The Islamic financial assets are expected to cross $1 trillion by 2010, as per the recent research report published by Morgan Stanley. According to Islamic Capital, Pakistan is one of the key growth markets for Islamic banking, as it is the second largest Muslim-populated country after Indonesia.
The Stanley report said that Pakistani pure or full-fledged Islamic banks have dominated the Islamic financial markets and represents 80 percent of the Islamic banking outlets in the country. They account for 68 percent of the system's Islamic assets, 66 percent of Islamic loans and 71 percent of Islamic deposits.
Non-performing financing as a percentage of the total financing for Islamic banks, stood at a very low level of 0.90 percent whereas conventional banks ratio hovered over 7.50 percent However, returns at Islamic banks have been vastly inferior to the conventional banks and the gap has widened over 2004-2007.
Further, in 2007 Islamic banks' ROA was 0.62 percent as compared to conventional banks ROA of 2.00 percent. In comparison with conventional banks, Islamic banks' have superior asset quality, sustained over an extended period. The Islamic finance industry is on a fast growth trajectory, well positioned to capture 15 to 20 percent share of the banking system assets by 2012.
However there are several challenges faced by Islamic banks, such as scarcity of Shariah talent, product development complexities, service quality issues as compared to its conventional peers and effective management of liquidity and risk management. Currently, there are over 350 dedicated and window branches offering financial services that are set to cross 1000 branch network by 2012, revealed a recent report published by the State Bank of Pakistan.
Islamic At Islamic Capital, we strongly believe that Islamic financial institutions in order to compete effectively with conventional counter-parts, have to target new market segments such as agriculture, SME and offer a range of financial services to enhance the outreach to a significant majority residing in under served areas.-PR
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