The recent re-launch of Islamic Banking in Pakistan by SBP has been based not only on the lessons learnt from the history of Islamic Banking efforts in Pakistan but also on the experiences of other countries in the world that are currently known for their lead role in Islamic finance sector e.g.; Malaysia and Bahrain.
The basic difference in SBP’s current policies regarding Islamic banking and the previous efforts is the approach adopted by it. SBP has not approached Islamic Banking solely as a religious or a legal issue. It considers it to be more of a change management issue. This basic difference in approach defines SBP’s policies on Islamic Banking and is primarily responsible for the success that has been achieved so far. This approach also ensures that there will be no disruption in the current system. The new system will be implemented, tried and tested and therefore would prove its merit on a stand alone basis. The roll out will be market led rather than through legal means or as a religious dictate.
This approach dictates that policies adopted are based on a sound regulatory framework while offering the market to grow in a Shariah compliant manner and at the same time catering to the ever changing needs of the users. This is also in line with the direction and approach being adopted internationally. SBP is focused on providing the users of Islamic banking with the solutions they seek for managing their financial relationships. These solutions will be as functional and cost effective as those being provided by the conventional banking system yet these will be strictly Shariah compliant. To ensure this, there will be need to focus upon two key elements. Firstly, a sound regulatory framework that is flexible, market driven and in line with international best practices.
Secondly, a sound Shariah compliance mechanism which is comprehensive, flexible, multi layered and acceptable locally and internationally. This essentially forms the basis of our objectives. Our strategy which supports these objectives stands on five pillars which are Extension of Outreach, Shariah Compliance Mechanism, Strengthening of Regulatory Framework, Capacity Building and Internal & External Relations.
With SBP’s strategy based on these five pillars the plan is to take the market share from a current level of 4% to 12% by 2012. This will be achieved through increasing outreach in current urban consumer and corporate markets and extending the market to cover new segments of Islamic Micro Finance, Agriculture Finance and SME finance. It is expected that by 2012, Micro Financing, Agriculture Financing and SME financing will account for about 0.3%, 3% and 20% of the total Islamic banks’ financing respectively. SBP will continue to strengthen its Shariah Compliance Mechanism through expansion of its Shariah Board, introduction of Shariah inspection for Islamic banks and conventional banks’ Islamic banking operations, gradual roll out of AAOIFI Shariah standards and building and use of multiple forums of Shariah experts to ensure innovation in the industry in terms of systems and products that is strictly in line with the sound Shariah principles. SBP will strengthen the Regulatory Framework in line with international best practices by using the sound conventional banking framework as the foundation and then building on it international standards rolled out by international Islamic infrastructure institutions like IFSB, AAOIFI, IIFM etc. A roll out plan for these standards has been put in place. ‘Instructions and Guidelines for Shariah compliance in Islamic banking institutions’ which cover a variety of areas peculiar to Islamic Banks have already been introduced. Building capacity within SBP and the Islamic banking industry and in this regard focus on establishing a School of Islamic Economics and Finance of international standard having international affiliation will be a priority. SBP will coordinate and move towards integrating the regulation of Islamic Finance Industry across sectors and across regulatory agencies regulating different areas of this industry. SBP will also play a role in development of Islamic finance industry globally and become one of the main hubs for attracting international Islamic investments.