ISLAMABAD: The Senate Standing Committee on Finance, Wednesday, directed the State Bank of Pakistan (SBP) to provide a detailed briefing on Islamic banking after the committee chairman said that Islamic banks are taking undue advantage of consumers by charging high interest rates.
The Senate Standing Committee on Finance and Revenue meeting was convened Wednesday at the Parliament House under the chairmanship of Senator Saleem Mandviwalla. Attendees included senators Mohsin Aziz, Syed Faisal Ali Subzwari, and Manzoor Ahmed, along with senior officials from relevant departments.
The committee also directed the central bank to provide a briefing on Islamic banking practices in other countries.
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Senator Mandviwalla was critical of Islamic banks and said that Islamic banks are charging up to 30 percent interest rates while conventional banks charge around 20 percent.
The committee chairman said that he has received many cases where Islamic banks were charging exorbitant interest rates.
The SBP deputy governor informed the committee that currently, the share of Islamic banks is just 25 percent while conversational banks have a 75 percent market share.
The committee was also told that funds of Rs97 billion are lying in around 14 million dormant bank accounts. The SBP presented a suggestion to increase the period of permanently closing dormant accounts from 10 to 15 years, which was approved by the committee.
The committee also discussed discrepancies in Islamic banking practices, with Chairman Mandviwala alleging that profit rates in Islamic banking can exceed those in conventional banking. He requested a detailed briefing on Islamic banking practices from the State Bank.
The committee reviewed and passed the “Deposit Protection Corporation Amendment Bill, 2024.”
Deputy Governor of the State Bank Dr Inayat Hussain provided a detailed briefing on the bill. Under the new amendment, depositors will receive legal protection for amounts up to Rs500,000, an increase from the previous limit of Rs250,000.
Dr Hussain noted that while microfinance banks are not currently included in the bill, future amendments may extend protection to them as well. He also reported that the International Monetary Fund (IMF) has advocated for enhanced depositor protection.
Dr Hussain revealed that board members of the State Bank earn Rs75,000 per meeting, while other banks charge fees exceeding Rs50,000.
Senator Mohsin Aziz highlighted that such financial incentives contribute to the attraction of jobs in the banking sector.
The committee also examined, “The Banking Companies (Amendment) Bill, 2024,” which includes provisions for Islamic banking.
Dr Hussain emphasised that Islamic banking in Pakistan adheres to strict regulations compared to global standards, and noted that the IMF advocates for a unified regulatory framework for commercial and microfinance banks by December.
Senator Mandviwala raised concerns about joint investment companies from foreign countries investing in government papers and urged the Finance Ministry to address this issue.
Additionally, he advocated for a ban on such investments to prevent external influence on domestic markets.
The senate committee approved both the Deposit Protection Corporation Amendment Bill, 2024, and the Banking Companies Amendment Bill, 2024.
The meeting concluded with a call for greater transparency and regulatory oversight in Islamic banking.
The chairman of the finance committee also directed the Ministry of Finance to explain that how the provincial governments can impose three percent tax on exports: whether the provincial governments are empowered to impose tax on exports. Under which law the provincial governments can impose three percent tax on exports, he questioned.
Copyright Business Recorder, 2024