Islamic economy has touched only the tip of the iceberg since a lot more is yet to be achieved in the wake of the growing propensity of the Muslims as well as the non-Muslims alike in the Islamic finance globally. The Islamic finance underwent certain glitches in 2018 and there is a likelihood of somewhat subdued growth in 2019 in the Islamic finance owing to the economic malaise across the Islamic world and in some other countries, however, there are promising opportunities for the Islamic finance sector in general in the days to come. One must not forget the massive boost to this sector in 2017 because of the sukuk issuances in the Gulf Cooperation Council countries which is by and large the stronghold of the sector.
The growth of the Islamic economy is on the rise in the wake of the receptivity from across-the-board. Islamic finance assets globally are over $3 trillion which is a massive hike compared to $2 trillion in 2016. There are around two billion Muslims out of around seven and a half billion global population. One could witness tremendous growth in the Islamic products and the market around the world even in some European countries where the Islamic economy is gaining momentum. There are over 1,400 Islamic finance institutions in 80 countries across the world. As per one statement of the International Monetary Fund (IMF), the Islamic lenders have outperformed conventional banks over the past decade in the banking sector. Though much of the concentration still is in United Arab Emirates, Saudi Arabia, Qatar, Oman, Kuwait, Bahrain, Iran and Malaysia, there are ample success stories from other parts of the world namely the African continent and the United Kingdom, to be precise.
Pakistan with a Gross Domestic Product of over $300 billion is one of the leading countries when it comes to the Islamic finance. Market share of Islamic banking assets and deposits in the overall banking industry of Pakistan is in double digits. When it comes to Islamic economy, one may witness a surge of interest overall by the populace in Mudarabah (profit-sharing and loss-bearing), Wadiah (safekeeping), Musharaka (joint venture), Murabahah (cost-plus), and Ijara (leasing) in Pakistan. There are monumental prospects for this sector of the economy comparing the meagre growth of the sector in 2003 and the figures of today. Some presume that Pakistan still lacks when it comes to appropriate regulations to organize this sector. It is perceived that Islamic finance is not only a provider of debt for the development of the economy but also an integral part of the society overall due to the religious beliefs which segregate Islamic finance from the conventional finance in Pakistan as such. There is a prevalent assumption that Islamic finance has not done much in terms of developing the Small and Medium Enterprises in Pakistan.
There is no second opinion that there are a number of success stories in the world when it comes to bolstering the economic growth through the underpinning of the Small and Medium Enterprises. Some of the instances are Japan, Taiwan, Korea, India, Hong Kong, China and many countries in South America, to name a few. Islamic finance seems to lack in the Small and Medium Enterprises sector of Pakistan. The State Bank of Pakistan launched its policy a couple of years ago, as a window dressing to be precise, to encourage financing for small and medium enterprises, which aimed at hiking SME sector’s share in private-sector credit from 8.7% to 17%. One must not forget that it is generally deemed that in case SME financing does not grow in double digits a year, export-based large industries get a compounding impact.
Pakistan’s exports are either stagnant or dwindling over the period of last half a decade and no one knows who should be held accountable for this grave mistake which has emerged as one of the detrimental reasons for the economic malaise in the country at present. As per the report of the State Bank of Pakistan (SBP), banks provided record Rs500 billion financing to the SMEs during 2018. One must know that it is merely a drop in the ocean since SMEs’ contribute around 30 percent in GDP, provide employment to around 80 percent of non-agricultural workforce and most importantly contribute over a quarter of the export earnings in the country. The Islamic finance market has actually not been soundly exploited in Pakistan so far despite massive opportunities in a deluge of economic sectors. There is a whopping potential for investment in the Halal food sector of the country which seems to be on the backburner at present for unknown reasons. The Halal sector is deemed a sector worth over $2 trillion globally. The growth of the SMEs results in the community development enabling the governments to address unemployment and poverty issues with definitive solutions. There is desperate need of financing in the SMEs financing in Pakistan which may be catered to by the Islamic financial institutions of Pakistan resulting in acceleration in the badly-needed exports earnings at this juncture since the economy of Pakistan is in the doldrums.