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State Bank of Pakistan launches Five Years Islamic banking plan

State Bank of Pakistan launched a third five-year Islamic Banking plan (for the period from 2021 to 2025). It will help Islamic banks in enhancing their network nationwide. Advised to increase online banking and “capitalise on fintech to sustain the growth momentum.”

The State Bank highlighted that the State Bank aimed to make Islamic Banking one-third of the overall banking industry share by 2025.

“For more penetration in the market and minimising services delivery costs, IBIs (Islamic banking institutions) need to increase the use of alternative delivery channels,” it said.

“Given the significant contribution of branchless banking towards improving financial inclusion, there is a need for the Islamic banking industry to capitalise on fintech to sustain its growth momentum.”

“This plan gives headline targets in terms of increasing share in both assets and deposits of the Islamic banking industry to 30% of the overall banking industry, 35% share in branch network of the overall banking industry, 10% and 8% share in SME (small and medium-sized enterprise) financing and agriculture financing respectively in private sector financing of the Islamic banking industry (by 2025),” according to the SBP’s Strategic Plan for Islamic Banking Industry 2021-25.

“The network of the Islamic banking industry is concentrated in urban areas, though it has improved its coverage in recent years; however, the industry still requires expanding its outreach to unserved / underserved sectors and regions.”

“Like globally, the domestic Islamic banking industry is faced with the liquidity management challenge. (like they have liquidity but lack avenues to invest and finance),”. The central bank said, adding that it would amend some related laws. We will “coordinate with Islamic banking institutions for developing Shariah-compliant structures/solutions for liquidity management as and when desired.”

The five-year Islamic banking plan proposes that the central bank will work extensively in six areas. Including strengthening the legal framework, expanding the framework for regulation, and strengthening the Comprehensive Shariah Governance Framework. These include improving the liquidity management framework, increasing access and market development and market enhancements and rising awareness.

Islamic Banking Infrastructure in Pakistan

The Islamic Banking plan proposes that the State bank will amend many laws in these six areas. This time, about 22 Islamic banking institutions (five complete Islamic banks and 17 commercial banks having Islamic banking branches) are giving Shariah-compliant products and services through a branch network of 3,456 branches and 1,638 Islamic banking windows (dedicated departments at commercial branches) spread across 124 districts of the country.

Market Share of Islamic Banking in Pakistan

It is important to mention that the Islamic banking in Pakistan has achieved a market share of 17% in assets. Moreover 18.3% in deposits of the overall banking industry of Pakistan by the end of December 2020.

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