- Could you please briefly introduce yourself and share your professional journey in academia, banking, and risk management?
My professional journey has been a fascinating bled of operational and academic endeavours. It spans more than three and a half decades across central banking, commercial banking, academia, risk management, internal audit, training, and policy advisory work.
I began my professional career with Pakistan Telecommunication Corporation (now PTCL) in 1990 and my banking career with HBL in 1992. I joined State Bank of Pakistan in 1995, where I developed a strong grounding in regulation, banking supervision, institutional development, and financial-sector policy. I subsequently held senior positions in commercial banking, including roles at National Bank of Pakistan. My responsibilities have covered credit and business risk, internal audit and inspection, operational risk, fraud investigation, policy review, and the evaluation of corporate, commercial, structured-finance, and agricultural portfolios. I have also served as Director of NBP Staff College and as a senior risk reviewer.
Academically, I served as Associate Professor and Chairman Department of Accounting and Finance at the International Islamic University Islamabad. I hold a PhD in Finance from Malaysia, an MS in Finance with a Gold Medal from SZABIST, and an MBA from Dawood Suleman School of Business at LUMS, together with professional certifications in Islamic finance, green banking, AML/CFT (CAMS), and forensic accounting.
More recently, I have worked as a Climate-Smart Financing and Training Expert and my work includes climate-risk profiling, sustainable-finance frameworks, smallholder credit assessment, green banking, Islamic finance, and capacity building for financial institutions.
The common thread throughout my career has been an effort to translate academic knowledge and regulatory principles into practical, bankable decisions.
- With your experience in credit and business risk, what are the key risks currently facing the banking sector?
In my view, the greatest threat is no longer one isolated risk; it is the increasing correlation among risks. Credit, sovereign, market, cyber, climate, liquidity, and reputational risks can now reinforce one another very quickly.
You see there has not been a single fiasco in banking industry which resulted out of only the credit or financial risks. Starting from Barring, Herstatt and moving towards the most recent catastrophes of Global Financial Crisis, there has not been a single incident where a single risk category was responsible for the collapse. It has always been a combination of risks aggravating the control breaches. The essential lesson is that risks no longer arrive one at a time. Banks must assess portfolios as interconnected systems rather than collections of individual loans. I see that operational risk has always been one of the risk categories that teams up with credit or some other risks to bring losses. Therefore, I presume that this basic category should always be at the top of risk management priority though this seems less fancy as compared to the seemingly more attractive risk categories.
Credit risk also remains fundamental, particularly where banks have concentrated exposure to a limited number of sectors, large borrowing groups, geographic areas, or sovereign instruments. High sovereign exposure may appear safe from a regulatory perspective, but it can create a powerful sovereign–bank nexus and reduce financing for productive private-sector activity.
A second major concern is operational and digital risk. Banks are rapidly adopting digital platforms, artificial intelligence, cloud services, fintech partnerships, and outsourced service providers. This expands access but also enlarges the attack surface for cybercrime, fraud, data leakage, model error, and third-party failure.
Climate risk is another emerging balance-sheet risk. Floods, droughts, heatwaves, energy-transition requirements, and changing environmental regulations can affect borrower cash flows, collateral values, supply chains, and ultimately loan repayment.
Finally, I would highlight data and governance risk. A sophisticated risk model built on incomplete data or weak professional judgement can produce what I call “precisely calculated errors.” Banks therefore need better data architecture, independent challenge, forward-looking stress testing, and a stronger risk culture.
- How can banks effectively integrate climate risk into their credit and risk management frameworks?
In my recent climate-smart agriculture financing expert consultation provided Alliance for Financial Inclusion (AFI) and the State Bank of Pakistan, I developed two complementary approaches: a comprehensive model that embeds climate, geospatial, financial, behavioural, institutional, and farm-level indicators into credit assessment; and a more immediately implementable Climate Risk Profiling Overlay, or CRPO.
In my view, banks should adopt these through a phased approach. During the first two to three years, they can apply the CRPO alongside their existing credit-rating and borrower-assessment models. The CRPO is not intended to replace conventional credit appraisal. It adds a location-level assessment of hazards such as floods, drought, rainfall variability, heat, and other climate extremes. The resulting climate-risk classification can act as a risk modifier in decisions relating to loan approval, pricing, tenor, collateral, covenants, monitoring, restructuring, and portfolio concentration. This initial phase would allow banks to begin geotagging borrowers and collateral, introducing climate-risk bands, developing sector and district exposure maps, and accumulating loan-performance and climate-event data without disrupting existing credit processes.
