Volume 82 | Issue # 1 Jan 2015 – March 2015
FINANCIAL INCLUSION A Road Pakistan Needs To Travel
Capital Market in Pakistan
Consumer Financing Back in Vogue
Global Financial Landscape Changing in the Next 5 Years:
Risk Index April and October editorial
he year 2014 was beset with myriad develop- The interbank market remained tight in H1-FY15, despite ments altering the Country’s economic the relaxed monetary stance. Going forward, the realization of landscape. Inflationary pressures exhibited a expected external inflows is likely to reduce the budgetary deceleration – with major monetary indictors borrowing requirements from scheduled banks and improve reflecting the falling trend of inflation. The liquidity conditions in money market. reductionT in oil prices and decelerating inflation also renew hope of improved competitiveness of Pakistani exports. The banking sector closed the first quarter of 2015 with its Supplementing this is the expectation of augmentation in deposits posting a growth of 12.38 percent year-on-year and economic productivity as GDP growth is on course to surpass amounting to Rs. 8.51 trillion; meanwhile, advances grew by the FY14 outcome. 8.09 percent and stood at Rs. 4.43 trillion and investments grew by 26.68 percent to be recorded at Rs. 5.7 trillion. As of end of Fiscal deficit has been contained and efforts towards Dec’14, the sector’s stock of NPLs had marked at Rs. 604.7 government borrowing curtailment have also been witnessed. billion, and the infection ratio stood at 13.56%. This progress towards fiscal consolidation - and subsequent reduction in budgetary borrowing - along with the relaxed The SBP decided to reduce the policy rate by 50 basis points monetary stance adopted by the SBP, emerge as encouraging from 8.5 percent to 8.0 percent effective from end of March drivers of private sector credit growth. Meanwhile, constrained 2015. Going forward, the banking industry will need to strate- economic productivity, slower deposit growth faced by banks, gize the generation of growth and profitability in the relaxed challenging security situation, falling commodity prices, and interest regime while businesses will be expected to utilize the continued energy shortages continue to pose challenges to favorable interest environment to mobilize sustainable private sector credit supply. Growth in credit to private sector enhancement in economic productivity. Revenue generation during Jul-Feb FY15 has remained subdued at Rs 158.9 billion through broadening the tax net and reduction of tax evasion compared to Rs 298.3 billion in the same period of FY14. will also play in an important role by strengthening fiscal Nonetheless, growth in private sector credit is expected to pick discipline. If the macroeconomic challenges, as detailed earlier up pace as a result of the loosened monetary stance adopted by are addressed, we see Pakistan’s economy to be more robust in the SBP. the remaining fiscal year.
Owing to recent foreign exchange inflows, decelerating import growth and strong workers’ remittances, external sector outlook continues to improve as current account deficit has shrunk in in Jul – Feb period of FY15 as compared to same period last year. Falling international cotton prices and stiff competition in low value-added textiles are expected to exert more pressure on our struggling exports, in a global arena that is already plagued by weak demand. Meanwhile, foreign exchange inflows have contributed in maintaining an upward trajectory in foreign exchange reserves and stable currency parity.
CPI inflation touched a low of 4.3 percent in December 2014, and average CPI inflation during July-December 2014 marked at 6.1 percent, a deceleration that was driven by the plunging international oil price and decline in other global commodity prices. A broad based declining trend in inflation is expected in the near future as the outlook of inflationary pressures in the medium to long term remains contingent upon prices of commodities and oil. In alignment, the SBP has revised its projection of average CPI inflation downward to 4.5 – 5.5 percent for FY15, an estimate that is well below the initial- Sirajuddin Aziz ly assigned target of 8 percent. Editor-in-Chief
Journal of The Institute of Bankers Pakistan 1 20 Journal of The Institute of Bankers Pakistan The Contributors contents
Muhammad Subtain Raza is a free lancer associated with National Bank of Pakistan with expertise in credit and AML & CFT practices. Currently he is COVER STORY focusing on AML/CFT measures in context of Pakistan. He is Doctoral scholar with MBA 06 (HRM), MSc (Hons.) And Banking Junior associate- ship from IBP.
Shan Saeed is Chief Economist at FINANCIAL IQI Group Holdings, a leading proper- ty and investment company operating INCLUSION and advising clients in Kuala Lumpur, Singapore, Hong Kong, London, A Road Pakistan Needs To Travel Melbourne and Dubai. He has 15 years of solid financial market experience in the areas of private banking, risk /compliance management, commodity investments, global economy and business strategy.
Asif Ishaq is an Associate Produc- er. He studied M.A. (Mass Commu- nication) and M. Com (Marketing).
Capital Markets DR. S. SABIR ALI JAFFERY is Cover Story 26 MBA (IBA - Gold Medalist); M.Phil in Pakistan (KASBIT - Gold Medalist) PhD (Business Management), a veteran Financial Inclusion banker of more than fifty years standing 06 A Road Pakistan Needs with international exposure as Country General 28 Regulatory support for Manager and a versaltile academic teaching MBAs and to Travel the growth of M.Coms. at different universities and bank officials. Islamic Banking
Mohammed Arifeen has diverse experience of 47 years in Research, Planning, Forecasting, Teaching, Global Human Resource, Market Surveys, etc. He is currently a Freelance Research Perspective Microfinance Content Writer on Banking, Education ,Economics and Business Matters. He is MA Economics from Dhaka University 12 Global Financial 32 Risk to Microfinance in Landscape Pakistan - A Study Saeed Ahmed Siddiqui M.A (economics), B.Ed Changes in the Next 5 Year Gold Medalist teaching in ICMAP for last 45 years also taught in different universities.
OBAID USMANI is an energetic Banking and driven Islamic Banking profes- sional with a degree from IBA. Mr. Usmani is part of the Product Development & Structuring team at 15 Risk Index Meezan Bank. Alongside the Product development role, Mr. Usmani is involved in strategy develop- ment & execution with the Central Bank. 20 Commercial Banking: Ammar Arshad is currently working Problems and Solutions as a Senior Associate - Finance & Risk Management at Pakistan Microfinance Network, with prior experience in the banking industry. Consumer Financing 15 He holds a Bachelor's degree in Business Adminis- 22 Back in Vogue tration from NUST. 30 Christian Doherty is a business journalist
Andrew Stone is a business journalist
Journal of The Institute of Bankers Pakistan 3 Published by: The Institute of Bankers Pakistan Opinion Moulvi Tamizuddin Khan Road Karachi 74200, Pakistan Tel: +92 (21) 3568 0783 Fax: +92 (21) 3568 3805 34 New Face of Finance www.ibp.org.pk [email protected]
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4 Journal of The Institute of Bankers Pakistan
COVER STORY COVER STORY
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Althoughsion and povertyIn nutshell, alleviation.sion andGovernment, poverty Although alleviation. Banks, In Although nutshell,sion andGovernment, povertyIn nutshell, alleviation.sion Banks, andGovernment, poverty Although alleviation. 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6 Journal of The Institute of Bankers Pakistan6 Journal of The Institute of Bankers Pakistan SAVINGS INSURANCESAVINGS INSURANCE Besides, 22% of adults worldwideBesides, delivery 22% ofofBesides, theadults full range22%worldwide ofof a ordableadults delivery worldwide Pakistanis ofBesides, the full deliverywho range22% do ofofnotofBesides, a ordable the adultsengage full range22% worldwidein either Pakistanisofof a ordable adults deliverywho worldwide doPakistanis notof the engage full deliverywho rangeAccount in doeither of notof a ordable the(BBA), engage full arange in simpli ed either Pakistanisof a ordable nancial whoAccount do Pakistanis notThe (BBA), engage Branchless whoaAccount insimpli ed doeither Bankingnot (BBA), engage nancial Regulationsa insimpli ed either The Branchless nancialAccount BankingThe (BBA), Branchless RegulationsaAccount simpli ed Banking (BBA), nancial Regulationsa simpli ed The Branchless nancial BankingThe Branchless RegulationsBranchless Banking Banking Regulations Regulations withBranchless trained Banking andBranchless Regulationsgiven Bankingincentives with Regulations trainedto hassle. withandBranchless Almostgiventrained Banking incentives122 andBranchless million Regulationsgiven to people Bankingincentiveshassle. with RegulationsAlmost trainedto 122hassle. withand million Almostgiventrained people incentives122 and million given to people incentiveshassle. 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SIM If each SIM report having originated a new formalreport havingFinancial originated reportInclusion having a new in Pakistan formaloriginated Financiala new formalvoluntarily reportInclusion havingFinancial in excludedPakistan originated reportInclusion having athemselves new in Pakistan formaloriginatedvoluntarily Financiala newexcluded formalvoluntarily Inclusion Financialthemselves ersin excludedPakistan by Inclusion removing themselves in Pakistanmorevoluntarily expensive ersexcluded byvoluntarilyand removing mobile themselves ers phone excluded moreby banking removingexpensive themselves services moreand in expensivemobileers phone byand bankingremoving mobile servicesers phone moreby inbanking removing expensive services moreand in expensivemobile phone and banking mobile serviceschannels phone inbanking (retail services agents, in mobilechannels products (retail channelshave agents, already (retailmobile been agents,develproducts- mobileholder channelshave isalready productsgiven (retail beenan channelshave opportunity agents,devel already - (retailmobile holderbeento agents,develis productsgiven- mobileholderan have opportunity isalready productsgiven beenanto have opportunity devel already- holderbeento develis given- holderan opportunity is given anto opportunity to BANK BANKCHEAPER CHEAPER loan. In nancial inclusion, the top veloan. In nancial inclusion,loan. In nancial the top inclusion, ve the topthrough veloan. In lack nancial of understanding, inclusion,loan. In nancial the aware topthrough inclusion, ve- lack the of top understanding,through ve lack facilities of aware understanding,- and requires awarethrough no- minimum lackfacilities of understanding,throughPakistan. and lackrequires Thefacilities of aware retailunderstanding, no- network andminimum requires of aware banks Pakistan.no- minimum Thefacilities retailPakistan. networkand requires Thefacilities of retailbanks no network and minimum requires of banks Pakistan.no minimum The retailPakistan. network Thephones) of retailbanks tonetwork increase of their banks outreach phones) to oped to increase by thephones) posttheir o ceoutreachto increase but tohave their notoped outreach byopen thephones) to apost bankoped o ce to account, increase by but thephones) have nancial posttheir not o ceoutreachto increaseinclu openbut- tohave a their bank notoped outreach account, byopen the to nancialapost bankoped o ce account, inclu by but the- have nancialpost not o ce inclu openbut- have a bank not account,open nanciala bank account, inclu- nancial inclu- countries include US, Korea, Canada,countries Financially-excluded includecountries US, Korea, include peopleCanada, US, account Korea,Financially-excluded Canada,ness,countries need,Financially-excluded include duepeople tocountries US, accountpoverty Korea, include peopleorCanada, ness,for US, account need, Korea,Financially-excluded due Canada, ness,to poverty need,Financially-excluded balance, duepeopleor forto andaccountpoverty neither peopleor ness,fordoes account need,it have balance, due ness,hasto and overwhelminglypovertyneed, neither balance, dueor fordoesto andmultipliedpoverty it neitherhave or due forhasdoes to overwhelmingly it havebalance, has andmultiplied overwhelmingly neitherbalance, due does to and multiplied it neitherhave due hasdoes to overwhelmingly it have has multiplied overwhelminglyun-banked due to multiplied and rural communities.due to un-bankedbeen and marketed ruralun-banked communities. e ectively. and rural communities.been marketedsionun-banked can e ectively.bebeen extended and marketed rural un-banked and communities. e ectively.the amount andsion rural can communities. bebeen extended marketedsion andcan e ectively.bethebeen extended amount marketed and e ectively.the amountsion can be extendedsion andcan bethe extended amount and the amount ACCOUNT ACCOUNTCREDIT CREDIT UK and Germany; where as Nigeria,UK andfor Germany; 85 percentUK where and of Germany;asthe Nigeria, population where for inas 85 Nigeria, percentreligiousUK and offorreasons. Germany;the 85 populationpercent FinancialUK where and of Germany;inexclusionasthe Nigeria, populationreligious where forreasons. inas 85 Nigeria, percentreligious Financial offorreasons. exclusionthecomplex 85 populationpercent Financial terms of and inexclusionthe conditionspopulationreligious therereasons. incomplex - religious agentsFinancial terms andreasons. andexclusioncomplex mobile conditions Financial phone terms there channels. andexclusion -conditionsagents In andtherecomplex mobile- agents phone terms and channels.andcomplex mobile conditions Inphone terms there channels.and -conditionsagents In andthere mobile- agents phone and channels. mobile Inphone channels. In of Rs1 trillion, which is in circulation,of Rs1 trillion, whichof Rs1 is intrillion, circulation, which is in circulation,of Rs1 trillion, whichof Rs1 is intrillion, circulation, which is in circulation, Uganda, Pakistan, Ghana and EgyptUganda, Pakistan Pakistan, Uganda,and Ghana this Pakistan,andmeans Egypt thatGhana thePakistan and Egyptprecludes Uganda,and this Pakistan people Pakistan,means fromUganda,and thatGhana reducingthis the Pakistan,and means Egyptrisk,precludes thatGhana thePakistanpeople and Egyptprecludes fromand reducingthis Pakistanpeople bymeans risk,reducing fromand that reducingthis the administrative means risk,precludes that thepeopleandby reducingprecludes lessfrom thanreducing peoplethreeadministrativeby risk,reducing years,from therereducing andadministrative are risk,nowless than andthreeby reducingyears,less than there threeadministrativeby are reducingnowyears, there