Islamic Finance Landscape Of Pakistan - Industry And Academia

The Islamic Republic of Pakistan came into existence on August 14, 1947, intending to have an Islamic economic system in the country. The founder of Pakistan, Quaid-i-Azam Muhammad Ali Jinnah, in his speech, while inaugurating the State Bank of Pakistan (the central bank of Pakistan) on July 1, 1948, said that Pakistan should present to the world an economic system based on the Islamic concept of equality of humanity and social justice. In Pakistan, Islamic banking was launched in the 1980s but failed due to the lack of awareness and preparedness of the relevant stakeholders. The Islamic Finance industry relaunched in Pakistan in 2002, and since then, it is on the rise in Pakistan. In Pakistan, there is a dual banking system: conventional and Islamic. In 2002 the State Bank of Pakistan (SBP) established its Islamic Banking department and gave license to the first full-fledged Islamic bank, Meezan Bank, to start operations.  

Now, there are 5 full-fledged Islamic Banks and 17 Islamic windows of conventional banks in Pakistan. There are 5 full fledge-takaful (Islamic Insurance) companies, 37 mudarabah companies, and Islamic mutual funds. The non-banking financial institutions in Pakistan are regulated by the Securities and Exchange Commission of Pakistan (SECP).  According to State Bank’s Islamic Banking Bulletin (IBB), the total market share of the Islamic banking industry is 17% and 18.3% on the assets side and deposits side, respectively [December 2020]. The asset base grew by 12.1% compared to the last quarter, whereas the deposits side had a quarterly growth of 11.7%.

Islamic Banking products in Pakistan are mainly based on Mudarabah, Musharakah (Partnerships), Ijarah (Rental Agreements), Murabaha (Selling on profit), Salam, Istisna and Diminishing Musharaka

Islamic Banking products in Pakistan are mainly based on Mudarabah, Musharakah (Partnerships), Ijarah (Rental Agreements), Murabaha (Selling on profit), Salam, Istisna and Diminishing Musharaka. After years of hard work, education, training, and awareness, Islamic banks are now strong. They cater to corporate and retail clients, including textile businesses, power generation companies, and other FMCGs. Islamic Banks came up with innovative products that benefited themselves and the banking industry; for example: “Asaan Account” means an accessible account, an account that can be opened based on CNIC (National Identity Card) only. The role of the Islamic banking industry has been very influential, not only to Islamic banks but the banking industry.

Pakistan’s academia has played an instrumental role in the field of Islamic Finance as well, especially after the establishment of three centres for excellence in Islamic finance in three different cities of Pakistan by SBP, namely:

1) Centre for Excellence in Islamic Finance (CEIF) Institute of Business Administration (IBA) Karachi

2) Centre for Excellence in Islamic Finance (CEIF), Lahore University of Management Sciences (LUMS), Lahore

3) Centre for Excellence in Islamic Finance (CEIF), Institute of Management Sciences (IMSciences), Peshawar

The objectives of establishing these centres are to provide advanced industry and academic research, create awareness, and deliver training and advisory services in Islamic finance not only in Pakistan but also globally. IBA-Karachi has launched MS Islamic Banking and Finance since 2017 to provide the trained human capital for this growing industry. In several Pakistani universities’ courses in the field of Islamic Finance are taught and, in some universities, there are specific degree programs and diplomas in Islamic Finance domain, or they have both special courses also degree programs; examples academic institutions like IBA-Karachi, LUMS, IMSciences Peshawar, IBA Sukkur, COMSATS Lahore, UMT Lahore, International Islamic University Islamabad, Riphah International University, etc.  

The role of the Islamic banking industry has been very influential, not only to Islamic banks but the banking industry

The government is arguably the most important stakeholder when it comes to making a change in the economy. So far, the response of SBP has been positive towards Islamic banking, but further emphasis and importance are needed from the Government of Pakistan for establishing a state like Riasat e Madina. 

To sum up, even though Islamic finance in Pakistan is growing at a decent pace, the growth of the Islamic financial system needs to establish long-lasting, strong ties between industry and academicians, so the knowledge imparted by the academicians help to solve the problems faced by the industry.