The State Bank of
In the 10-year paper, the SBP noted that it has been promoting Islamic banks to provide formal financial services to the segment of the population that thus far has excluded itself for faith reasons. Based on the current growth rate of the country's Islamic banking sector, the SBP said it believes that Islamic finance will grow to constitute almost 12 per cent of the Pakistani banking system within five years. So far, however, it added that Islamic banks have no branches in rural areas, where they clearly have a substantial customer base to explore.
The SBP, under its new branch licensing policy, expects rural Islamic bank branches to increase at the rate of 20 per cent of all new branches opened.
To ensure proper due diligence in the development of Islamic finance, the SBP has constituted a Shari'ah
The plan has an extensive focus on improving the public perception of Islamic banking as a distinct and viable system capable of catering to the diversified financial needs of various segments of society.
The aim is to double the outreach of Islamic banking institutions during next five years and, according to the five-year plan, increase market share to 15 per cent of the banking system. Interestingly, the five-year plan has a higher target than the 12 per cent cited above that is mentioned within the 10-year plan. Islamic banks have a presence in more than 80 districts across
Going forward, efforts will be made to develop housing finance product(s) based on market prices and rentals vis-À-vis the current practice of fixed property prices and KIBOR (Karachi Interbank Offered Rate) linked rentals. The main criticism of the current Islamic banking paradigm is the overwhelming use of debt-creating products while the equity products based on Musharaka and Mudaraba have been very limited on the asset side. The five- year plan envisages working closely with the industry to develop and offer Musharaka/Mudaraba-based products.
Among a number of other proposals, the SBP adds that Islamic finance offers viable financing alternatives in project and infrastructure financing. In this regard, policy guidelines will be developed specifically for the issuance of project/infrastructure specific Sukuk.
The five-year plan sets out an ambitious programme of time-bound specific actions plans. The responsibility to execute the Strategic Plan rests with the SBP's Director -
Managing Editor CPI Financial
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