andadministrative are nowless than andthree years,less than there three areSBP nowyears,projects there nancial are now penetration SBP projects The banks nancial SBP should projects penetration be instructed nancial topenetrationThe bankscan beSBP should brought projects The be into banksinstructed nancial the SBP shouldformal projects topenetration sector.be caninstructed nancial be brought topenetrationThe into bankscan the be should formalbrought The sector.be into banksinstructed the shouldformal to sector.be caninstructed be brought to intocan the be formalbrought sector. into the formal sector. are least inclusive. are least nancial inclusive. exclusionare least inclusive. is a new kind nancial of managing exclusionare least nancial uctuationsinclusive. is a new exclusionare kindleastin income, inclusive.of is a andmanagingnew kind nancial uctuationsof managing exclusion in income, nancial uctuations managementis a andnew exclusion kindin income,costs. of is a andmanagingnew kind uctuationsofmanagement managing18,000 in income,costs.branchless uctuationsmanagement and banking in income,costs. outlets, and18,000 branchlessmanagement18,000 banking costs.branchlessmanagement outlets, banking costs. outlets,18,000 branchless18,000 banking branchlessratios outlets, to be banking raised through outlets, an enablingratios tomanage be raised all ratiosthrough possibilities to be an raised enabling and to through dissemi manage an- enabling allratios possibilities tomanage be raised and all to ratiosthrough possibilities dissemi to be an- raised enabling and to through dissemi manage an- enabling all possibilities manage and all to possibilities dissemi- and to dissemi- apartheid, depriving a large chunkapartheid, of investing depriving apartheid,in amicroenterprises large depriving chunk of a orlarge investingin chunk apartheid, inof microenterprisesinvesting depriving apartheid,in amicroenterprises orlarge in deprivingchunk of a orlarge investingin chunk inof microenterprisesinvestingaugmenting in microenterprisesorand in surpassing or theaugmentingin Islamic and nancialaugmenting surpassing products. andthe SBP surpassingIslamic is nancialtheaugmenting Islamic products. and nancialaugmenting SBPsurpassing isproducts. policy and theenvironment SBP surpassingIslamic is and nancialthe the variousIslamic products.policy nancial nateenvironment SBP its isproducts.service policy and toenvironment theSBPremote various is area. and Thenate the itsvarious service Pakistanpolicy tonateenvironment post remote itshas service more policyarea. and than Thetoenvironment the remote 13, various000 Pakistan area. and Thenate postthe itshasvarious service Pakistanmore than tonate post remote13, itshas 000 service more area. than Theto remote 13, 000 Pakistan area. The post has Pakistanmore than post 13, has 000 more than 13, 000 Role of Banks in Financial InclusionRole of theBanks population in FinancialRole of of Banks Inclusionmultiple in Financial nancialthe Inclusion populationhealthRole and of of theBanks education. multiple population in FinancialRole nancial of of Banks Inclusionmultiple inhealth Financial nancial andthe education. Inclusion populationhealth and ofthe education. Micro nancemultiple population nancial Regulatoryof multiple health Framework nancial and education.Micro nance health10,000+ and Regulatory conventional education.Micro nance Framework bank Regulatory branches.10,000+ Framework working conventionalMicro nance to10,000+ develop bank Regulatory conventional a Micro nancebranches. proper liquidityFramework bankworking Regulatory branches. to10,000+ develop Framework working conventional a proper to10,000+ develop liquidity bank conventional a outreachbranches. proper liquidity programs bankworking branches. described to develop workingabove aoutreach proper tobanks develop liquidity programs should a outreach proper describedegg liquidity onprograms the above people describedbanks to shouldbranchesaboveoutreach egg banksacross onprograms theshould the outreachpeople describedcountryegg to onprograms the andbranchesabove people described banks acrossto should branchesabovethe countryegg banksacross on theandshould the people countryegg toon theandbranches people acrossto branchesthe country across and the country and services, while Only 35 percent popuservices,- while Onlyservices, 35 percent while popuOnly -35 percent popuservices,- while Onlyservices, 35 percent while popuOnly -35 percent popu - Consequently, branchless bankingConsequently, management branchlessConsequently, framework banking branchless and newmanagement bankingConsequently, frameworkmanagement branchlessConsequently, and framework new from banking abranchless andnational newmanagement coverage banking of framework management19,000from aaccess andnational framework new banking from coverage services a andnational of new by19,000 ways coverage of accessno of banking19,000reachesfrom outservicesaaccess national to 20 bybanking million waysfromcoverage ofserviceshouseholds.a nonational of by19,000reaches ways coverage ofout accessno to of 20 banking19,000reaches million outserviceshouseholds.access to 20 bybanking million ways ofserviceshouseholds. no byreaches ways ofout no to 20reaches million outhouseholds. to 20 million households. Initiatives for nancial inclusion haveInitiatives lation for in nancial ChinaInitiatives isinclusion nancially for nancial have excluded; inclusionlation in have ChinaInitiativesSBP is lation nanciallypursuing for in nancial ChinaInitiatives excluded;a multipronged isinclusion nancially for nancial haveSBP excluded; isinclusion lationpursuing in have ChinaSBP a multipronged is lation nanciallypursuingSBP inintroduced China excluded;a multipronged is nancially Micro nance SBP excluded; Bankingis pursuingSBP introduced hasSBP a played multiprongedis pursuingMicro nanceSBP a pivotal introduced a role multiprongedBanking in Micro nance providing has played BankinginstrumentsSBP a pivotal introducedhas to roleplayed allow in Micro nance SBPproviding thea pivotal introducedIBs to role grow Bankinginstruments in Micro nance providing has to played allowBankinginstruments thea pivotal IBshas toto roleplayed growallow in personsproviding thea pivotal IBs perto role grow bankinstruments in providing branch toin allow2007instrumentspersons tothe IBsfrills pertoto grow allowbankaccount, persons thebranch IBs nancial pertoin grow 2007bank toinclusionbranch frills in 2007account,It o erspersons to savingsfrills nancial per bankaccount, scheme, persons inclusionbranch nancialinsurance perin 2007bankIt o ers toinclusionbranch savingsfrills in 2007account, Itscheme, o ers to savingsfrills nancialinsurance account, scheme, inclusion nancialinsurance It o ers inclusion savings Itscheme, o ers savingsinsurance scheme, insurance come from nancial regulators,come thisfrom gure nancialcome is 65 from regulators,percent nancial in India thisregulators, gureapproachcome is 65 thisfromto percent tackle gure nancialcome the inis challengeIndia65 from regulators,percent approach nancialof in India thistoregulators, tackle gureapproach the is challenge65 thisto Regulationspercent tackle gure of the inis challengeIndiain65 2001percent approach toof speci callyin India toRegulations tackle approache cient the challengein Financiallyto2001Regulations tackle toof theInclusivespeci cally challengein 2001 Govern toe cientof -speci callyand FinanciallyRegulations compete e cient Inclusive inwith Financially2001Regulations Governconventional to -Inclusivespeci cally andin 2001 Governcompete toe cient -speci cally andwith Financially competeconventional e cient Inclusive with Financially 15,000 Governconventional in 2012-Inclusiveand and 12,000Governcompete in- 2017. andwith The15,000 compete conventional incampaign 2012 with and and15,000 12,000 conventionalbusiness in in 2012 2017. correspondent. and The 12,000 campaign in 2017.scheme Theand15,000 business and campaignin 2012 have correspondent. and and15,000recently 12,000 business in in 2012 started 2017. correspondent.scheme and The 12,000 andcampaign in 2017.havescheme Theandrecently business andcampaign startedhave correspondent. and recently business started correspondent.scheme and havescheme recently and startedhave recently started governments and the banking indusgovernments- .According andgovernments theto bankingPakistan andindus Access the- banking .Accordingto indushighgovernments - nancialto Pakistan.According exclusion and governmentsAccess theto in banking the Pakistanto country. andindushigh Access the - nancial banking .Accordingto exclusion indushigh - nancialto in thePakistan.Accordingmeet country. exclusion theAccess todemands in the Pakistanto country. ofhigh Accesslow nancial income tomeet exclusion highthement nancialdemands in to the Personmeet country. exclusion of the (G2P)low demands in income paymentsthe country. of menttolow incometobanks Personmeet in thement(G2P)a demandsprudent topayments Personmeet andof the(G2P)tolow sounddemands incomebankspayments inof menttoalow prudent incometobanks Person inand ment(G2P)a soundprudent topayments Person coverage and (G2P)to of sound ATM bankspayments outlets in toais projectedprudentbankscoverage inand Thea of soundgovernmentprudent ATM coverageoutlets and should is of soundprojected ATM promote outlets Thethe is projectedgovernmento eringcoverage remittances Theshould of government ATM promote coverageasoutlets well. theshould isFinancial of projected ATM o eringpromote outlets remittances Thethe is projectedgovernmento ering as well. remittances Theshould Financial government promote as well. theshould Financial o eringpromote remittances the o ering as well. remittances Financial as well. Financial FINANCIAL INCLUSIONFINANCIAL INCLUSION try. Over 90 developing countriestry. OverFinance 90 developingtry.Survey Over (A2FS),countries90 developing only Finance15 countriesIn try.Surveythis Overcontext Finance (A2FS),90 various developing try.Surveyonly Overconventional 15 (A2FS), countries90 Indeveloping this only context Finance15 countries variousIn Surveythis conventionalcontext Finance(A2FS),consumers. various Survey only Theseconventional 15(A2FS), regulationsIn this only context have15consumers. variousInwelfare this Theseconventionalcontext bene ciariesconsumers. regulations various Theseconventional ofhave Benazirregulations welfare manner. havebene ciariesconsumers. Thewelfare establishment These ofbene ciaries consumers. Benazirregulations of Islamic Thesemanner. ofhave Benazirregulations Thewelfare establishment manner. havebene ciaries The welfareof establishmentIslamic of bene ciariesto Benazirincrease of Islamic from manner.of 57,000Benazir The persons establishment manner. perto increase The banksof establishmentIslamic from to espouse to57,000 increase nancial ofpersons Islamic from inclusion per57,000 banks bypersons toexclusion espouse perto increase maybanks nancial befrom to alleviated espouseinclusion to57,000 increase nancial bybypersons having fromexclusion inclusion per 57,000 maybanks bypersons be to exclusionalleviated espouse per maybanks nancialby having be to alleviated espouseinclusion nancial byby havingexclusion inclusion may by be exclusionalleviated may by having be alleviated by having representing 75% of the world’srepresenting percent 75% ofrepresenting the of population the world’s75% has ofaccess percentthe world’sand ofrepresenting the non-conventional populationpercent 75% of representinghas the measures ofaccess population the world’swere75%and has non-conventional ofaccess percentthe world’sand of the non-conventional measures populationpercentbeen were improvedof has the measures access population to a world wereand has class non-conventional access microbeen - andimprovedIncome non-conventional measures Supporttobeen a world were improved Programme class measures micro to a -world (BISP),wereIncome class MFBs microSupportbeen -has improved Income Programmealso been Supporttobeen a world(BISP),encouraged. improved Programme class MFBs micro to a -worldhas(BISP),Income also class MFBs microbeenSupport -hasencouraged. Income Programmealso beenSupport ATM (BISP),encouraged. in 2007Programme toMFBs 12,000 has(BISP), in 2017.also MFBsbeenATM hasencouraged. in means 2007also to been of12,000 ATM nancial encouraged. in 20072017. assistance, to 12,000 adver in means2017.- reformsof ATM nancial inin means2007Pakistan assistance, to of12,000 Post. 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IslamicSBP In Regulatorunderhas banking, been the SLR.have SBPeligible In devised has instrumentsbeen many eligiblehandy Regulatorunder instruments the Globally, SLR.have In devised Regulatorunder electronic the many SLR.have wallet handy In devised was intro many Globally,- byhandy Regulator newelectronic delivery Globally, have wallet channels,devisedRegulator waselectronic intro many such- have wallet byhandyas devised wasnew intro delivery many Globally,- byhandy channels, newelectronic delivery Globally,such wallet aschannels, waselectronic intro such- wallet byas wasnew intro delivery- by channels, new delivery such aschannels, such as countries across the globe now lookcountries at member across thealreadycountries globe has now across access look the at globe to memberan now look alreadycountries at member has across access thealreadycountries globeto anhas now across Theaccess look thebanking at globe to member ansector now look hasalready at taken member hasa lead Theaccess bankingalready34 to percent ansectorhas The accessare has banking completely taken to an sectora lead excluded. has 34taken percent a leadTheOn are banking20th completely34 percentJanuary sector excluded.The are 2012has banking completely taken rst sectoraever lead excluded.On has20th 34taken percentJanuary a leadOn are2012 20th completely 34 rst Unit” percentJanuary ever of excluded. areUK’s2012 completely ‘The rst Economist’ ever excluded.On 20th maga Unit”January- ofpromotingOn UK’s2012 20th ‘The rst Unit” January IslamicEconomist’ ever of UK’s2012Banks ‘Themaga rst (IBs)Economist’- ever promotingto SeptembermagaUnit” Islamic- ofpromoting 2008, UK’sBanks ‘Thea rst Unit” (IBs)IslamicEconomist’ issue ofto UK’s byBanks theSeptember ‘Themaga (IBs)Economist’- promoting to2008, September magaa rst Islamic- issuepromoting 2008, byBanks the a rst policies (IBs)Islamic issue toand byBanks theSeptemberstrategies (IBs) to to2008, boostSeptember a rstpoliciesup issueduced 2008,and by thestrategies bya rst policiesGoogle issue to and threebyboost thestrategies years up back ducedto boost ATMs,by policiesupGoogle bankingduced andthree strategiesby agents,years policiesGoogle back to PoS and three boost andstrategiesATMs, years up bankingback ducedto boost ATMs,byagents, upGoogle banking ducedPoS three andby agents,years Google backPoS three andATMs, years bankingback ATMs,agents, banking PoS andagents, PoS and nancial inclusion as a mean to more nancial account inclusion nancial(a as aresponse mean inclusion to moreidentifying as a meanaccount to more nancial(a responseaccount inclusion identifying nancial(a as aresponse mean inclusion roleto more identifyingin aspromoting a meanaccount to nancial more(a response inclusion.accountrole identifyingin(a promoting response role nancial identifyingin promoting inclusion. nancial inclusion.Nationalrole in promoting Financial roleLiteracy nancial in promoting initiative inclusion.National nancial Financial inclusion.National Literacy Financial zine.initiative InLiteracy Micro nance, initiativeNational SBP Financialandzine. 