After two to three years, banks could progressively move towards the embedded model. This model would integrate climate and geospatial exposure with the borrower’s financial capacity, farm and production characteristics, behavioural and knowledge readiness, market access, institutional support, and adoption of climate-smart practices. Climate risk would then become part of the internal credit score rather than remaining an external overlay.
The main obstacle is not the conceptual design of such a model; it is data and market readiness. Pakistan still faces limitations in standardised and sufficiently granular weather data, weather-station density, borrower geocoding, digitised farm records, crop-loss histories, land-tenure information, and validated links between climate events and loan defaults. Satellite data can help, but estimates require ground validation. Banks also differ considerably in digital maturity, staff capacity, core-banking integration, and experience with agricultural and climate-risk modelling.
Introducing a complex model before the data ecosystem is ready can create false precision. My recommended principle is therefore: begin with a practical overlay, build the data and institutional infrastructure, validate relationships through actual portfolio performance, and then move towards full model integration. This approach allows climate-risk management to evolve from informed judgement to empirically validated credit analytics.
- What role can Islamic banking play in promoting green and sustainable finance?
Islamic finance has a natural—but not automatic—advantage in sustainable finance. Its emphasis on ethical investment, asset backing, avoidance of excessive uncertainty, social responsibility, and the objective of Shariah is closely aligned with sustainable development. However, this potential will be realised only if Islamic banks move beyond merely applying Shariah-compliant contracts to conventional-style financing.
The real opportunity lies in matching contracts with sustainable economic activities. Salam can support climate-resilient agriculture and provide farmers with advance working capital. Ijarah can finance solar systems, efficient irrigation, cold storage, electric mobility, and energy-efficient machinery. Diminishing Musaharaka can support green housing and business retrofitting, while green and sustainability sukuk can mobilise long-term capital for renewable energy, water, transport, and resilient infrastructure.
Islamic banks can also combine these instruments with takaful, parametric insurance, credit guarantees, concessional funds, and waqf-based or donor-supported risk-sharing mechanisms. This would make sustainable finance accessible to small farmers and SMEs rather than limiting it to large corporations.
An important caution is that greenwashing and Shariah-washing are twin risks. A transaction should not be considered sustainable merely because it carries both a green label and a Shariah approval. Its environmental eligibility, use of proceeds, social safeguards, and measurable outcomes must be independently verified.
Last but the most important is that Islamic banking should ultimately move from Shariah compliance alone towards Shariah-based value creation. The focus of Islamic banking, since its inception, has faced a stagnation as it considered process-purification sufficient to justify its existence. Yet the equitable distribution of wealth should also have been the parallel objective. The Islamic Financial System in its current shape delivers the identical distribution of wealth results as are also shown by the Capitalism. So, it needs to move beyond the simple process purification considerations and create innovative products to promote equitable distribution of wealth.
- Based on your internal audit experience, what are the major challenges in maintaining effective internal controls in banks?
The major challenge is usually not the absence of policies or controls. It is the gap between documented controls and controls that operate in day-to-day banking.
One recurring weakness is unclear ownership. Business units may assume that risk management, compliance, or internal audit owns the control, whereas the first line of defence must remain responsible for managing the risk. The three-lines model should provide three levels of assurance—not create three organisational silos.
Other challenges include fragmented information systems, excessive manual intervention, weak segregation of duties, management override, poor exception reporting, unapproved access rights, inadequate oversight of vendors, and delayed closure of audit observations. Rapid digitalisation has also created new risks faster than many banks have updated their control architecture.
A further problem is a compliance-oriented culture in which employees treat control as a checklist. A signature may prove that a form was completed, but it does not prove that meaningful scrutiny took place. Similarly, repeatedly correcting individual exceptions without addressing their root cause creates an illusion of improvement.
I describe accumulated weak, duplicated, or outdated controls as “control debt,” similar to technical debt in information technology. Over time, this makes operations slower without necessarily making them safer.
Banks therefore need fewer but stronger controls: preventive rather than merely detective, automated where appropriate, supported by reliable data, assigned to identifiable owners, and independently tested. Internal audit should evaluate not only whether a control exists, but whether it addresses the real risk and remains effective under stress.
