Pakistan sets ambitious target of 76% growth of Islamic banking market share by 2025

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 areaSelect key plans
1Strengthen legal landscapeAmend 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
2Enhance regulatory frameworkUpdate risk management guidelines for Islamic banks Facilitate and adopt Islamic financial accounting standards Adopt IFSB prudential standards
3Reinforce Shariah governance frameworkFast-track adoption of AAOIFI standards Enhance coordination between SBP and Securities and Exchange Commission of Pakistan Shariah advisory committees
4Improve liquidity management frameworkOperationalise SBP’s liquidity management framework Develop sukuk structures for issuance of regular sukuk program
5Expand outreach and market developmentExpand Islamic microfinance services Enhance focus on R&D
6Bolster human capital and raising awarenessCoordinate 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 assetsShare of deposits
By 202530%30%
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.