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Africanemployed, countries rural, oremployed, femalehaveSeveral clients. rural, African or femaleSeveral countries clients. African have countries haveSeveral AfricanSeveral countries African have countries have SBP has adopted innovative SBP opened.has adopted SBP hasinnovative adopted opened. innovativelending SBP are opened. foundhas to adopted be SBPpro table, hasinnovative itlending isadopted areopened. foundinnovativelending to be pro table, areopened. found it to is commercialbe pro table, banksitlending is have are found a certainlending to commercialbe pro table, are found banksit to is commercialbe pro table,have a bankscertainit is have a certaincommercial bankscommercial have a bankscertain have a certain The nancially excluded section The nanciallywidely recog Theexcluded- nancially section excluded widely section recog The - nanciallywidely recog Theexcluded- nancially section excluded widely section recog - widely recog - Five main barriers to nancial inclu Five- main barriers Five to nancial main barriers inclu- to nancial inclu Five- main barriers Five to nancial main harnessedbarriers inclu- to nancialthe unique inclu - aspects harnessedof the harnessedunique aspects the uniqueof aspects harnessedof the harnessedunique aspects the uniqueof aspects of solutions to overcome geographicalsolutions to overcomesolutions geographical to overcome geographicalexpectedsolutions that to banks overcomesolutions will ndgeographical to their expectedovercome thatgeographical banksexpected will that nd theirbanks percent will nd of theirexpected portfolio that inbanks expectedsmallpercent will that nd ofTelecom theirbanks percent portfoliowillcompanies nd of intheir smallshould portfolio beTelecom in smallpercent companies ofTelecom their shouldpercent portfoliocompanies beof intheir smallshould portfolio beTelecom in small companies Telecom should companies be should be largely comprises of marginal framers,largely comprisesnized in largely of marginal comprises framers, of marginal nized framers, in largely comprisesnized in largely of marginal comprises framers, of marginal nized framers, in nized in sion are the distance to a bank, lacksion of areFinancial the distance Inclusionsion to are a bank,the Statistics distance lack of to aFinancial bank, lack Inclusionsion of areFinancial the Statistics distance Inclusionsion to are a bank,the Statistics mobiledistance lack of bankingto aFinancial bank, to lack Inclusiondrive of Financial nancial Statisticsmobile Inclusion banking Statistics mobileto drive banking nancial to drive nancialmobile banking mobileto drive banking nancial to drive nancial barriers, including branchless bankingbarriers, includingTo encouragebarriers, branchless sound including banking growth branchless of IBs, To encourage bankingruralbarriers, operations sound includingTo encourage growthto barriers,be branchless ofincreasingly soundIBs, including banking growthrural branchlessoperations of IBs, To encourage banking ruralto be operations increasingly sound To encourage growthto loans.be ofincreasingly soundIBs,In addition, growthrural operationsimportant of IBs, ruralsocialto loans.be operations increasingly Inarmed addition, withto loans.be trainedimportant increasingly In addition,human social resource, importantarmed withsocialloans. trained Inarmed addition,human withloans. resource, trainedimportant In addition, human social resource, importantarmed withsocial trained armed human with resource, trained human resource, nancial infrastructure, restrictive nancial infrastructure, nancial restrictiveinfrastructure, restrictive nancial infrastructure, nancial restrictiveinfrastructure,inclusion. A G-20 restrictive (Group of Twenty)inclusion. A G-20inclusion. (Group ofA Twenty)G-20 (Group of Twenty)inclusion. A G-20inclusion. (Group ofA Twenty)G-20 (Group of Twenty) through retail agents and harnessingthrough SBP retail has agentslaidthrough out and a retailseparateharnessing agents pruden andSBP -harnessing hasattractive. laidthrough out SBPaInnovative retailseparate has agentslaidthrough pruden productsout and a retail-separateharnessing andattractive. agents pruden and SBPInnovative -harnessing hasattractive. laid productsout SBPaInnovative separate has and laid considerations pruden productsout a -separate andattractive. should pruden beInnovative - paidattractive. intoconsiderations products permittedInnovative and should considerationsto products provide be paid paymentsand shouldinto andbepermitted paid intoconsiderations to providepermitted payments shouldconsiderations to provide andbe paid payments shouldinto andbepermitted paid into to providepermitted payments to provide and payments and “Financial inclusion “Financialregulations, governance inclusion failures andregulations, Approximately governanceregulations, 2.5failures governancebillion and adults failuresApproximately andregulations, 2.5Approximately governancebillionregulations, adults 2.5failures Financialgovernancebillion and adultsInclusion failuresApproximately Experts and Group 2.5Approximately hasFinancialbillion adultsInclusion 2.5 Financialbillion Experts adults InclusionGroup has Experts Group hasFinancial InclusionFinancial Experts InclusionGroup has Experts Group has technology via mobile-phone banking.technology tial viaregulatory mobile-phonetechnology and viabanking. mobile-phonesupervisory tial banking.regulatorymethodstechnology oftial and selling viaregulatory mobile-phonesupervisory technologythem willand viabanking. alsomethods mobile-phonesupervisory oftial selling banking.regulatorymethods them oftialwill and selling regulatory alsosupervisory loanthem decisions. willand alsomethods Thesupervisory government of sellingmethods could loanthem decisions. ofmoneywill selling also transfer The loanthem government decisions. services will also after couldThe governmentful lling money transfercouldloan decisions. servicesmoney after transfer Theloan governmentful lling decisions. services after could The governmentful lling money transfercould servicesmoney aftertransfer ful lling services after ful lling can help individuals canlack helpof suitable individuals products. lack of worldwidesuitable products.lack lack of accesssuitable to products. a formalworldwide lack lack of worldwideaccesssuitable to products. lack alack formal of accesssuitable been to products. alaunched. formalworldwide The Principleslack worldwideaccess beenfor to alaunched.lack formal access beenThe to aPrincipleslaunched. formal forThe Principles beenfor launched. beenThe Principleslaunched. forThe Principles for framework that conforms to theframework increase that banks’ frameworkconforms reach and thatto may theconforms change increase to banks’theframework reachincrease and that maybanks’ frameworkconforms change reach also and thatto addmay theconforms changeextra increase incentives to banks’the to reach lendincreasealso andin addmaybanks’speci ed changeextra reach incentives terms also and addmay and change extratoconditions. lend incentives in Therespeci ed to lend termsalso in add andspeci ed extraconditions. incentives termsalso Thereadd and extratoconditions. lend incentives in Therespeci ed to lend terms in andspeci ed conditions. terms There and conditions. There bank account, which amount to 50%bank account, whichbank amount account, to which 50% amountInnovative to Financial50%bank account, Inclusion whichbank serve amount Innovativeaccount, as to which Financial50% amountInnovative Inclusion to Financial50% serve as Inclusion serveInnovative as FinancialInnovative Inclusion Financial serve as Inclusion serve as framework of the Islamic Financialframework the “brick-and-mortar”of theframework Islamic Financialof thenature Islamic theof Financial“brick-and-mortar”framework the “brick-and-mortar”of thenatureframework Islamic of rural Financialof areas.thenature Islamic theof Financial“brick-and-mortar” therural “brick-and-mortar” areas.natureis a need of ruralto increase areas.nature theof number is of a need ruralto increase areas.is a needthe numberruralto increase areas. of the numberis of a need to increaseis a needthe numberto increase of the number of to deal with pover- to deal Generally with there pover are many- reasons Generally of the there world’s are Generally adult many population. therereasons are Mostmanyof the reasonsworld’s Generally adultof thepopulation. there world’s are Generally adult Mostmany population. atherereasons guide are for Mostmanyof policythe reasonsworld’s and adultregulatoryof thepopulation.a world’sguide adult forMost policy population. a guide and forregulatoryMost policy and regulatorya guide for policya guide and forregulatory policy and regulatory Service Board (IFSB) in the developService- branch Board operations.(IFSB)Service in the Board Commercial develop (IFSB)- banksin branchthe develop operations.Service- branch Board Commercial operations.(IFSB)Service banksin the Board Commercial develop (IFSB)- banksin branchthe develop operations.- branch Commercial operations.telecom banks Commercialagents and banks provide themtelecom agents telecomand provide agents them and provide themtelecom agents telecomand provide agents them and provide them ty, especially the ty,why especially individuals or the groups may notwhy individualsof these peoplewhyor groups individuals are concentratedmay notor groupsof in these may peoplenotwhy individuals ofare these concentrated peoplewhyor groups individuals are in concentratedmayapproaches notor groups of within these may the peoplenot objectives ofare these concentrated approachesof people are within concentratedapproaches the objectives within ofthe objectives approachesof withapproaches the objectives with ofthe objectives of ment of which Pakistan has playedment a ofhave which been Pakistanment given of thehas which optionplayed Pakistan toa openhave has playedbeenment given a of havethe which optionbeen Pakistanment givento open of thehas which optionplayed The Pakistan government toa openhave has playedofbeen Pakistan given a should havethe option Thebeen governmentwith givento openthe the mandate option Theof Pakistan government toto act open should as branchless of Pakistanwith the should mandate The governmentwith to act the as mandate branchless Theof Pakistan government to act should as branchless of Pakistanwith the should mandate with to act the as mandate branchless to act as branchless take full advantage of mainstreamtake fulldeveloping advantagetake ofeconomies,full mainstream advantage whereofdeveloping mainstream take economies,fulldeveloping advantage take where ofeconomies,full mainstream advantagefostering wheresafeofdeveloping mainstreamand sound adoptioneconomies,developingfostering of wheresafeeconomies, and fostering sound adoption wheresafe and ofsound adoptionfostering of safe andfostering sound adoption safe and ofsound adoption of key role. To ensure proper duekey role.full- edged To ensurekey branches, role. proper To sub ensuredue branches full- edgedproper duekey branches, role.full- edged To sub ensure keybranches branches, role. proper helpTo sub ensuretodue branches expand full- edgedproper nancial due branches, literacyfull- edgedhelp sub to bankingbranches branches,expand agents. help nancialsub toThrough branches expand literacy this, nancial we canbanking literacy agents.help toThroughbanking expand this,agents.help nancialwe toThroughcan expand literacy this, nancial we canbanking literacy agents. 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Journal of The Institute of Bankers Pakistan Journal 7 of The Institute of Bankers Pakistan 7 Besides, 22% of adults worldwideBesides, delivery 22% ofofBesides, theadults full range22%worldwide ofof a ordableadults delivery worldwide Pakistanis ofBesides, the full deliverywho range22% do of ofnotofBesides, a ordable the adultsengage full range22% worldwidein either Pakistanisofof a ordable adults deliverywho worldwide doPakistanis notof the engage full deliverywho rangeAccount in doeither of notof a ordable the(BBA), engage full arange in simpli ed either Pakistanisof a ordable nancial whoAccount do Pakistanis notThe (BBA), engage Branchless whoaAccount insimpli ed doeither Bankingnot (BBA), engage nancial Regulationsa insimpli ed either The Branchless nancialAccount BankingThe (BBA), Branchless RegulationsaAccount simpli ed Banking (BBA), nancial Regulationsa simpli ed The Branchless nancial BankingThe Branchless RegulationsBranchless Banking Banking Regulations Regulations withBranchless trained Banking andBranchless Regulationsgiven Bankingincentives with Regulations trainedto hassle. withandBranchless Almostgiventrained Banking incentives122 andBranchless million Regulationsgiven to people Bankingincentiveshassle. with RegulationsAlmost trainedto 122hassle. withand million Almostgiventrained people incentives122 and million given to people incentiveshassle. 