June 23 - 29, 2008

Generally speaking, Islamic banking is a system of banking that is consistent with Islamic law and guided by Islamic economics. Islam prohibits usury, the collection and payment of interest. Balochistan is a society of tribal, traditional and religious-minded people. Generally, the local people abstain from purchasing insurance policies on religious grounds. Similarly, the local people have reservations on banking which also involves payment of interest. Local people believe that Islam forbids insurance due to involvement of fixed rate of interest and hence, they are more inclined to buying Shariah-compliant products. The concept of Islamic banking and insurance needs to be introduced for the promotion of Islamic banking and growth of insurance industry in the province.

Islamic banking is one of the emerging fields in global financial market. It is growing at very fast pace all around the world. Pakistan has also achieved significant progress in Islamic banking. According to a recent estimate, the country has at least six licensed full fledged Islamic banks and twelve conventional banks with separate Islamic banking branches with the total branch network of over 140 branches operating in twenty three cities of all the four provinces. For the country's central bank, Islamic banking has been a high priority area and it has taken steps to make Islamic banking industry robust enough to offer a viable alternative to conventional banking. State Bank is currently striving for developing a progressive and sound Islamic banking system compatible with the global financial sector, providing innovative Shariah compliant products and services so as to achieve equitable economic growth. Established in September 2003, the Islamic Banking Department has been entrusted with the huge task of promoting and developing the Shariah compliant Islamic banking as a parallel and compatible banking system in Pakistan.

Presently, the provincial capital Quetta has the presence of different branches of Islamic banks such as Meezan bank, Saudi-Pak bank and Global Dubai Islami bank. Islamic banking can find rich social grounds for its growth and expansion in the province. Similarly, the province has vast potential in insurance sector, but it could not play its due role in the local economy. There are two major reasons behind limited growth of insurance and banking in the province; first, the lack of public awareness and second, the government neglect. The other reasons include weak financial system, nominal industrial growth and inconsistent policies.

The emergence of Islamic banking in Balochistan would make banking easy for customers interested in financial products and services which are in harmony with their religious beliefs. Islamic banking brand can only meet customers' desire for Shariah compliant solutions. The commercial banks should understand the needs of local communities in Pakistan. Islamic Banking should be promoted in the province as a client driven institution providing innovative solutions to cater to genuine customer needs.

Spread of awareness about Islamic insurance business is essential for the growth and development of insurance industry in Balochistan. Insurance business in the province has remained underdeveloped despite having immense growth potential. Insurance sector operations have two main categories: life insurance and non-life insurance. There is need to highlight the importance of life insurance, which provides income and security for dependents after the death of the life-insured person. The growth of non-life insurance depends on industrial development in the province, which even lacks a sound industrial base. The life-insurance business can be flourished through an effective mass awareness program in the province. State Life, the country's largest life insurance organization with its largest market network and geographic presence across the four provinces, should introduce Shariah-compliant products in Balochistan. State Life is already providing financial services and protection to millions of valued policy-holders and their families countrywide by marketing life insurance policies and plans that are guaranteed by the government.

The State Life is yet to tap the vast potential in life insurance market of Balochistan. It should work out a special plan for the province to provide the benefits and financial coverage to the people through life insurance of their hard earned money in an Islamic way. This will raise the saving ratio and contribute to economic development of the province. The insurance penetration in the local economy is subject to growth of banking and development of financial system in Balochistan. There is a dire need to develop Islamic banking and financial system in the province, as with a more developed financial system, the province will tend to accumulate more premiums.

Islamic banks can play a key role in the growth of Islamic insurance industry in Balochistan. For instance, Islamic banks can develop some insurance based products in consistent with Islamic laws. The beneficiaries of such products should be the small depositors and borrowers, who may be insured by the banks without involving them in any sort of complicated documentation and formalities. In such a scheme, the insurance companies may offer a very competitive premium rate to the banks, which may bear the premium expense. The legal heirs of the deceased depositor may get an amount equal to the amount of deposit in his account at the time of his death. The development of Shariah-compliant life insurance products by the banks can not only promote life insurance business but also the Islamic banking in the province. As a regulatory authority of the insurance sector, the security & exchange commission of Pakistan (SECP) should take initiatives to tap the Balochistan enormous potential in the sector by providing level playing fields to government and private sector.

There is absolute dearth of professional Islamic bankers in Balochistan. The capacity building for the promotion of Islamic banking should be the top most priority area in the province. The central bank must actively and efficiently play its regulatory and supervisory role in the areas like risk management, corporate governance, prudential regulations, accounting and Shariah standards regarding Islamic banking. What primarily concerns the users of Islamic financial services is the Shariah compliance of the services. Noncompliance of Islamic law can result in withdrawal of funds from an Islamic bank. Hence, Shariah compliance is a serious matter for an Islamic bank.