- Your PhD research focuses on financialization and financial stability. What key lessons does your research offer to the banking sector?
The central lesson from my research is that more finance is not always better finance. The relationship between financial development, financialization, economic growth, and stability can be nonlinear. Finance initially supports productive investment and growth, but excessive financialization can increase volatility, encourage leverage, inflate asset prices, and divert resources away from productive economic activity.
My research also highlights the importance of regulatory quality. Financial expansion is more likely to support sustainable growth when institutions are strong, governance is effective, and risks are properly supervised. Where these conditions are weak, rapid financial deepening can magnify rather than absorb economic shocks.
For banks, this means that credit growth should not be evaluated only by volume. Management and regulators must examine where the credit is going, what economic activity it supports, whether it creates productive capacity, and whether it increases sectoral concentration, maturity mismatch, or dependence on rising collateral values.
Banks should, therefore, complement traditional measures such as capital adequacy and profitability with indicators of concentration, interconnectedness, asset-price dependence, real-sector productivity, and income volatility. Stress tests should also consider simultaneous shocks to interest rates, asset prices, liquidity, and borrower earnings.
Financial stability is not merely the presence of adequate capital at a particular point in time. It is the capacity of a financial institution to continue supporting the real economy when conditions deteriorate. The quality and destination of finance are therefore more important than its quantity alone.
- How can Islamic banks strengthen their financial resilience against economic and climate-related risks?
Islamic banks should begin with the recognition that risk does not disappear when an interest-based transaction is replaced by a Shariah-compliant contract; it changes its form.
Each contract creates a distinct sequence of risks. Murabaha may involve ownership, inventory, counterparty, and documentation risks. Salam creates delivery, agricultural, commodity-price, and quality risks. Ijarah introduces asset, maintenance, residual-value, and physical-damage risks. Musharakah and Mudarabah involve equity-investment, information-asymmetry, and governance risks. Islamic banks therefore need contract-based risk maps covering every stage of the transaction rather than relying only on conventional product categories.
They should also strengthen management of displaced commercial risk, rate-of-return risk, fiduciary risk, Shariah non-compliance risk, liquidity risk, and concentration risk. This requires stronger liquidity buffers, access to high-quality sukuk, robust contingency funding plans, transparent treatment of investment-account holders, and Shariah-compliant hedging and liquidity arrangements.
Climate resilience should be integrated into asset selection and portfolio monitoring. Asset backing connects Islamic banks to the real economy, but it may also expose them more directly to floods, heat, water scarcity, crop failure, and damage to financed assets. Climate stress tests, geographic exposure maps, takaful, diversification, and adaptation-linked financing are therefore essential.
Most importantly, Islamic banks should revive genuine risk sharing. A financial system cannot claim superior resilience if it reproduces conventional leverage through increasingly complex contractual engineering. Resilience will come from combining Shariah authenticity with disciplined underwriting, capital planning, diversification, transparency, and measurable real-economy impact.
- What is your outlook for the future of Islamic banking, risk management, and sustainable finance?
I expect the future to be defined by convergence. Islamic banking, risk management, digital finance, and sustainable finance will increasingly become parts of the same financial architecture rather than separate specialisations.
Islamic banking will move from a product-compliance phase towards an impact and value-creation phase. Its success will not be judged only by market share or the number of Shariah-compliant products, but by whether it finances productive enterprises, resilient agriculture, affordable housing, renewable energy, SMEs, and financially excluded communities.
Risk management will become more forward-looking and data driven. Banks will increasingly use geospatial information, climate scenarios, transaction-level data, artificial intelligence, and alternative data to identify risks before they appear as repayment defaults. Nevertheless, professional judgement and governance will remain vital. Artificial intelligence can improve risk detection, but it can also automate bias and magnify poor-quality data.
Sustainable finance will also move from voluntary reporting into core banking decisions—risk appetite, credit assessment, pricing, portfolio limits, expected credit losses, capital planning, and disclosure. The next challenge will be financing the transition of vulnerable businesses, not merely financing activities that are already green.
Pakistan has a particularly strong opportunity to connect Islamic finance with climate-smart agriculture, green sukuk, takaful, blended finance, and technology-enabled financial inclusion.
My overall outlook is optimistic, but conditional: the industry must move from labels to measurable outcomes, from backward-looking compliance to anticipatory risk management, and from financing isolated transactions to building resilient economic ecosystems.