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SIM If each SIM report having originated a new formalreport havingFinancial originated reportInclusion having a new in Pakistan formaloriginated Financiala new formalvoluntarily reportInclusion havingFinancial in excludedPakistan originated reportInclusion having athemselves new in Pakistan formaloriginatedvoluntarily Financiala newexcluded formalvoluntarily Inclusion Financialthemselves ersin excludedPakistan by Inclusion removing themselves in Pakistanmorevoluntarily expensive ersexcluded byvoluntarilyand removing mobile themselves ers phone excluded moreby banking removingexpensive themselves services moreand in expensivemobileers phone byand bankingremoving mobile servicesers phone moreby inbanking removing expensive services moreand in expensivemobile phone and banking mobile serviceschannels phone inbanking (retail services agents, in mobilechannels products (retail channelshave agents, already (retailmobile been agents,develproducts- mobileholder channelshave isalready productsgiven (retail beenan channelshave opportunity agents,devel already - (retailmobile holderbeento agents,develis productsgiven- mobileholderan have opportunity isalready productsgiven beenanto have opportunity devel already- holderbeento develis given- holderan opportunity is given anto opportunity to loan. In nancial inclusion, the top veloan. In nancial inclusion,loan. In nancial the top inclusion, ve the topthrough veloan. In lack nancial of understanding, inclusion,loan. In nancial the aware topthrough inclusion, ve- lack the of top understanding,through ve lack facilities of aware understanding,- and requires awarethrough no- minimum lackfacilities of understanding,throughPakistan. and lackrequires Thefacilities of aware retailunderstanding, no- network andminimum requires of aware banks Pakistan.no- minimum Thefacilities retailPakistan. networkand requires Thefacilities of retailbanks no network and minimum requires of banks Pakistan.no minimum The retailPakistan. network Thephones) of retailbanks tonetwork increase of their banks outreach phones) to oped to increase by thephones) posttheir o ceoutreachto increase but tohave their notoped outreach byopen thephones) to apost bankoped o ce to account, increase by but thephones) have nancial posttheir not o ceoutreachto increaseinclu openbut- tohave a their bank notoped outreach account, byopen the to nancialapost bankoped o ce account, inclu by but the- have nancialpost not o ce inclu openbut- have a bank not account,open nanciala bank account, inclu- nancial inclu- countries include US, Korea, Canada,countries Financially-excluded includecountries US, Korea, include peopleCanada, US, account Korea,Financially-excluded Canada,ness,countries need,Financially-excluded include duepeople tocountries US, accountpoverty Korea, include peopleorCanada, ness,for US, account need, Korea,Financially-excluded due Canada, ness,to poverty need,Financially-excluded balance, duepeopleor forto andaccountpoverty neither peopleor ness,fordoes account need,it have balance, due ness,hasto and overwhelminglypovertyneed, neither balance, dueor fordoesto andmultipliedpoverty it neitherhave or due forhasdoes to overwhelmingly it havebalance, has andmultiplied overwhelmingly neitherbalance, due does to and multiplied it neitherhave due hasdoes to overwhelmingly it have has multiplied overwhelminglyun-banked due to multiplied and rural communities.due to un-bankedbeen and marketed ruralun-banked communities. e ectively. and rural communities.been marketedsionun-banked can e ectively.bebeen extended and marketed rural un-banked and communities. e ectively.the amount andsion rural can communities. bebeen extended marketedsion andcan e ectively.bethebeen extended amount marketed and e ectively.the amountsion can be extendedsion andcan bethe extended amount and the amount UK and Germany; where as Nigeria,UK andfor Germany; 85 percentUK where and of Germany;asthe Nigeria, population where for inas 85 Nigeria, percentreligiousUK and offorreasons. Germany;the 85 populationpercent FinancialUK where and of Germany;inexclusionasthe Nigeria, populationreligious where forreasons. inas 85 Nigeria, percentreligious Financial offorreasons. exclusionthecomplex 85 populationpercent Financial terms of and inexclusionthe conditionspopulationreligious therereasons. incomplex - religious agentsFinancial terms andreasons. andexclusioncomplex mobile conditions Financial phone terms there channels. andexclusion -conditionsagents In andtherecomplex mobile- agents phone terms and channels.andcomplex mobile conditions Inphone terms there channels.and -conditionsagents In andthere mobile- agents phone and channels. mobile Inphone channels. 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Banks, In Although nutshell, Government, In nutshell, Banks, Government, Banks, and inclusive growth which slumand dwellers, inclusive migrants, growthand inclusive whichethnic minori growthslum- dwellers, which migrants,slumand dwellers, inclusive ethnic minorimigrants, growthand- inclusive whichethnic minori growthslum- dwellers, which migrants,slum dwellers, ethnicuals minorimigrants, to deal- ethnic with minoripoverty,- especiallyuals tobeen deal withstinteduals poverty, toby dealslow especially with technologic poverty, been especially stinteduals tobybeen dealslow withstinted technologicuals poverty, toby dealslow especially(1998) with technologic poverty,emphasizes been especially stinted an individual’sbybeen slow (1998)stinted technologic andemphasizes by remittance slow (1998) technologic anservices). emphasizesindividual’s When informal an andindividual’s remittance nance(1998) services). themesandemphasizes remittance When namely(1998) informal anservices). budgeting,emphasizesindividual’s When nance informal an themes andindividual’s remittance nancenamely services). themesandbudgeting,nance remittance When namelyindustry informal services). budgeting, so that When nance it informalbecomes themesnance nance namelyindustry themesbudgeting, sonance that namelyindustry it becomes budgeting, so that it becomesnance industry sonance that industry it becomes so that it becomes Bank should open small extension Bank Pakistan’sshould open micro nance Bank small should extension industry open smallis stillPakistan’s extensionTelecom micro nance Bank sector, Pakistan’sshould Pakistanindustry open micro nance Bank smallPost,is stillshould Micro extension industryTelecom open- smallis sector, stillPakistan’s extension PakistanTelecom micro nance Post, sector,Pakistan’s Micro Pakistanindustry -micro nance Post,is still Micro industryTelecom- is sector, still PakistanTelecom Post, sector, Micro Pakistan- Post, Micro - could unleash the vast unseen tiescould and unleash socially the couldvastexcluded unseen unleash groups, theties vast and unseen socially ties couldexcluded and unleash socially groups, the couldvastexcluded unseen unleash groups, theties vast and unseen socially ties excluded and socially thegroups, challenges excluded ofgroups, irregular incomethe challengesadvances, oftheweak irregular challenges legal incomefoundations, of irregular advances, income theweak challenges advances,legal foundations, oftheweak irregular challenges legal right incomefoundations, ofto irregular haveadvances, a bankincome weakaccount. advances,legal Theright foundations, toweak nancial have legal aaccess rightbank foundations, is to takenaccount. have into a Theaccount,bank account. nancial 51 savings, accessTheright is to investments,taken nancial have into aaccess account,rightbank debt is to takenaccount. 51havemanage into savings,a Theaccount,-bank investments,account. nancial 51 savings, accessThe debt is investments,taken nancial manage nancially into access account,- anddebt is takensocially 51manage into savings,sustainable. account,- investments, 51 nancially savings, anddebt investments,socially manage nancially sustainable.- anddebt socially manage sustainable.- nancially and socially nancially sustainable. and socially sustainable. counters at organization providingcounters developing, at organizationcounters the industry atproviding organization is striving developing, providingnancecounters the Network, developing,industry at organizationacademia countersis strivingthe industry and at providing organizationthenance is striving Network,developing, providing nanceacademia the Network, developing, industryand theacademia is strivingthe industryand thenance is striving Network, nanceacademia Network, and theacademia and the potential of savings consumption potentialand senior of savings sectorpotential consumption and ofwomen. savings and To consumption achievesenior sector potentialand andsenior ofwomen. savings sectorpotential To consumption achieveand ofwomen. savings and To consumption achievesenior sector and andsenior women. sector Toand achieveand occasional women. Tolarge achieve bills. It can alsoand occasionaland unsuitable largeand bills.occasional nancial It can largealsoprocesses bills.and It canunsuitable alsoand occasional and nancial unsuitable largeandprocesses bills.occasional nancial It Germancan largealsoprocesses Bankers’bills.and It canunsuitable Association also and nancial intro Germanunsuitable- processespercent Bankers’ nancial ofGerman AssociationPakistanis processes Bankers’ have intro accessAssociation- percentto introment,ofGerman Pakistanis- nancialpercent Bankers’ have products, ofGerman accessAssociationPakistanis branchless toBankers’ have introment, accessAssociation- nancial percentto products, introment,of Pakistanis- nancial percentbranchless have products, of accessPakistanis branchlessto havement, access nancial to products,ment, nancial branchless products, branchless public utility services such as localpublic hardutility to servicesmakepublic a positive suchutility as impactservices local on such thehard toasregulator makelocalpublic a positive hardneedutility to impactto servicesmake buildpublic aon positivea such the utilitytaskforce as impactregulatorservices local on such thehardneed toas toregulator make localbuild a positivea hard needtaskforce to impactto make build aon positivea the taskforce impactregulator on theneed toregulator build a needtaskforce to build a taskforce investment propensities of the investmentless greater propensities investment nancial ofinclusion, propensitiesthe less nancial greaterof the investment nancialless greater inclusion, propensities investment nancial nancial ofinclusion, propensities the less nancial greaterof the nancialless greater inclusion, nancial pull nancial theminclusion, out of nancial poverty throughpull themand outproducts. ofpull poverty themPoor outsocioeconomicthrough of poverty and products.throughpull themPoorand outproducts.socioeconomic ofpull poverty themPoor ducedoutsocioeconomicthrough of apoverty voluntaryand products.through code Poorinand 1996 ducedproducts.socioeconomic nance.a voluntaryPoor Informalducedsocioeconomic code a access voluntaryin 1996 can codeoccur nance. in banking1996Informalduced nance. aand accessvoluntary consumer Informalducedcan codeoccur arights access voluntaryin banking1996 &can codeoccur nance.and in consumer banking1996Informal nance. andrightsaccess SBP consumer Informal&canhad occurformed rightsaccess banking the&can Nationaloccur and SBP consumerbanking had formed andrights SBP consumer the&had Nationalformed rights the& National SBP had formed SBP thehad Nationalformed the National schools, primary health care centre,schools, lives primary of thousands schools,health ofcareprimary people. centre, healthThe Statelives care of centre, whichthousandsschools, willlives ofprimaryaddress people. of thousands schools, healthTheissues State ofcareprimarysuch people. centre, whichas healthThe will Statelives careaddress of centre, whichthousands issues willlives ofsuchaddress people. of thousandsas Theissues State ofsuch people. whichas The will State address which issues will suchaddress as issues such as fortunate strata of society. Financialfortunate services strata fortunateofshould society. reachstrata Financial theof society. poorservices of Financial fortunateshould services reachstrata thefortunateofshould society.poor reachstrataof Financial theof society. poorservices of Financial should servicesreach theshould improvedpoor reachof education the poor and of health care.improved conditions, educationimproved gender and health educationbias, care. and and lowconditions, health care.improved gender conditions, educationbias, improved andgender and low health educationbias,providing care. and and forlowconditions, healtha so-called care. gender “everyman”conditions, bias,providing andthroughgender forlow a thebias,so-calledproviding organized and “everyman” forlow sectora so-called (though through “everyman” responsibilities theproviding organized through for to sectora about theso-calledproviding (thoughorganized 50,000 “everyman” for bene sectoraresponsibilities so-called- (though through “everyman” to responsibilities aboutthe organized 50,000throughBranchless bene tosector aboutthe- (thoughorganized 50,000Banking bene sector responsibilities-Consultative (thoughBranchless to responsibilitiesabout 50,000BankingBranchless bene to about-Consultative 50,000Banking bene -ConsultativeBranchless BankingBranchless Consultative Banking Consultative village mandies, farmers associationvillage Bankmandies, of Pakistanvillagefarmers mandies, associationhas made farmers toughBank association ofoptimization Pakistanvillage Bankmandies, has of ofcontributingmade Pakistanvillagefarmers tough mandies, associationhas factors optimizationmade farmers toughBank association of ofcontributingoptimization Pakistan Bank has factorsof ofcontributingmade Pakistan tough has factors optimizationmade tough of contributingoptimization factorsof contributing factors inclusion is the process of ensuringinclusion socially is the excludedinclusionprocess ofgroup’sis ensuringthe processparticularly sociallyof ensuring excludedinclusion socially group’sis the excludedinclusion processparticularly ofgroup’sis ensuringthe processparticularly sociallyof ensuring excluded socially group’s excluded particularlyFor micro-enterprises, group’s particularly nancial incluFor- micro-enterprises,levels of basicFor educationmicro-enterprises, nancial andinclu nancial- nanciallevels of inclubasicFor- educationmicro-enterprises,levels of and basicFor nancial educationmicro-enterprises, nancial current andinclu nancial - banking nanciallevels of inclubasicaccount- educationlevels thatcurrent of and basic nancial committees, educationbanking current andshopkeepers,account nancial banking moneylendthat accountcommittees,- ciariesthatcurrent shopkeepers, from committees, bankinglow moneylendincomecurrent shopkeepers,account strata.-banking ciariesWe moneylendthat accountfromcommittees,- low ciaries thatincome shopkeepers, from committees,strata.Group low We moneylendincome with shopkeepers, strata.representation- ciariesWe moneylend from fromGroup- low ciaries incomewith from strata.representationGroup low We income with strata.fromrepresentation We fromGroup with representationGroup with fromrepresentation from and bus stops etc. and busregulations stops etc.and for bus thestops industry. etc. Theregulations to andenhance for bus regulations thestops Financial industry. etc.and forInclusion bus The thestops industry.and toetc. enhance Theregulations Financial to enhance forInclusion regulationsthe Financial industry.and forInclusion Thethe industry.andto enhance The Financial to enhance Inclusion Financial and Inclusion and access to appropriate nancial productsaccess topoor appropriate people.access nancial Micro to appropriate nance products banks nancial poorand products people.access Micro topoor appropriate nance people.access banks nancial Micro to andappropriate nance products banks nancial poorand products people. 