As the Islamic Banking Industry (IBI) marches towards its second five-year strategy plan to steer its performance till 2017, a comparison of the industry's first five-year plan launched in 2007 warrants a little attention.
The plan launched earlier aimed at making Islamic banking as the banking of choice in Pakistan with an objective of boosting its market share from then four percent to 12 percent in 2012. However, at the end of 2012, with a market share of 8.6 percent, IBI appears largely unsuccessful in achieving the target.
Some Islamic bankers attribute this underperformance to economic slowdown and prevailing energy crisis in the country, which shrank the private sector appetite for credit. But these reasons do not appear plausible considering that they affected the entire banking industry and not simply the Islamic banking industry.
A more plausible reason is the narrow exposure of the IBI. The 2007 strategy paper urged the industry to enlarge its exposure in non-traditional avenues such as Microfinance, agriculture and SME sector due to their enormous growth potential. However, over the period no greater strides were made by IBI to tap these markets.
The industry remained risk averse during the period and could barely muster a share of 4.1 and 0.1 percent in the SME and agriculture sector as of 2012, according to the central banks Islamic banking bulletin of December 2012. More dismally, microfinance industry remained largely untapped by IBI.
On the positive front, IBI expanded its geographical outreach and brought unexploited districts such as Ghotki, Layyah and Shangla within its folds. Yet, low risk appetite impeded IBI to exploit the entire potential of rural market, leading to less than targeted growth in number of branches. By December 2012, total number of Islamic branches stood at 1,097, against the target of 1,351 branches by the end of 2012.
According to industry insiders, among other policy initiatives, the recent strategy paper which is yet to be officially released, will instruct the IBI to provide agricultural financing of up to five percent of its deposits or 10 percent of its total financing by 2014, whichever is higher. The same rule will be applicable to the SME sector and Islamic low cost housing financing. These initiatives are expected to take IBIs market share to 15 percent by 2017.
With PML-N holding the county's reigns, the so far deserted SME sector are expected to be of much interest to the entire banking industry. How will IBI achieve its growth objectives while playing in difficult sectors such as SME and agri finance, would be a real challenge for the industry.
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KEY STATISTICS OF ISLAMIC BANKING INDUSTRY
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2007 2012
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Share in industry assets 4.3% 8.6%
Share in industry deposits 4.1% 9.7%
Share in Net Financing & Investment 3.7% 8.1%
No. of Branches 289 1097
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Source: State Bank Of Pakistan
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