Islamic banking and finance system ‘Pakistan has great potential to avail advantages’

ISLAMABAD: Pakistan has a great potential to avail the advantages of Islamic banking and finance system, which globally has a projected market of $ 3 trillion, said Dr Humayun Dar, director general Cambridge Institute of Islamic Finance, here on Monday, while talking to a group of journalists.

He said that the Islamic Banking has become emerging market as the international financial institutions including International Monetary Fund (IMF) and Asian Development Bank (ADB) taking keen interest to do business in Islamic Banking sector in Pakistan.

According to the State Bank of Pakistan (SBP), the assets of the Islamic banking industry increased to Rs4.269 trillion, while deposits reached Rs3.389 billion by the end of December 2020. The financing of the Islamic banking industry has also grown by 16 percent during 2020.

Dr Dar said that various international institutes want to enter Islamic Banking in Pakistan.

He added that the ADB had also shown its interest to participate in the Islamic banking sector, adding that the ADB’s Islamabad office called him some years ago for taking a briefing on this issue.

Responding on query about the volume of Islamic banking in Pakistan’s banking system, he said that the government, the public-sector institutions, and businesses groups will have to come forward to promote the Islamic banking as Islamic banking which in a country like Pakistan has great potential to succeed.

The World Bank and the IMF are more interested to adopt Islamic Banking structure for dealing with Muslim-majority countries. Some year ago, the country director of the ADB in Pakistan has called and said that there is intelligence reports that the government is going to pro-Islamic banking and ADB in 2013 was willing to bring an investment of $10 billion for next 10 years on the basis of Islamic banking system, but the government did not make a request to the ADB for taking loan on Islamic Banking structure, he said.

On a query regarding expensive loan of the Islamic Development Banking, he said that the source of the liquidity of the IDB is sukuks, which is costly and expensive that is why its loan is more expensive compared to other international institutions.

On the issue of defaulting, Dar said that this is the area where, the Islamic Shariah scholars should look into and give solutions to the Islamic banks. He said that Islamic banks should imposed penalties on defaulting.

He said the present Islamic banking share in Pakistan’s banking sector is about 16 percent to 17 percent; however, the volume of Islamic banking has the potential to rise significantly as a majority of the people of Pakistan do not like interest-based baking, but to do so, the government’s supports is essential.

Regarding a query about the interest on loan, he said that it could not eliminate because no government wants to do so in Muslim-majority countries, adding that these governments are influenced by strong lobbies of banks which do not wants to do so. He said that banking is a sleep mode of business model, which is so simple and profitable.

On a query, he said that there is no justification of imposing interest on loan due to devaluation of currency and inflation, adding that these are macro factors and borrower are not responsible for these factors. He said that it cannot impose the responsibility of the borrowers which they did not. He added that loan must be interest free in any situation. There is no harm and bared Islamic perspective if you do not give loan to anybody.

Copyright Business Recorder, 2022