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Plan for Islamic products for national saving scheme under consideration

Published on 6th July, Edition 27, 2015

 

A truly Shariah-compliant product is a must for the Islamic banking model to be sustainable

While the Islamic Banking industry in Pakistan has been growing at a fast pace ever since its re-launch in 2002, the government is making all out efforts to develop an alternate system for all segments of the banking industry. Official sources claimed that a plan of Islamic products for National Saving Scheme (NSS) is also under consideration and likely to be launch soon.

Presently, Islamic banks in the country represents over 12-percent of overall banking industry with 19 Islamic banking institutions offering Islamic banking products and services through a network of over 1,570 branches across the country. Islamic banks are leaders in several sectors and three leading Islamic banks have some 85-per cent portfolio of housing finance, sources in the Islamic banking sector told PAGE.

According to them, Pakistan has been one of the early promoter countries to allow the practice of Islamic finance. Pakistani practitioners and Shariah scholars have major contributions in shaping the current Islamic finance paradigm. As Muslims, we have complete faith in the supremacy of Islamic finance due to its foundations grounded in divine Shariah principles; the financial world is also reckoning today its merits in the backdrop of the last financial crises. Excessive leveraging and de-linking of the financial system from real economy, the very cause of the last financial crises, is against the core principles of Islamic finance. Policymakers are increasingly seeing the value proposition offered by Islamic finance and are working towards introducing policy environment for its smooth functioning.

Islamic Banking Industry is gaining strength with every quarter passing by, where one key trigger has been its aggressive branch expansion drive. With the addition of a good number of 270 branches in CY14 as compared to 203 branches in CY13. As of December 2014, Islamic Banking Industry now enjoys a handsome network size of 1,574 branches.

When it comes to financing, Islamic Banking Industry continues to prefer the conservative style as depicted by its preferred choice of clients. Corporate sector financing gulps the major share of 76.9 percent, followed by consumer financing (11.9 percent) and commodity financing (5.3 percent). Thereby, SME and agriculture, which are supposed to be on the top of the priority list, are left in the lurch.

Successful performance

Meezan Bank which was launched in 1997 as an Islamic investment bank, and the first three years of its life were as an investment bank is a success story. Global Finance magazine recently awarded Meezan Bank “The Best Islamic Bank in Pakistan” in its 8th annual awards for the World’s Best Islamic Financial Institutions. Meezan Bank has been the regular recipient of the Global Finance awards since 2009 for its commitment to quality, customer satisfaction, innovation and reliability to the cause of Islamic banking.

Global Finance is one of the most prestigious finance publications working with corporate leaders, bankers and investors to chart the course of global business and finance. The winners of this year’s awards are those banks that contributed to the growth of Islamic financing and successfully met their customers’ needs for Shariah-compliant products through modern and efficient delivery channels.

 

Experts believe that a truly Shariah-compliant product is a must for the Islamic banking model to be sustainable. Islamic banks must 100-percent Shariah-compliant. They insisted that Islamic banks should tap un-banked markets through their asset-based and risk-sharing products and contribute to catalyzing growth in the real economy as only 20 percent of farmers have access to the formal financial system while just 5-6 percent of SMEs have access to bank financing.

According to them, the Islamic Banks are more accountable to State Bank of Pakistan (SBP) and Shariah advisor than conventional banks. The SBP is working on its major role to ensure the participation of every citizen in the financial system, through its Financial Inclusion Policy, and the system of Islamic Banking will prove to be a bridge to the way of success in the present scenario. As per directives of the State Bank of Pakistan (SBP), the entire Islamic banking industry is required to stop offering “Special Hiba” to priority customers with effect from January 1, 2015. Special Hiba is an amount paid over and above the announced profit rate to specific clients in a pool by the Islamic Banking industry. Most of Shariah Advisors were not in favor of this preference rate, being offered to the priority customers of a pool.

Car financing under Islamic laws

On the other hand, Pakistan’s automobile website, PakWheels.com has recently entered a partnership with one of the Islamic banks of Pakistan, Dubai Islamic Bank Pakistan Limited (DIBPL), to enable PakWheels’ customers to choose quality car financing services.

This engagement between PakWheels.com & DIBPL will bring an offering of world-class auto financing solutions that would enable the customers to purchase new and used vehicles (upto nine years old) from the website. The service promises high quality financing solutions that are fully Shariah-compliant.

With the option of availing financing of up to Rs5,000,000/- on easy terms and conditions, many automobile enthusiasts will be able to enjoy a range of other benefits including low insurance/takaful rates, ready delivery & advance booking option, income clubbing and flexible payment plans. The agreement applies to all new and used, local or imported/re-conditioned cars.

DIBPL Management believes that PakWheels.com occupies a strong position in the market and holds a high ranking in customer preferences and by joining hands with PakWheels.com, various segments will be tapped which were out of reach before.

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