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African have countries haveSeveral AfricanSeveral countries African have countries have SBP has adopted innovative SBP has adopted SBP hasinnovative adopted innovative SBP has adopted SBP hasinnovative adopted innovative commercial banks have a certaincommercial bankscommercial have a bankscertain have a certaincommercial bankscommercial have a bankscertain have a certain Figure 2: Financial Inclusion Barriers opened. opened.lending areopened. found to be pro table, itlending is areopened. foundlending to be pro table, areopened. found it to is be pro table, itlending is are foundlending to be pro table, are found it to is be pro table, it is The nancially excluded section The nanciallywidely recog Theexcluded- nancially section excluded widely section recog The - nanciallywidely recog Theexcluded- nancially section excluded widely section recog - widely recog - Five main barriers to nancial inclu Five- main barriers Five to nancial main barriers inclu- to nancial inclu Five- main barriers Five to nancial main harnessedbarriers inclu- to nancialthe unique inclu - aspects harnessedof the harnessedunique aspects the uniqueof aspects harnessedof the harnessedunique aspects the uniqueof aspects of solutions to overcome geographicalsolutions to overcomesolutions geographical to overcome geographicalexpectedsolutions that to banks overcomesolutions will ndgeographical to their expectedovercome thatgeographical banksexpected will that nd theirbanks percent will nd of theirexpected portfolio that inbanks expectedsmallpercent will that nd ofTelecom theirbanks percent portfoliowillcompanies nd of intheir smallshould portfolio beTelecom in smallpercent companies ofTelecom their shouldpercent portfoliocompanies beof intheir smallshould portfolio beTelecom in small companies Telecom should companies be should be sion are the distance to a bank, lacksion of areFinancial the distance Inclusionsion to are a bank,the Statistics distance lack of to aFinancial bank, lack Inclusionsion of areFinancial the Statistics distance Inclusionsion to are a bank,the Statistics distance lack of to aFinancial bank, lack Inclusion of Financial Statistics Inclusion Statistics largely comprises of marginal framers,largely comprisesnized in largely of marginal comprises framers, of marginal nized framers, in largely comprisesnized in largely of marginal comprises framers, of marginal nized framers, in nized in mobile banking to drive nancialmobile banking mobileto drive banking nancial to drive nancialmobile banking mobileto Ndriveon banking- ac nancialcou ntot - hdriveold er nancial report ing babarriers,rrier a sincluding a branchless bankingbarriers, includingTo encouragebarriers, branchless sound including banking growth branchless of IBs, To encourage bankingruralbarriers, operations sound includingTo encourage growthto barriers,be branchless ofincreasingly soundIBs, including banking growthrural branchlessoperations of IBs, To encourage banking ruralto be operations increasingly sound To encourage growthto loans.be ofincreasingly soundIBs,In addition, growthrural operationsimportant of IBs, ruralsocialto loans.be operations increasingly Inarmed addition, withto loans.be trainedimportant increasingly In addition,human social resource, importantarmed withsocialloans. trained Inarmed addition,human withloans. resource, trainedimportant In addition, human social resource, importantarmed withsocial trained armed human with resource, trained human resource, nancial infrastructure, restrictive nancial infrastructure, nancial restrictiveinfrastructure, restrictive nancial infrastructure, nancial restrictiveinfrastructure,inclusion. A G-20 restrictive (Group of Twenty)inclusion. A G-20inclusion. (Group ofA Twenty)G-20 (Group of Twenty)inclusion. A G-20inclusion. (Group ofA Twenty)G-20 (Group of Twenty) through retail agents and harnessingthrough retail agentsthrough and retailharnessing agents and harnessingthrough retail agentsthrough and retailharnessing agents and harnessing considerations should be paid intoconsiderations permitted shouldconsiderations to provide be paid payments shouldinto andbepermitted paid intoconsiderations to providepermitted payments shouldconsiderations to provide andbe paid payments shouldinto andbepermitted paid into to providepermitted payments to provide and payments and reason for not heaving an account (%) SBP has laid out a separate prudenSBP- hasattractive. laid out SBPaInnovative separate has laid pruden productsout a -separate andattractive. pruden SBPInnovative- hasattractive. laid productsout SBPaInnovative separate has and laid pruden productsout a -separate andattractive. pruden Innovative- attractive. products Innovative and products and regulations, governance failures andregulations, Approximately governanceregulations, 2.5failures governancebillion and adults failuresApproximately andregulations, 2.5Approximately governancebillionregulations, adults 2.5failures Financialgovernancebillion and adultsInclusion failuresApproximately Experts and Group 2.5Approximately hasFinancialbillion adultsInclusion 2.5 Financialbillion Experts adults InclusionGroup has Experts Group hasFinancial InclusionFinancial Experts InclusionGroup has Experts Group has technology via mobile-phone banking.technology tial viaregulatory mobile-phonetechnology and viabanking. mobile-phonesupervisory tial banking.regulatorymethodstechnology oftial and selling viaregulatory mobile-phonesupervisory technologythem willand viabanking. alsomethods mobile-phonesupervisory oftial selling banking.regulatorymethods them oftialwill and selling regulatory alsosupervisory loanthem decisions. willand alsomethods Thesupervisory government of sellingmethods could loanthem decisions. ofmoneywill selling also transfer The loanthem government decisions. services will also after could The governmentful lling money transfercouldloan decisions. servicesmoney after transfer Theloan governmentful lling decisions. services after could The governmentful lling money transfercould servicesmoney aftertransfer ful lling services after ful lling lack of suitable products. lack of worldwidesuitable products.lack lack of accesssuitable to products. a formalworldwide lack lack of worldwideaccesssuitable to products. lack alack formal of accesssuitable been to products. alaunched. formalworldwide The Principleslack worldwideaccess beenfor to alaunched.lack formal access beenThe to aPrincipleslaunched. formal forThe Principles beenfor launched. beenThe Principleslaunched. forThe Principles for also add extra incentives to lendalso in addspeci ed extra incentives termsalso add and extratoconditions. lend incentives in Therespeci ed to lend termsalso in add andspeci ed extraconditions. incentives termsalso Thereadd and extrato conditions. lend incentives in Therespeci ed to lend terms in andspeci ed conditions. terms There and conditions. There Religious Reasons 5 framework that conforms to theframework increase that banks’ frameworkconforms reach and thatto may theconforms change increase to banks’theframework reachincrease and that maybanks’ frameworkconforms change reach and thatto may theconforms change increase to banks’the reachincrease and maybanks’ change reach and may change bank account, which amount to 50%bank account, whichbank amount account, to which 50% amountInnovative to Financial50%bank account, Inclusion whichbank serve amount Innovativeaccount, as to which Financial50% amountInnovative Inclusion to Financial50% serve as Inclusion serveInnovative as FinancialInnovative Inclusion Financial serve as Inclusion serve as framework of the Islamic Financialframework the “brick-and-mortar”of theframework Islamic Financialof thenature Islamic theof Financial“brick-and-mortar”framework the “brick-and-mortar”of thenatureframework Islamic of rural Financialof areas.thenature Islamic theof Financial“brick-and-mortar” therural “brick-and-mortar” areas.natureis a need of ruralto increase areas.nature theof number is of a need ruralto increase areas.is a needthe numberruralto increase areas. of the numberis of a need to increaseis a needthe numberto increase of the number of Lack of trust 13 Generally there are many reasons Generally of the there world’s are Generally adult many population. therereasons are Mostmanyof the reasonsworld’s Generally adultof thepopulation. there world’s are Generally adult Mostmany population. atherereasons guide are for Mostmanyof policythe reasonsworld’s and adultregulatoryof thepopulation.a world’sguide adult forMost policy population. a guide and forregulatoryMost policy and regulatorya guide for policya guide and forregulatory policy and regulatory Service Board (IFSB) in the developService- branch Board operations.(IFSB)Service in the Board Commercial develop (IFSB)- banksin branchthe develop operations.Service- branch Board Commercial operations.(IFSB)Service banksin the Board Commercial develop (IFSB)- banksin branchthe develop operations.- branch Commercial operations.telecom banks Commercialagents and banks provide themtelecom agents telecomand provide agents them and provide themtelecom agents telecomand provide agents them and provide them why individuals or groups may notwhy individualsof these peoplewhyor groups individuals are concentratedmay notor groupsof in these may peoplenotwhy individuals ofare these concentrated peoplewhyor groups individuals are in concentratedmayapproaches notor groups of within these may the peoplenot objectives ofare these concentrated approachesof people are within concentratedapproaches the objectives within ofthe objectives approachesof withlaapproaches ck theof nec esobjectivessary doc umwithentatio n ofthe objectives18 of ment of which Pakistan has playedment a ofhave which been Pakistanment given of thehas which optionplayed Pakistan toa openhave has playedbeenment given a of havethe which optionbeen Pakistanment givento open of thehas which optionplayed The Pakistan government toa openhave has playedofbeen Pakistan given a should havethe option Thebeen governmentwith givento openthe the mandate option Theof Pakistan government toto act open should as branchless of Pakistanwith the should mandate The governmentwith to act the as mandate branchless Theof Pakistan government to act should as branchless of Pakistanwith the should mandate with to act the as mandate branchless to act as branchless take full advantage of mainstreamtake fulldeveloping advantagetake ofeconomies,full mainstream advantage whereofdeveloping mainstream take economies,fulldeveloping advantage take where ofeconomies,full mainstream advantagefostering wheresafeofdeveloping mainstreamand sound adoptioneconomies,developingfostering of wheresafeeconomies, and fostering sound adoption wheresafe and ofsound adoptionfostering of safe andfostering sound adoption safe and ofsound adoption of help to expand nancial literacyhelp tobanking expand agents.help nancial toThrough expand literacy this, nancial we canbanking literacy agents.help toThroughbanking expand this,agents.help nancialwe toThroughcan expand literacy this, nancial we canbanking literacy agents. Throughbanking this,agents. we Throughcan this, we can Too far away 20 key role. To ensure proper duekey role.full- edged To ensurekey branches, role. proper To sub ensuredue branches full- edgedproper duekey branches, role.full- edged To sub ensure keybranches branches, role. proper To sub ensuredue branches full- edgedproper due branches, full- edged sub branches branches, sub branches nancial service providers. The World nancial account service penetrationproviders. nancial service The with World providers.a formalaccount The World penetration nancial account service with penetration providers. nanciala formal service The innovative,with World providers.a formal adequate,account The World penetration low-cost account nan innovative,with- penetration a formal adequate, innovative,with low-costa formal adequate, nan - low-cost naninnovative,- adequate,innovative, low-cost adequate, nan- low-cost nan- among the population, particularlyamong in expandthe population, theamong locations particularly the population, where in particularlytheexpand theamong in locations expandthe population, wheretheamong locations particularly thethe population, where in particularlytheexpand the in locationsexpand wherethe locations the where the Family member already has account 23 diligence in the development diligenceof (with in thelimiteddiligence development general in the ofbankingdevelopment (with limited diligenceof (withgeneral in thelimited diligence bankingdevelopment general in the ofbankingdevelopment (with limited of (withgeneral limited banking general banking Bank recently published a study thatBank recently nancial published institutionBank recently a instudy 2013 published that was 41% nancial a study institutionthatBank recently nancial in 2013 published institutionBank was recently41% a in study cial2013 published thatdelivery was 41% nancial a studymodels, institutionthat helping nancial in cial2013to institutiondelivery was 41% in models, cial2013 delivery washelping 41% models, to helping cialto delivery models,cial delivery helping models, to helping to Islamic Finance (IF), SBP has constiIslamic- functions), Finance (IF),Islamic booths SBP Finance has(for consticollection (IF),- SBPfunctions), of has constiIslamic booths- functions), Finance (for collection (IF),Islamic booths SBP Financeof has(forlow-income consticollection (IF),- SBP families.functions), of has Thatconsti canbooths- befunctions), done (forlow-income collectionpeople booths families. of will(forlow-income beThatcollection able can families.beto ofdoneopen That theirpeople can be donewilllow-income be peopleable families.to willopenlow-income beThat theirable can families.beto doneopen That theirpeople can be donewill be peopleable to willopen be theirable to open their Too expensive 25 shows globally the most frequentlyshows on globally average, theshows but most with globally frequently wide disparitiesthe moston average,frequentlyshows but withon globally average, wide disparitiestheshows but most with globally frequently wideprovide disparitiesthe conditionsmoston average,frequently for fairbut competiwithon average, wideprovide- disparities but conditions with wideprovide for disparities fair conditions competi -for fair competiprovide- conditionsprovide for fair conditions competi -for fair competi- tuted a Shariah Advisory