Islamic banks are finding it hard to manage liquidity in the absence of instruments parallel to Government of Pakistan Market Treasury Bills (MTBs) available to conventional banks. Islamic banks are primarily very liquid and if there is a reverse situation then there will be no problem, said Meezan Bank President & CEO Irfan Siddiqui. “We do not seek concessions or incentives, we only demand Islamic Baitul Maal Certificates (Islamic T-bills) equivalent to the treasury bills, about which the Ministry of Finance has been assuring us for the last five years,” he said in an interview with The News.

He underlined that non-availability of Islamic T-bills (Baitul Maal Certificates) was the only obstacle in the way of growth of the Islamic financial industry in Pakistan. “There is no complication in introducing Islamic T-bills. The product has already been launched three years back by the government in the form of dollar Sukuk that raised $600 million through Meezan Bank. The government should focus on launching Islamic T-bills and as they have launched dollar Sukuk why can’t they issue rupee Sukuk,” Irfan adduced. He lauded the supportive role of the State Bank of Pakistan (SBP) but said that the Ministry of Finance did not pay much heed to the demand of rupee Sukuk. Irfan said that when the rupee Sukuk comes on the priority list of the ministry, it would be launched. “Islamic banks are finding it hard to manage liquidity as it takes time to search asset for Islamic banking and currently we approach top credit companies like PSO, Engro and Unilever and provide them short-term Marabahas, but they are not alternative or same as that of T-bills,” Irfan said.

He said Islamic banks have excess liquidity, adding “we are doing very well despite all these difficulties and this is our positive attitude that the problems could not affect our performance,” the Meezan Bank CEO optimistically said and added that currently overall growth of Islamic banks in Pakistan is on fast track. “The cumulative growth rate of Meezan Bank has been consistent for the last six years at 60 per cent which is very healthy and had never been seen in the banking history of the country.” He said last year the share of Islamic banks in the financial sector of the country was 2 per cent which increased to 3 per cent this year and the SBP and Islamic banks are planning to increase this share to 12 per cent by 2012. “Our non-performing loans (NPLs) are below 1 per cent due to our strict due diligence and strong credit and underwriting procedures, which are prerequisites for Islamic banking. We did not find problems in car or housing finance, which are our main consumer products. The volume of car and housing finance of Meezan Bank is Rs4 billion each which we are planning to double this year.” He denied that the growth of Islamic banks was linked with the recent boom in conventional banking, saying that in conventional banks the growth rate was 18 per cent, whereas growth of Meezan Bank was 60 per cent in the year 2007.

Spelling out the reason for the unprecedented growth of the Islamic banking industry, he said Pakistan is a predominant Muslim country and people have inherent desire for Islamic banking so they prefer Shariah-compliant banking as alternative to conventional banking with the same quality of service and same pricing. He said that mere Islamic banking could not attract people because majority of the people care about the quality of service and the number of such customers who do not care about the quality of service and prefer Islamic banks to conventional banks due to their strong religious beliefs is very few. Regarding parity in interest rate of conventional banks and rental income of Islamic banks, he said Ulema (religious scholars) across the Islamic world are unanimous that benchmarking was not interest, whereas in Islamic banking the rental income is considered as benchmark to the interest rate. He said conventional banks set their benchmark on the basis of Karachi Inter-bank Offered Rate (KIBOR), which is an indicative rate at which banks lend to each other, whereas Islamic banks also use this rate as benchmark for setting their rental income.

He explained when KIBOR was 3 per cent, the rental income was considered 1.5 to 2 per cent and when KIBOR is 14-16 per cent the rental income would be considered 12 per cent. “If we will move against the winds or mismatch the rates the law of arbitrage would not allow us to continue our business,” Irfan Siddiqui said. “We can not disperse money against any fixed asset because we can lend only for those transactions which generate some economic activity, pricing is nothing to do with transaction,” Siddiqui said and added “we make payments for generation of new assets.”

He said future of Islamic banking in Pakistan was very bright, as appetite for Islamic banks was increasing. Regarding new products of Meezan Bank he said in asset products bank had started financing in finished goods inventories, as in Islamic banks financing could be done on very limited product. “We were not able to provide financing for fertilizer industry because the main raw material in fertilizer industry is gas and we cannot provide them gas after buying from the market, because it flows through pipelines. Fertilizer industry was out of our purview, while their borrowings was very high, now we have developed product according to which we purchase their finished good inventories which they latter sale on our behalf.” He said Islamic banks have no problem in dealing with foreign trade business and currently Meezan Bank Rs80 billion trade business with countries including Switzerland, Taiwan and Thailand compared to Rs65 billion of last year.

This year Meezan Bank is planning to expand its operation to Syria in collaboration with Syrian partners, Irfan Siddiqui said.