Nov 7 - 20, 2011

Islamic Finance initiated to cater the needs of faith based Muslims four decades ago. Once looked at, as a patchwork of niches in the Arabian Gulf region and Malaysia, the market is evolving into a global one.

In the last thirty years, Islamic finance industry has made considerable progress at the global front. Especially, during the last decade the Islamic Financial Sector (IFS) has registered a robust growth (between 15 to 20 percent per annum) making it one of the fastest growing segments of the overall financial system. Now, by the grace of Almighty Allah, Islamic finance has its roots expanded to Muslim as well as non-Muslim economies.

Presently, more than 1100 institutions offering Islamic financial services (IIFS), operate across the globe, which, coupled with a number of dedicated academic, legal, regulatory and supervisory institutions provide a solid platform for future growth and development of the Islamic finance industry. With the passage of time, the international Islamic financial market is becoming increasingly dynamic and diversified.

Assets of the top 500 Islamic banks expanded 28.6 per cent to $822 billion at year-end 2009. Standard & Poor's estimates that Shariah-compliant assets currently total about one trillion dollar worldwide, after brisk growth during the past decade.

The Islamic fund industry has also played its role in exponential growth, whereby the number of Islamic funds, has reached a total of 517, more than doubled compared to the 207 funds available in Jan 2005.

Due to prevailing economic crisis, safety remains an important priority for the investors and Islamic funds. Of the 517 Islamic funds across the world including Saudi Arabia, Malaysia, US, Kuwait, South Africa, Indonesia, Pakistan, Luxembourg, Bahrain, and Japan, 274 are equity funds, 84 are mixed assets, 75 are money market or commodity murabaha funds, 67 are Sukuk funds and 17 are capital funds.

Major global banks and law firms have participated in the structuring ad offering of a large numbers of sukuk issued so far.

Access to Western economies means that Islamic financial institutions gain entry into large and diversified economies with a wide array of asset classes for investment, and in the case of most developed countries, strong legal frameworks.

In Pakistan, the birth of Islamic finance can be traced way back in 1948 when founder of the nation, Muhammad Ali Jinnah at the inauguration of State Bank of Pakistan said that:

"I shall watch with keenness the work of your research organization in evolving banking practices compatible with Islamic ideas of social and economic life. The economic system of the West has created almost insoluble problems for humanity and to many of us it appears that only a miracle can save it from disaster that is not facing the world. It has failed to do justice between man and man and to eradicate friction from the international field. On the contrary, it was largely responsible for the two world wars in the last half century. The Western world, in spite of its advantages, of mechanization and industrial efficiency is today in a worse mess than ever before in history. The adoption of Western economic theory and practice will not help us in achieving our goal of creating a happy and contended people. We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice. We will thereby be fulfilling our mission as Muslims and giving to humanity the message of peace which alone can save it and secure the welfare, happiness. and prosperity of mankind."

Efforts for economy wide elimination of Riba started during 1970s and most of the significant and practical steps were taken in 1980s. The initiative to reintroduce Islamic banking in Pakistan was launched back in 2001 when the government decided to promote Islamic banking in a gradual manner and as a parallel and compatible system that is in line with best international practices. Following the decision of the government to shift to interest free economy in a phased manner without causing any disruptions, the effort was envisaged to be based on a market driven and flexible approach. Furthermore, it aims at building a broad based financial system in the country to enable all segments of the population to access financial services

Growth of Islamic banking industry in Pakistan is tremendous. Currently, Islamic banking industry of Pakistan is operating with

5 Full fledge banks having 416 branches

13 conventional banks operating with 183 standalone Islamic banking branches (SAIBB) and 68 sub-branches

Despite above all success story, there are several factors that are likely to stifle the development of Islamic finance:

The current Islamic banking is based on replication of conventional banking products. While the replication is easy, it is insufficient to achieve the overall objectives of Islamic system which is based on equitable distribution of economic gains on one hand and making Islamic less efficient than their conventional counterparts on the other.

Not all conventional products have an Islamic equivalent like treasury and liquidity management tools.

Necessary changes in legal, regulatory and tax environment to accommodate Islamic finance without incurring additional costs to the customers.

The different interpretations of Shariah rulings have resulted in lack of standardization. Therefore, common understanding is needed to integrate local market with global market.

Lack of necessary instruments for liquidity management.

Limited availability for access to lender of last resort facility by the central bank due to lack of Shariah compliant compatible mode

While the Islamic markets have remained resilient to the financial crisis, Islamic secondary market has remained inconsistent due to its infancy. Reasons are dearth of regular issuances of Sukuk.

HR and expertise in Islamic finance are scarce.

The above considerations for developing of Islamic financial sector in future may be helpful for establishing sound footing of the industry and result in an Islamic financial regime, which could compete with the international financial organizations.


During 2010, HBL Islamic Banking (IB) has increased its network of standalone Islamic banking branches from one in Karachi to 19 in 17 cities across the country. On 14th February 2011 further three branches in three cities will be established. The deposit and asset size of HBL Islamic banking has increased to Rs5.7 billion and 7.5 billion as on December, 2010.

HBL plans to convert further 20 branches to dedicated Islamic banking branches in 2011, raising the number of Islamic banking branches to over 40 besides dedicated branch network HBL will be offering Islamic banking products and services from 206 conventional branches, corporate & commercial centres by capitalizing on its state of the art IT technology enabling its patrons to avail Islamic banking products and services at their doorstep while maintaining account with dedicated Islamic banking branch of their region. Thus, effectively HBL has over 225 outlets spread across the country to meet Islamic banking needs of the individuals and businesses. Various new innovative products are being introduced shortly.

HBL has added various Islamic banking products and services to its financial services menu, and is ready to meet every financial need of all segments of the society.