Board,tuted variousa Shariah feestuted andAdvisory bills),a Shariah Mobile Board, BankingAdvisory various Board,feestuted and bills),variousa Shariah Mobile feestuted andBankingAdvisory bills),a by Shariah Mobile teachingBoard, BankingAdvisory it variousin primary Board,fees schools, and bills),various highby Mobile teaching feesmobile andBanking it bills), in accounts,primaryby Mobile teaching schools, Bankingpay it in utility highprimary bills, mobileschools, highaccounts,by teaching mobile pay it in utility accounts,primaryby teaching bills, schools, pay it in utility highprimary bills, mobileschools, highaccounts, mobile pay utilityaccounts, bills, pay utility bills, cited reason for not having an accountcited reasonacross for regions, notcited having reasonranging an foraccount from not having18% across in an account regions,cited reasonrangingacross for regions,from notcited having18% reasonranging in an tion foraccount from not and having18% a frameworkacross in an account regions, of incentives rangingacrosstion for regions,from and 18% a frameworkranging in tion from andof incentives 18% a framework in for of incentivestion for and a frameworktion andof incentivesNo at e nframeworkough mone yfor of incentives for 30 which approves broad policy, thewhich Unitsapproves and whichSalesbroad and approvespolicy, Service the broadCenters. Units policy, and thewhichSales andUnitsapproves Service and whichSales broadCenters. and approvespolicy,schools Service the and broadCenters. colleges.Units policy, and theSales andUnitsschools Service and transfer Salesand Centers. colleges. and remittancesschools Service and Centers. andcolleges. funds andtransfer remittancesschoolstransfer and andcolleges. remittancesfundsschools and and andcolleges. funds andtransfer remittancestransfer and remittancesfunds and and funds and is the lack of enough money to useis the lackthe Middleof enoughis Eastthe moneylackand ofNorth toenough use Africa moneythe to Middle to useis Eastthe lacktheand MiddleofNorth enoughis Africa Eastthe moneylackand to ofNorththe toenough varioususe Africa money the banking,to Middle to useinsurance, East theand MiddleandNorththe various AfricaEast and banking,to Norththe variousinsurance, Africa banking,to and insurance, andthe various banking,the variousinsurance, banking, and insurance, and 0 5 10 15 20 25 30 regulatory framework and newregulatory Similarly, framework regulatorySBP has andalso framework newintroduced Similarly, and newregulatorySBP hasSimilarly, also framework introducedregulatorySBP has and also Postframework newintroduced o ce Similarly, employeesand newSBP should hasSimilarly, alsobe Post introduced paySBPo ce backhas employees alsoinstallments Post introduced o ce should employeeswithout be anypay should back beinstallments Post payo ce back employeeswithout installments Post anyo ce should employeeswithout be anypay should back beinstallments pay back without installments any without any one. 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8 Journal of The Institute of Bankers Pakistan8 Journal of The Institute of Bankers Pakistan Besides, 22% of adults worldwideBesides, delivery 22% ofofBesides, theadults full range22%worldwide ofof a ordableadults delivery worldwide Pakistanis ofBesides, the full deliverywho range22% do of ofnotofBesides, a ordable the adultsengage full range22% worldwidein either Pakistanisofof a ordable adults deliverywho worldwide doPakistanis notof the engage full deliverywho rangeAccount in doeither ofnotof a ordable the(BBA), engage full arange in simpli ed either Pakistanisof a ordable nancial whoAccount do Pakistanis notThe (BBA), engage Branchless whoaAccount insimpli ed doeither Bankingnot (BBA), engage nancial Regulationsa insimpli ed either The Branchless nancialAccount BankingThe (BBA), Branchless RegulationsaAccount simpli ed Banking (BBA), nancial Regulationsa simpli ed The Branchless nancial BankingThe Branchless RegulationsBranchless Banking Banking Regulations Regulations withBranchless trained Banking andBranchless Regulationsgiven Bankingincentives with Regulations trainedto hassle. withandBranchless Almostgiventrained Banking incentives122 andBranchless million Regulationsgiven to people Bankingincentiveshassle. with RegulationsAlmost trainedto 122hassle. withand million Almostgiventrained people incentives122 and million given to people incentiveshassle. Almost to 122hassle. million Almost people 122 million people report having saved at a formal nanreport- havingand quality savedreport nancial at a having formal services. saved nan- at a andformal quality nanthereport formal nancial- havingand or services.informal quality savedreport nancial nancial at a having formal services.system, saved nanthe formal- at a andformal or informal quality nanthe formal nancial- nancialand orproduct services.informalsystem, quality for nancial nancial low income services.system,the consumers.formal orproduct informal thewere forformal nancial introducedlow or productincome informalsystem, in 2008,forconsumers. nancial low clearing income system, thewere consumers. introducedproduct inwere 2008,for introducedlow clearing productincome inthe 2008,forconsumers. low clearing income thewere consumers. introduced inwere 2008, introduced clearingthe objective inthe 2008, of clearing providing the banks withthe objectivemarket of providingsavings,the objective banksinvestment of withproviding andmarket banks have withsavings,the SIM objective market cardsinvestment of but providingsavings,the only objective and15 banksinvestment million ofhave withproviding SIM and marketcards banks buthave withsavings, only SIM 15market cards investmentmillion butsavings, only and15 investment millionhave SIM and cards buthave only SIM 15cards million but only 15 million cial institution in 2013, while cial9% institution incial 2013, institution while in9% 2013, whilewe cial9% estimate institution about incial 19 2013, institutionpercent while havewe in9% estimate2013, while aboutwe 9% 19estimate percentBBA about have aims 19 to percentreduce costshavewe for estimate consumBBA about- aimsweway 19 estimateto for percentreduce developmentBBA about costshave aims for 19 to consum percentreduceof branchless - costshaveway for forconsum developmentBBA- aimsway to for reduceof developmentbranchlessBBA costs aims for to consum reduceof branchless -costsway for forconsum development- way for of developmentbranchlesscheaper non-traditional of branchless deliverycheaper pension non-traditional products.cheaper Somenon-traditionaldelivery of thesepension deliveryhave products.cheaper bankpension accounts.Somenon-traditional products.cheaperof Ifthese each Somenon-traditional deliverySIMhave of bankthesepension accounts. deliveryhave products. bankIf pensioneach accounts.Some SIM products. of Ifthese each Some SIMhave of bankthese accounts. have bankIf each accounts. SIM If each SIM report having originated a new formalreport havingFinancial originated reportInclusion having a new in Pakistan formaloriginated Financiala new formalvoluntarily reportInclusion havingFinancial in excludedPakistan originated reportInclusion having athemselves new in Pakistan formaloriginatedvoluntarily Financiala newexcluded formalvoluntarily Inclusion Financialthemselves ersin excludedPakistan by Inclusion removing themselves in Pakistanmorevoluntarily expensive ersexcluded byvoluntarilyand removing mobile themselves ers phone excluded moreby banking removingexpensive themselves services moreand in expensivemobileers phone byand bankingremoving mobile servicesers phone moreby inbanking removing expensive services moreand in expensivemobile phone and banking mobile serviceschannels phone inbanking (retail services agents, in mobilechannels products (retail channelshave agents, already (retailmobile been agents,develproducts- mobileholder channelshave isalready productsgiven (retail beenan channelshave opportunity agents,devel already - (retailmobile holderbeento agents,develis productsgiven- mobileholderan have opportunity isalready productsgiven beenanto have opportunity devel already- holderbeento develis given- holderan opportunity is given anto opportunity to loan. In nancial inclusion, the top veloan. In nancial inclusion,loan. In nancial the top inclusion, ve the topthrough veloan. In lack nancial of understanding, inclusion,loan. In nancial the aware topthrough inclusion, ve- lack the of top understanding,through ve lack facilities of aware understanding,- and requires awarethrough no- minimum lackfacilities of understanding,throughPakistan. and lackrequires Thefacilities of aware retailunderstanding, no- network andminimum requires of aware banks Pakistan.no- minimum Thefacilities retailPakistan. networkand requires Thefacilities of retailbanks no network and minimum requires of banks Pakistan.no minimum The retailPakistan. network Thephones) of retailbanks tonetwork increase of their banks outreach phones) to oped to increase by thephones) posttheir o ceoutreachto increase but tohave their notoped outreach byopen thephones) to apost bankoped o ce to account, increase by but thephones) have nancial posttheir not o ceoutreachto increaseinclu openbut- tohave a their bank notoped outreach account, byopen the to nancialapost bankoped o ce account, inclu by but the- have nancialpost not o ce inclu openbut- have a bank not account,open nanciala bank account, inclu- nancial inclu- countries include US, Korea, Canada,countries Financially-excluded includecountries US, Korea, include peopleCanada, US, account Korea,Financially-excluded Canada,ness,countries need,Financially-excluded include duepeople tocountries US, accountpoverty Korea, include peopleorCanada, ness,for US, account need, Korea,Financially-excluded due Canada, ness,to poverty need,Financially-excluded balance, duepeopleor forto andaccountpoverty neither peopleor ness,fordoes account need,it have balance, due ness,hasto and overwhelminglypovertyneed, neither balance, dueor fordoesto andmultipliedpoverty it neitherhave or due forhasdoes to overwhelmingly it havebalance, has andmultiplied overwhelmingly neitherbalance, due does to and multiplied it neitherhave due hasdoes to overwhelmingly it have has multiplied overwhelminglyun-banked due to multiplied and rural communities.due to un-bankedbeen and marketed ruralun-banked communities. e ectively. and rural communities.been marketedsionun-banked can e ectively.bebeen extended and marketed rural un-banked and communities. e ectively.the amount andsion rural can communities. bebeen extended marketedsion andcan e ectively.bethebeen extended amount marketed and e ectively.the amountsion can be extendedsion andcan bethe extended amount and the amount UK and Germany; where as Nigeria,UK andfor Germany; 85 percentUK where and of Germany;asthe Nigeria, population where for inas 85 Nigeria, percentreligiousUK and offorreasons. Germany;the 85 populationpercent FinancialUK where and of Germany;inexclusionasthe Nigeria, populationreligious where forreasons. inas 85 Nigeria, percentreligious Financial offorreasons. exclusionthecomplex 85 populationpercent Financial terms of and inexclusionthe conditionspopulationreligious therereasons. incomplex - religious agentsFinancial terms andreasons. andexclusioncomplex mobile conditions Financial phone terms there channels. andexclusion -conditionsagents In andtherecomplex mobile- agents phone terms and channels.andcomplex mobile conditions Inphone terms there channels.and -conditionsagents In andthere mobile- agents phone and channels. mobile Inphone channels. In of Rs1 trillion, which is in circulation,of Rs1 trillion, whichof Rs1 is intrillion, circulation, which is in circulation,of Rs1 trillion, whichof Rs1 is intrillion, circulation, which is in circulation, Uganda, Pakistan, Ghana and EgyptUganda, Pakistan Pakistan, Uganda,and Ghana this Pakistan,andmeans Egypt thatGhana thePakistan and Egyptprecludes Uganda,and this Pakistan people Pakistan,means fromUganda,and thatGhana reducingthis the Pakistan,and means Egyptrisk,precludes thatGhana thePakistanpeople and Egyptprecludes fromand reducingthis Pakistanpeople bymeans risk,reducing fromand that reducingthis the administrative means risk,precludes that thepeopleandby reducingprecludes lessfrom thanreducing peoplethreeadministrativeby risk,reducing years,from therereducing andadministrative are risk,nowless than andthreeby reducingyears,less than there threeadministrativeby are reducingnowyears, there andadministrative are nowless than andthree years,less than there three areSBP nowyears,projects there nancial are now penetration SBP projects The banks nancial SBP should projects penetration be instructed nancial topenetrationThe bankscan beSBP should brought projects The be into banksinstructed nancial the SBP shouldformal projects topenetration sector.be caninstructed nancial be brought topenetrationThe into bankscan the be should formalbrought The sector.be into banksinstructed the shouldformal to sector.be caninstructed be brought to intocan the be formalbrought sector. into the formal sector. are least inclusive. are least nancial inclusive. exclusionare least inclusive. is a new kind nancial of managing exclusionare least nancial uctuationsinclusive. is a new exclusionare kindleastin income, inclusive.of is a andmanagingnew kind nancial uctuationsof managing exclusion in income, nancial uctuations managementis a andnew exclusion kindin income,costs. of is a andmanagingnew kind uctuationsofmanagement managing18,000 in income,costs.branchless uctuationsmanagement and banking in income,costs. outlets, and18,000 branchlessmanagement18,000 banking costs.branchlessmanagement outlets, banking costs. outlets,18,000 branchless18,000 banking branchlessratios outlets, to be banking raised through outlets, an enablingratios tomanage be raised all ratiosthrough possibilities to be an raised enabling and to through dissemi manage an- enabling allratios possibilities tomanage be raised and all to ratiosthrough possibilities dissemi to be an- raised enabling and to through dissemi manage an- enabling all possibilities manage and all to possibilities dissemi- and to dissemi- apartheid, depriving a large chunkapartheid, of investing depriving apartheid,in amicroenterprises large depriving chunk of a orlarge investingin chunk apartheid, inof microenterprisesinvesting depriving apartheid,in amicroenterprises orlarge in deprivingchunk of a orlarge investingin chunk inof microenterprisesinvestingaugmenting in microenterprisesorand in surpassing or theaugmentingin Islamic and nancialaugmenting surpassing products. andthe SBP surpassingIslamic is nancialtheaugmenting Islamic products. and nancialaugmenting SBPsurpassing isproducts. policy and theenvironment SBP