May 19 - 25, 2008

Governor, State Bank of Pakistan, Dr. Shamshad Akhtar has urged the need to consolidate Islamic financial services industry, with enhanced capacities to compete with global players.

This, she suggested in her key note address "Financial Globalization and Islamic Financial Services Industry" at the Islamic Financial Services Board's (IFSB) fifth annual summit at Amman (Jordan),ća State Bank of Pakistan spokesman said while giving details of the event.

Dr. Shamshad Akhter, who is also the IFSB chair-person for 2008, enumerated improved scale, efficiency and cost effectiveness as basic requirements for the industry. Islamic Financial Services was further suggested to rapidly build its capacities complimented with standardized regulation, supervision and accounting practices. Dr. Akhter said that the Islamic Financial (IF) Services Industry has been transformed from being a peripheral activity to a sizeable industry which is attracting global interest.

She said that financial globalization will foster IF and given the inherent features and richness of Islamic principles, modalities and products" growth in IF will be beneficial for supporting the process of regional and global financial deepening.

"Although currently the size of IF is small relative to the global financial system, it has promising growth prospects," she was quoted as saying.

Dr. Shamshad Akhter said well developed and integrated Islamic money, capital, and foreign exchange markets will not only be beneficial for borrowers and institutional investors but can also further enhance the stability of IF institutions, providing them with improved portfolio, liquidity and risk management tools.

Referring to Sukuks, she said that the internationalization of the Sukuk structure and its flotation, which is expected to hit the 100 billion dollars mark soon, is helping to better integrate IF with the world of global finance.

This will not only meet the region's massive infrastructure project financing requirement but will also help diversify financial markets, said Dr. Akhter.

SBP Governor said that financial globalization has grown in size and scale and there was now a broad consensus that an effectively-managed financial globalization has the potential to benefit from and contribute to growing world trade integration.

She said easing of investment and cross-border capital flows has gained momentum and are contributory to development of interdependent production structures that have evolved to maximize comparative advantage, and the revolution in information technology and institutional reforms.

However, she said the recent financial market turmoil in the sub prime mortgage market has unfolded itself in an unprecedented global liquidity crunch, triggering huge financial and economic losses.

"The world is now realizing the stress of growing global imbalances that have for several months now manifested themselves in the rising global commodity prices and have fuelled inflationary pressures," she was quoted.

Dr Akhter said these events have again provoked debates regarding the pros and cons of financial globalization, as its impact becomes incrementally visible resulting in slowdown of world economy and consequently in trade in selected products and markets-volatility in equity markets which in some cases generated losses-easing of liquidity in a number of ways by the affected central banks which are now compounding inflationary pressures otherwise building up because of the international rise in food and oil prices.

Corrective actions are underway and lessons are being drawn from the unfolding events, she said.

The good news, however, is that the IF industry has generally remained insulated from the recent episode and this is because Islamic banks' transactions are backed by real economic transactions and risk management benefiting from the application and compliance with Shariah principles and guidelines, wherein the banks and investors have to share the profit and losses in accordance with the risks taken.

While in conventional finance risk-free capital encourages over-leveraging and over-exposures by transferring transactions to off balance sheet conduits, IF services derive their inherent strengths from the Shariah guidelines and principles.

Notwithstanding, IF services, like all businesses, could be impacted if the global slowdown deepens, she added.

The SBP Governor said that abstracting from the current scenario which is still unfolding, broad evidence confirms that financial globalization with adequate safeguards promotes economic growth and development.

Financial globalization has the potential to promote and reinforce IF by ensuring its conformity with conventional finance by fostering newer and better linkages with the regional and global financial markets.

IF in turn can reinforce and support globalization by bringing to it financial innovation and stability, provided it is properly nurtured and developed in conformity with the internationally well accepted and tested financial sector prudential and regulatory frameworks.

The SBP Governor said that to achieve deeper and sustainable impact, IF would benefit by aligning and positioning itself in a way that it takes full advantage of financial globalization.

Dr Akhter said that although the IF industry has the potential to grow by 20-30%, there are concerns that it is fraught with diversity, fragmentation and heterogeneity.

To foster IF to integrally benefit from and contribute to financial globalization, there is a need for countries to launch a coherent, coordinated and synchronized development of the IF industry at national level which feeds into and reinforces the implementation of IF strategy, approved by the Council of Governors of IFSB last year.

She said that to support and withstand financial globalization, IF needs to reorient itself to consolidate, promote 'globalization' of IF modes and instruments, promote and adopt Islamic financial architecture that encourages standardization of legal structure and contracts, prudential regulation and supervision supported by appropriate risk management.

Dr. Shamshad also highlighted significance of the special features and structure of the new products and accounting practices in line with AAOIFI standards, harmonization and convergence of religious views on Islamic laws relating to financial transactions and developing suitable framework and applications of PLS-based products.




The Lahore Chamber of Commerce & Industry (LCCI) has demanded cut in sales tax and a package for the revival of the industry and business in the budget for the year 2008-09.

The LCCI President Muhammad Ali Mian unveiling details of the budget proposals said that the country's industrial and business sectors are undergoing tremendous pressure owing to multiple reasons including high oil prices and energy shortage. He urged the government to curtail the rate of Sales Tax from existing 15 per cent to 10 per cent. It has already been proved through various experiences that cut in tax rate can earn more revenue for the government.

While demanding reduction in sales tax, he said during the last ten years collection of sales tax has been increased from Rs. 55.66 billion to Rs 309.39 billion, which shows that government has been generating good amount of tax under the head. It is also experienced that reduction of tax rate increases government revenue collection, he said, adding, the government should reduce the rate of sales tax from 15% to 10% enabling the business community to contribute more in the national exchequer.

LCCI President also raised the issue of under-invoicing and said that some black-sheep in business community along with the corrupt officials of the government are involved in the menace, which needs to be controlled through introducing a transparent system. He also demanded change in Registration Procedure of Manufacturers. He also demanded increase of income tax exemption from Rs 100,000 to Rs 200,000. Other proposals raised by LCCI include long and short term measures including construction of new water reservoirs at suitable sites in the country to find out solution of energy crises.

He said due to energy crises, increased mark-up rates, and load shedding, industry was facing great difficulties. He said according to an estimate Thermal electricity produced by companies was costing around Rs 16 per unit due to high furnace oil prices. The LCCI, therefore, proposed to initiate tough measures to reduce the increasing burden on local manufacturing industries due to fixed charged by WAPDA and bank installments.