Islamic Banking Industry far from achieving 10-year target!

By Muhammad Yasir

The Islamic Banking Industry (IBI) will miss its 10-year growth target to achieve 12 percent share of overall banking industry, staying currently at an average of 7.6 percent in terms of assets and deposits that may attain level of 9 percent by 2012 provided with the improving economic and business situation.

IBI has witnessed impressive growth over a period of decade with significant number of banks and branches established particularly for banking services in accordance with Sharia Compliance.
There are currently five full-fledged Islamic banks and 12 conventional banks having Islamic banking divisions with a network of more than 840 branches in more than 70 districts across the country.
The industry has been maintaining strong growth momentum with over 30 percent average annual growth during the last six to seven years.
According to the latest available data, the total assets of the IBI stood at Rs 568 billion, constituting 7.3 percent share of the overall banking industry.
The deposits of IBI reached Rs 463 billion during the quarter under review and its share increased to 8 percent of the overall banking industry from 7.6 percent in the last quarter (April-June 2011).
The banking regulator has re-launched Islamic banking in 2002 on the experiences of other countries in the world that are currently known for their lead role in Islamic finance sector like Malaysia and Bahrain.
The State Bank of Pakistan (SBP) devised strategy based on these five pillars. The plan is to take the market share from of 4 percent in 2002 to 12 percent by 2012.
The target was set to achieve 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. However, the industry steadily explored the markets’ potential with all available options but it still failed to attain the targets.
According to the set benchmarks, the overall should have been increased to Rs 907.064 billion in terms of deposits held by Islamic banks. Similarly, the assets target was set to increase to Rs 731.591 billion by 2012.
Experts in the banking industry said the economic slowdown has hampered the growth businesses significantly since 2008, which has also hurt the progress of the IBI.
The decline in growth of business and industrial production has taken a toll on the business and operational expansion of the IBI. Moreover, the stubborn inflation also hit middle class significantly that caused steep cut in lending loans and leasing cars and houses.
Besides, there was an emerging competition between Islamic banking and conventional banking in the country and most of the professional bankers, who are against interest-free financial system, spread negative propaganda about Islamic banking, experts said.
The misconception has been widespread about the concept of riba-free banking system and laymen continued to be confused about Islamic banking at large.
The situation has been improved currently but is slightly stable, not perfect at present, bankers said, adding the banks are very much involved in lending loans to exporters but on the customers’ side banking is at a standstill because of high inflationary pressure on the middle class’ affordability.