surpassingIslamic is and nancialthe the variousIslamic products.policy nancial nateenvironment SBP its isproducts.service policy and toenvironment theSBPremote various is area. and Thenate the itsvarious service Pakistanpolicy tonateenvironment post remote itshas service more policyarea. and than Thetoenvironment the remote 13, various000 Pakistan area. and Thenate postthe itshasvarious service Pakistanmore than tonate post remote13, itshas 000 service more area. than Theto remote 13, 000 Pakistan area. The post has Pakistanmore than post 13, has 000 more than 13, 000 Role of Banks in Financial InclusionRole of theBanks population in FinancialRole of of Banks Inclusionmultiple in Financial nancialthe Inclusion populationhealthRole and of of theBanks education. multiple population in FinancialRole nancial of of Banks Inclusionmultiple inhealth Financial nancial andthe education. Inclusion populationhealth and ofthe education. Micro nancemultiple population nancial Regulatoryof multiple health Framework nancial and education.Micro nance health10,000+ and Regulatory conventional education.Micro nance Framework bank Regulatory branches.10,000+ Framework working conventionalMicro nance to10,000+ develop bank Regulatory conventional a Micro nancebranches. proper liquidityFramework bankworking Regulatory branches. to10,000+ develop Framework working conventional a proper to10,000+ develop liquidity bank conventional a outreachbranches. proper liquidity programs bankworking branches. described to develop workingabove aoutreach proper tobanks develop liquidity programs should a outreach proper describedegg liquidity onprograms the above people describedbanks to shouldbranchesaboveoutreach egg banksacross onprograms theshould the outreachpeople describedcountryegg to onprograms the andbranchesabove people described banks acrossto should branchesabovethe countryegg banksacross on theandshould the people countryegg toon theandbranches people acrossto branchesthe country across and the country and services, while Only 35 percent popuservices,- while Onlyservices, 35 percent while popuOnly -35 percent popuservices,- while Onlyservices, 35 percent while popuOnly -35 percent popu - Consequently, branchless bankingConsequently, management branchlessConsequently, framework banking branchless and newmanagement bankingConsequently, frameworkmanagement branchlessConsequently, and framework new from banking abranchless andnational newmanagement coverage banking of framework management19,000from aaccess andnational framework new banking from coverage services a andnational of new by19,000 ways coverage of accessno of banking19,000reachesfrom outservicesaaccess national to 20 bybanking million waysfromcoverage ofserviceshouseholds.a nonational of by19,000reaches ways coverage ofout accessno to of 20 banking19,000reaches million outserviceshouseholds.access to 20 bybanking million ways ofserviceshouseholds. no byreaches ways ofout no to 20reaches million outhouseholds. to 20 million households. 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It can alsoand occasionaland unsuitable largeand bills.occasional nancial It can largealsoprocesses bills.and It canunsuitable alsoand occasional and nancial unsuitable largeandprocesses bills.occasional nancial It Germancan largealsoprocesses Bankers’bills.and It canunsuitable Association also and nancial intro Germanunsuitable- processespercent Bankers’ nancial ofGerman AssociationPakistanis processes Bankers’ have intro accessAssociation- percentto introment,ofGerman Pakistanis- nancialpercent Bankers’ have products, ofGerman accessAssociationPakistanis branchless toBankers’ have introment, accessAssociation- nancial percentto products, introment,of Pakistanis- nancial percentbranchless have products, of accessPakistanis branchlessto havement, access nancial to products,ment, nancial branchless products, branchless public utility services such as localpublic hardutility to servicesmakepublic a positive suchutility as impactservices local on such thehard toasregulator makelocalpublic a positive hardneedutility to impactto servicesmake buildpublic aon positivea such the utilitytaskforce as impactregulatorservices local on such thehardneed toas toregulator make localbuild a positivea hard needtaskforce to impactto make build aon positivea the taskforce impactregulator on theneed toregulator build a needtaskforce to build a taskforce investment propensities of the investmentless greater propensities investment nancial ofinclusion, propensitiesthe less nancial greaterof the investment nancialless greater inclusion, propensities investment nancial nancial ofinclusion, propensities the less nancial greaterof the nancialless greater inclusion, nancial pull nancial theminclusion, out of nancial poverty throughpull themand outproducts. ofpull poverty themPoor outsocioeconomicthrough of poverty and products.throughpull themPoorand outproducts.socioeconomic ofpull poverty themPoor ducedoutsocioeconomicthrough of apoverty voluntaryand products.through code Poorinand 1996 ducedproducts.socioeconomic nance.a voluntaryPoor Informalducedsocioeconomic code a access voluntaryin 1996 can codeoccur nance. in banking1996Informalduced nance. aand accessvoluntary consumer Informalducedcan codeoccur arights access voluntaryin banking1996 &can codeoccur nance.and in consumer banking1996Informal nance. andrightsaccess SBP consumer Informal&canhad occurformed rightsaccess banking the&can Nationaloccur and SBP consumerbanking had formed andrights SBP consumer the&had Nationalformed rights the& National SBP had formed SBP thehad Nationalformed theRETAIL National AGENTS ANDschools, HARNESSING primary health care TECHNOLOGY centre,schools, lives primary of thousands schools,health ofcareprimary people. centre, healthThe Statelives care of centre, whichthousandsschools, willlives ofprimaryaddress people. of thousands schools, healthTheissues State ofcareprimarysuch people. centre, whichas healthThe will Statelives careaddress of centre, whichthousands issues willlives ofsuchaddress people. of thousandsas Theissues State ofsuch people. whichas The will State address which issues will suchaddress as issues such as fortunate strata of society. Financialfortunate services strata fortunateofshould society. reachstrata Financial theof society. poorservices of Financial fortunateshould services reachstrata thefortunateofshould society.poor reachstrataof Financial theof society. poorservices of Financial should servicesreach theshould improvedpoor reachof education the poor and of health care.improved conditions, educationimproved gender and health educationbias, care. and and lowconditions, health care.improved gender conditions, educationbias, improved andgender and low health educationbias,providing care. and and forlowconditions, healtha so-called care. gender “everyman”conditions, bias,providing andthroughgender forlow a thebias,so-calledproviding organized and “everyman” forlow sectora so-called (though through “everyman” responsibilities theproviding organized through for to sectora about theso-calledproviding (thoughorganized 50,000 “everyman” for bene sectoraresponsibilities so-called- (though through “everyman” to responsibilities aboutthe organized 50,000throughBranchless bene tosector aboutthe- (thoughorganized 50,000Banking bene sector responsibilities-Consultative (thoughBranchless to responsibilitiesabout 50,000BankingBranchless bene to about-Consultative 50,000Banking bene -ConsultativeBranchless BankingBranchless Consultative Banking VIAConsultative MOBILE-PHONE village BANKING. mandies, farmers associationvillage Bankmandies, of Pakistanvillagefarmers mandies, associationhas made farmers toughBank association ofoptimization Pakistanvillage Bankmandies, has of ofcontributingmade Pakistanvillagefarmers tough mandies, associationhas factors optimizationmade farmers toughBank association of ofcontributingoptimization Pakistan Bank has factorsof ofcontributingmade Pakistan tough has factors optimizationmade tough of contributingoptimization factorsof contributing factors inclusion is the process of ensuringinclusion socially is the excludedinclusionprocess ofgroup’sis ensuringthe processparticularly sociallyof ensuring excludedinclusion socially group’sis the excludedinclusion processparticularly ofgroup’sis ensuringthe processparticularly sociallyof ensuring excluded socially group’s excluded particularlyFor micro-enterprises, group’s particularly nancial incluFor- micro-enterprises,levels of basicFor educationmicro-enterprises, nancial andinclu nancial- nanciallevels of inclubasicFor- educationmicro-enterprises,levels of and basicFor nancial educationmicro-enterprises, nancial current andinclu nancial - banking nanciallevels of inclubasicaccount- educationlevels thatcurrent of and basic nancial committees, educationbanking current andshopkeepers,account nancial banking moneylendthat accountcommittees,- ciariesthatcurrent shopkeepers, from committees, bankinglow moneylendincomecurrent shopkeepers,account strata.-banking ciariesWe moneylendthat accountfromcommittees,- low ciaries thatincome shopkeepers, from committees,strata.Group low We moneylendincome with shopkeepers, strata.representation- ciariesWe moneylend from fromGroup- low ciaries incomewith from strata.representationGroup low We income with strata.fromrepresentation We fromGroup with representationGroup with fromrepresentation from and bus stops etc. ” and busregulations stops etc.and for bus thestops industry. etc. Theregulations to andenhance for bus regulations thestops Financial industry. etc.and forInclusion bus The thestops industry.and toetc. enhance Theregulations Financial to enhance forInclusion regulationsthe Financial industry.and forInclusion Thethe industry.andto enhance The Financial to enhance Inclusion Financial and Inclusion and access to appropriate nancial productsaccess topoor appropriate people.access nancial Micro to appropriate nance products banks nancial poorand products people.access Micro topoor appropriate nance people.access banks nancial Micro to andappropriate nance products banks nancial poorand products people. 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There bank account, which amount to 50%bank account, whichbank amount account, to which 50% amountInnovative to Financial50%bank account, Inclusion whichbank serve amount Innovativeaccount, as to which Financial50% amountInnovative Inclusion to Financial50% serve as Inclusion serveInnovative as FinancialInnovative Inclusion Financial serve as Inclusion serve as framework of the Islamic Financialframework the Figure “brick-and-mortar”of the 3:framework Formal Islamic Financial Financialof accessthenature Islamic theof Financial“brick-and-mortar”framework the “brick-and-mortar”of thenatureframework Islamic ofrural Financialof areas.thenature Islamic theof Financial“brick-and-mortar” therural “brick-and-mortar” areas.natureis a need of ruralto increase areas.nature theof number is of a need ruralto increase areas.is a needthe numberruralto increase areas. of the numberis of a need to increaseis a needthe numberto increase of the number of Generally there are many reasons Generally of the there world’s are Generally adult many population. therereasons are Mostmanyof the reasonsworld’s Generally adultof thepopulation. there world’s are Generally adult Mostmany population. atherereasons guide are for Mostmanyof policythe reasonsworld’s and adultregulatoryof thepopulation.a world’sguide adult forMost policy population. a guide and forregulatoryMost policy and regulatorya guide for policya guide and forregulatory policy and regulatory Service Board (IFSB) in the developService- branch Board operations.(IFSB)Service in the Board Commercial develop (IFSB)- banksin branchthe develop operations.Service- branch Board Commercial operations.(IFSB)Service banksin the Board Commercial develop (IFSB)- banksin branchthe develop operations.- branch Commercial operations.telecom banks Commercialagents and banks provide themtelecom agents telecomand provide agents them and provide themtelecom agents telecomand provide agents them and provide them why individuals or groups may notwhy individualsof these peoplewhyor groups individuals are concentratedmay notor groupsof in these may peoplenotwhy individuals ofare these concentrated peoplewhyor groups individuals are in concentratedmayapproaches notor groups of within these may the peoplenot objectives ofare these concentrated approachesof people are within concentratedapproaches the objectives within ofthe objectives approachesof withapproaches the objectives with ofthe objectives of Share of the population with formal The government of Pakistan should The governmentwith the mandate Theof Pakistan government to act should as branchless of Pakistanwith the should mandate The governmentwith to act the as mandate branchless Theof Pakistan government to act should as branchless of Pakistanwith the should mandate with to act the as mandate branchless to act as branchless ment of which Pakistan has playedment a ofhave which been Pakistanment given of thehas whichnan ci optionaplayedl acce ssPakistan toa openhave has playedbeenment given a of havethe which optionbeen Pakistanment givento open of thehas which optionplayed Pakistan toa openhave has playedbeen given a havethe optionbeen givento open the option to open take full advantage of mainstreamtake fulldeveloping advantagetake ofeconomies,full mainstream advantage whereofdeveloping mainstream take economies,fulldeveloping advantage take where ofeconomies,full mainstream advantagefostering wheresafeofdeveloping mainstreamand sound adoptioneconomies,developingfostering of wheresafeeconomies, and fostering sound adoption wheresafe and ofsound adoptionfostering of safe andfostering sound adoption safe and ofsound adoption of 100 help to expand nancial literacyhelp tobanking expand agents.help nancial toThrough expand literacy this, nancial we canbanking literacy agents.help toThroughbanking expand this,agents.help nancialwe toThroughcan expand literacy this, nancial we canbanking literacy agents. Throughbanking this,agents. we Throughcan this, we can key role. To ensure proper duekey role.full- edged To90 ensurekey branches, role. proper To sub ensuredue branches full- edgedproper duekey branches, role.full- edged To sub ensure keybranches branches, role. proper To sub ensuredue branches full- edgedproper due branches, full- edged sub branches branches, sub branches 80 nancial service providers. The World nancial account service penetrationproviders. nancial service The with World providers.a formalaccount The World penetration nancial account service with penetration providers. nanciala formal service The innovative,with