The State Bank of Pakistan has set the ambitious target for the country’s Islamic banking assets to reach 30% market share by 2025 from 17% last year, a growth of 76%. SBP on Monday (April 5) released its 2021-25 strategic plan for the Islamic banking industry that also aims for the market share of deposits to hit 30%, from 18.3% in 2020, and for financing of SMEs and agriculture to rise to 10% and 8%, respectively.
It outlined six focus areas to achieve the targets:
|Focus area||Select key plans|
|1||Strengthen legal landscape||Amend microfinance institutions ordinance 2001 to offer Shariah-compliant products and services Resolve tax-related issues with the objective of providing level-playing field for Islamic banking|
|2||Enhance regulatory framework||Update risk management guidelines for Islamic banks Facilitate and adopt Islamic financial accounting standards Adopt IFSB prudential standards|
|3||Reinforce Shariah governance framework||Fast-track adoption of AAOIFI standards Enhance coordination between SBP and Securities and Exchange Commission of Pakistan Shariah advisory committees|
|4||Improve liquidity management framework||Operationalise SBP’s liquidity management framework Develop sukuk structures for issuance of regular sukuk program|
|5||Expand outreach and market development||Expand Islamic microfinance services Enhance focus on R&D|
|6||Bolster human capital and raising awareness||Coordinate with international organisations and forums for capacity building and joint research Increase outreach of Islamic Banking Certificate Course Aggressive social media awareness campaigns|
A large component of the strategy involves an extensive focus on improving the public perception of Islamic banking as a viable system that can cater to the different financial needs of Pakistani society. Islamic banks are expected to come up with innovative products to cater to unserved as well as under-served sectors, particularly SMEs and agriculture, said the central bank.
“The industry will be required to fully capitalize on potential of Islamic finance for achieving the shared vision of a vibrant and sustainable Islamic banking sector in Pakistan,” it added.
The targets are very ambitious considering the rate of growth of the Islamic banking industry over the last three years:
|Share of assets||Share of deposits|
|Data source: State Bank of Pakistan|
Pakistan’s Islamic banking industry comprises five full-fledged Shariah-compliant banks and 17 Islamic windows offering products and services through 3,456 branches and 1,638 dedicated counters at conventional branches.