sharia Advisor and these are further proved and vetted by Sharia experts. Majority of the products are given go ahead by Maulana Muhammad Taqi Usmani.

MCB Islamic banking products give customers various deposit opportunities where they can purse their funds and can reap HALAL returns. Some of the Islamic banking products include Al Makhraj Saving Account, IANAT Account and Al Makhraj Term Deposit. MCB Islamic banking offers 2 broad Islamic fund based facilities that include Ijarah and Murabahah.

MCB is coming up with various upcoming products like Diminishing Musharika, Equipment Ijarah Housing, Running Finance Musharika, Guarantee, Istisna-cum- Murabaha, Istisna Post shipment, Istisna Pre shipment and Musawama for DA L/cs.