SBP launches 5-year plan for Islamic banking industry

KARACHI: The State Bank of Pakistan (SBP) on Monday announced the third five-year strategic plan for the Islamic banking industry, with the aim of expanding the share of Islamic banks’ assets and deposits to 30 per cent in the banking industry.

“The strategic plan has set headline targets for the Islamic banking industry to be achieved by 2025,” the central bank said in a statement.

According to details, the plan envisages a 35pc share of Islamic banks in the branch network of overall banking industry, 10pc share of small and medium enterprises (SMEs) and 8pc share in agriculture financing respectively, in private sector financing.

Currently, the Islamic banking industry has acquired a market share of 17pc and 18.3pc in assets and deposits, respectively, by the end of December 2020.

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“The SBP aims at making Islamic banking one third of the overall banking industry by 2025,” the SBP announcement said. Keeping in view the potential towards ensuring broad-based economic growth and development, Islamic banking has remained a top priority area for the SBP.

The SBP said the Islamic banking industry has widened its footprint in banking system of the country. Currently, 22 Islamic banking institutions (five full-fledged Islamic banks and 17 conventional banks having standalone Islamic banking branches) are offering Sharia-compliant products and services through a network of 3,456 branches and 1,638 Islamic banking windows (dedicated counters at conventional branches) spread across 124 districts of the country.

“In order to steer the growth of Islamic banking on sound footings, SBP has been providing proactive guidance through issuance of strategic plans for the Islamic banking industry; so far, two five-year strategic plans have been issued,” the announcement added.

This plan aims to set a strategic direction for the Islamic banking industry to strengthen the existing progressive momentum and lead it to the next level of growth. The plan has been developed in close coordination and consultation with all key relevant stakeholders, it added.

The strategic plan envisages achieving the specified targets by focusing on six strategic pillars including the strengthening of legal landscape; enhancing conduciveness of regulatory framework, reinforcing comprehensive Sharia governance framework; improving liquidity management framework, expanding outreach and market development, and bolstering human capital and raising awareness.

The plan provides a consensus-based agenda and strategy to make Islamic banking an efficient and practical solution for consumers. It also contains an extensive focus on improving the public perception of Islamic banking as a distinct and viable system capable of catering to the varied financial services needs of various segments of the society that would significantly contribute to increasing overall financial inclusion in Pakistan.

The plan also emphasises that Islamic banking institutions must develop innovative products based on distinctive Sharia characteristics to cater to underserved sectors particularly SMEs and agriculture, which are critical for growth of the country’s economy.

“The Islamic banking industry is expected to fully capitalise on the potential of Islamic finance to attain the shared vision of a vibrant and sustainable Islamic banking sector in Pakistan,” said the SBP.

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