World providers.a formal adequate,account The World penetration low-cost account nan innovative,with- penetration a formal adequate, innovative,with low-costa formal adequate, nan - low-cost naninnovative,- adequate,innovative, low-cost adequate, nan- low-cost nan- 70 among the population, particularlyamong in expandthe population, theamong locations particularly the population, where in particularlytheexpand theamong in locations expandthe population, wheretheamong locations particularly thethe population, where in particularlytheexpand the in locationsexpand wherethe locations the where the diligence in the development diligenceof (with in 60 thelimiteddiligence development general in the ofbankingdevelopment (with limited diligenceof (withgeneral in thelimited diligence bankingdevelopment general in the ofbankingdevelopment (with limited of (withgeneral limited banking general banking Bank recently published a study thatBank recently nancial published institutionBank recently a instudy 2013 published that was 41% nancial a study institutionthatBank recently nancial in 2013 published institutionBank was recently41% a in study cial2013 published thatdelivery was 41% nancial a studymodels, institutionthat helping nancial in cial2013to institutiondelivery was 41% in models, cial2013 delivery washelping 41% models, to helping cialto delivery models,cial delivery helping models, to helping to 50 low-income families. That can be donelow-income people families. willlow-income beThat able can families.beto doneopen That theirpeople can be donewilllow-income be peopleable families.to willopenlow-income beThat theirable can families.beto doneopen That theirpeople can be donewill be peopleable to willopen be theirable to open their Islamic Finance (IF), SBP has constiIslamic- functions), Finance40 (IF),Islamic booths SBP Finance has(for consticollection (IF),- SBPfunctions), of has constiIslamic booths- functions), Finance (for collection (IF),Islamic booths SBP Financeof has(for consticollection (IF),- SBPfunctions), of has consti booths- functions), (for collection booths of (for collection of 30 shows globally the most frequentlyshows on globally average, theshows but most with globally frequently wide disparitiesthe moston average,frequentlyshows but withon globally average, wide disparitiestheshows but most with globally frequently wideprovide disparitiesthe conditionsmoston average,frequently for fairbut competiwithon average, wideprovide- disparities but conditions with wideprovide for disparities fair conditions competi -for fair competiprovide- conditionsprovide for fair conditions competi -for fair competi- 20 by teaching it in primary schools, highby teaching mobile it in accounts,primaryby teaching schools, pay it in utility highprimary bills, mobileschools, highaccounts,by teaching mobile pay it in utility accounts,primaryby teaching bills, schools, pay it in utility highprimary bills, mobileschools, highaccounts, mobile pay utilityaccounts, bills, pay utility bills, tuted a Shariah Advisory Board,tuted variousa Shariah10 feestuted andAdvisory bills),a Shariah Mobile Board, BankingAdvisory various Board,feestuted and bills),variousa Shariah Mobile feestuted andBankingAdvisory bills),a Shariah Mobile Board, BankingAdvisory various Board,fees and bills),various Mobile fees andBanking bills), Mobile Banking cited reason for not having an accountcited reasonacross for regions, notcited having reasonranging an foraccount from not having18% across in an account regions,cited reasonrangingacross for regions,from notcited having18% reasonranging in an tion foraccount from not and having18% a frameworkacross in an account regions, of incentives rangingacrosstion for regions,from and 18% a frameworkranging in tion from andof incentives 18% a framework in for of incentivestion for and a frameworktion andof incentives a framework for of incentives for which approves broad policy, thewhich Unitsapproves 0and whichSalesbroad and approvespolicy, Service the broadCenters. Units policy, and thewhichSales andUnitsapproves Service and whichSales broadCenters. and approvespolicy,schools Service the and broadCenters. colleges.Units policy, and theSales andUnitsschools Service and transfer Salesand Centers. colleges. and remittancesschools Service and Centers. andcolleges. funds andtransfer remittancesschoolstransfer and andcolleges. remittancesfundsschools and and andcolleges. funds andtransfer remittancestransfer and remittancesfunds and and funds and is the lack of enough money to useis the lackthe Middleof enoughis Eastthe moneylackand ofNorth toenough use Africa moneythe to Middle to useis Eastthe lacktheand MiddleofNorth enoughis Africa Eastthe moneylackand to ofNorththe toenough varioususe Africa money the banking,to Middle to useinsurance, East theand MiddleandNorththe various AfricaEast and banking,to Norththe variousinsurance, Africa banking,to and insurance, andthe various banking,the variousinsurance, banking, and insurance, and regulatory framework and newregulatory Similarly, framework regulatorySBP has andalso framework newintroduced Similarly, and newregulatorySBP hasSimilarly, also framework introducedregulatorySBP has and also Postframework newintroduced o ce Similarly, employeesand newSBP should hasSimilarly, alsobe Post introduced paySBPo ce backhas employees alsoinstallments Post introduced o ce should employeeswithout be anypay should back beinstallments Post payo ce back employeeswithout installments Post anyo ce should employeeswithout be anypay should back beinstallments pay back without installments any without any one. The next most commonly quotedone. The39% next in mostLatinone. commonly America The next and quoted most Caribbean. commonly 39% in quoted Latinone. America The39% next inand mostLatin Caribbean.one. commonly America The next non-bankingand quoted most Caribbean. commonly 39% entities in quoted Latin involved America 39% andinnon-bankingand Latin Caribbean. America entities non-bankingand Caribbean. involved entities and involved andnon-banking entitiesnon-banking involved entities and involved and
Journal of The Institute of Bankers Pakistan Journal 9 of The Institute of Bankers Pakistan 9 Besides, 22% of adults worldwideBesides, delivery 22% ofofBesides, theadults full range22%worldwide ofof a ordableadults delivery worldwide Pakistanis ofBesides, the full deliverywho range22% do of ofnotofBesides, a ordable the adultsengage full range22% worldwidein either Pakistanisofof a ordable adults deliverywho worldwide doPakistanis notof the engage full deliverywho rangeAccount in doeither of notof a ordable the(BBA), engage full arange in simpli ed either Pakistanisof a ordable nancial whoAccount do Pakistanis notThe (BBA), engage Branchless whoaAccount insimpli ed doeither Bankingnot (BBA), engage nancial Regulationsa insimpli ed either The Branchless nancialAccount BankingThe (BBA), Branchless RegulationsaAccount simpli ed Banking (BBA), nancial Regulationsa simpli ed The Branchless nancial BankingThe Branchless RegulationsBranchless Banking Banking Regulations Regulations withBranchless trained Banking andBranchless Regulationsgiven Bankingincentives with Regulations trainedto hassle. withandBranchless Almostgiventrained Banking incentives122 andBranchless million Regulationsgiven to people Bankingincentiveshassle. with RegulationsAlmost trainedto 122hassle. withand million Almostgiventrained people incentives122 and million given to people incentiveshassle. Almost to 122hassle. million Almost people 122 million people report having saved at a formal nanreport- havingand quality savedreport nancial at a having formal services. saved nan- at a andformal quality nanthereport formal nancial- havingand or services.informal quality savedreport nancial nancial at a having formal services.system, saved nanthe formal- at a andformal or informal quality nanthe formal nancial- nancialand orproduct services.informalsystem, quality for nancial nancial low income services.system,the consumers.formal orproduct informal thewere forformal nancial introducedlow or productincome informalsystem, in 2008,forconsumers. nancial low clearing income system, thewere consumers. introducedproduct inwere 2008,for introducedlow clearing productincome inthe 2008,forconsumers. low clearing income thewere consumers. introduced inwere 2008, introduced clearingthe objective inthe 2008, of clearing providing the banks withthe objectivemarket of providingsavings,the objective banksinvestment of withproviding andmarket banks have withsavings,the SIM objective market cardsinvestment of but providingsavings,the only objective and15 banksinvestment million ofhave withproviding SIM and marketcards banks buthave withsavings, only SIM 15market cards investmentmillion butsavings, only and15 investment millionhave SIM and cards buthave only SIM 15cards million but only 15 million cial institution in 2013, while cial9% institution incial 2013, institution while in9% 2013, whilewe cial9% estimate institution about incial 19 2013, institutionpercent while havewe in9% estimate2013, while aboutwe 9% 19estimate percentBBA about have aims 19 to percentreduce costshavewe for estimate consumBBA about- aimsweway 19 estimateto for percentreduce developmentBBA about costshave aims for 19 to consum percentreduceof branchless - costshaveway for forconsum developmentBBA- aimsway to for reduceof developmentbranchlessBBA costs aims for to consum reduceof branchless -costsway for forconsum development- way for of developmentbranchlesscheaper non-traditional of branchless deliverycheaper pension non-traditional products.cheaper Somenon-traditionaldelivery of thesepension deliveryhave products.cheaper bankpension accounts.Somenon-traditional products.cheaperof Ifthese each Somenon-traditional deliverySIMhave of bankthesepension accounts. deliveryhave products. bankIf pensioneach accounts.Some SIM products. of Ifthese each Some SIMhave of bankthese accounts. have bankIf each accounts. SIM If each SIM report having originated a new formalreport havingFinancial originated reportInclusion having a new in Pakistan formaloriginated Financiala new formalvoluntarily reportInclusion havingFinancial in excludedPakistan originated reportInclusion having athemselves new in Pakistan formaloriginatedvoluntarily Financiala newexcluded formalvoluntarily Inclusion Financialthemselves ersin excludedPakistan by Inclusion removing themselves in Pakistanmorevoluntarily expensive ersexcluded byvoluntarilyand removing mobile themselves ers phone excluded moreby banking removingexpensive themselves services moreand in expensivemobileers phone byand bankingremoving mobile servicesers phone moreby inbanking removing expensive services moreand in expensivemobile phone and banking mobile serviceschannels phone inbanking (retail services agents, in mobilechannels products (retail channelshave agents, already (retailmobile been agents,develproducts- mobileholder channelshave isalready productsgiven (retail beenan channelshave opportunity agents,devel already - (retailmobile holderbeento agents,develis productsgiven- mobileholderan have opportunity isalready productsgiven beenanto have opportunity devel already- holderbeento develis given- holderan opportunity is given anto opportunity to loan. In nancial inclusion, the top veloan. In nancial inclusion,loan. In nancial the top inclusion, ve the topthrough veloan. In lack nancial of understanding, inclusion,loan. In nancial the aware topthrough inclusion, ve- lack the of top understanding,through ve lack facilities of aware understanding,- and requires awarethrough no- minimum lackfacilities of understanding,throughPakistan. and lackrequires Thefacilities of aware retailunderstanding, no- network andminimum requires of aware banks Pakistan.no- minimum Thefacilities retailPakistan. networkand requires Thefacilities of retailbanks no network and minimum requires of banks Pakistan.no minimum The retailPakistan. network Thephones) of retailbanks tonetwork increase of their banks outreach phones) to oped to increase by thephones) posttheir o ceoutreachto increase but tohave their notoped outreach byopen thephones) to apost bankoped o ce to account, increase by but thephones) have nancial posttheir not o ceoutreachto increaseinclu openbut- tohave a their bank notoped outreach account, byopen the to nancialapost bankoped o ce account, inclu by but the- have nancialpost not o ce inclu openbut- have a bank not account,open nanciala bank account, inclu- nancial inclu- countries include US, Korea, Canada,countries Financially-excluded includecountries US, Korea, include peopleCanada, US, account Korea,Financially-excluded Canada,ness,countries need,Financially-excluded include duepeople tocountries US, accountpoverty Korea, include peopleorCanada, ness,for US, account need, Korea,Financially-excluded due Canada, ness,to poverty need,Financially-excluded balance, duepeopleor forto andaccountpoverty neither peopleor ness,fordoes account need,it have balance, due ness,hasto and overwhelminglypovertyneed, neither balance, dueor fordoesto andmultipliedpoverty it neitherhave or due forhasdoes to overwhelmingly it havebalance, has andmultiplied overwhelmingly neitherbalance, due does to and multiplied it neitherhave due hasdoes to overwhelmingly it have has multiplied overwhelminglyun-banked due to multiplied and rural communities.due to un-bankedbeen and marketed ruralun-banked communities. e ectively. and rural communities.been marketedsionun-banked can e ectively.bebeen extended and marketed rural un-banked and communities. e ectively.the amount andsion rural can communities. bebeen extended marketedsion andcan e ectively.bethebeen extended amount marketed and e ectively.the amountsion can be extendedsion andcan bethe extended amount and the amount UK and Germany; where as Nigeria,UK andfor Germany; 85 percentUK where and of Germany;asthe Nigeria, population where for inas 85 Nigeria, percentreligiousUK and offorreasons. Germany;the 85 populationpercent FinancialUK where and of Germany;inexclusionasthe Nigeria, populationreligious where forreasons. inas 85 Nigeria, percentreligious Financial offorreasons. exclusionthecomplex 85 populationpercent Financial terms of and inexclusionthe conditionspopulationreligious therereasons. incomplex - religious agentsFinancial terms andreasons. andexclusioncomplex mobile conditions Financial phone terms there channels. andexclusion -conditionsagents In andtherecomplex mobile- agents phone terms and channels.andcomplex mobile conditions Inphone terms there channels.and -conditionsagents In andthere mobile- agents phone and channels. mobile Inphone channels. In of Rs1 trillion, which is in circulation,of Rs1 trillion, whichof Rs1 is intrillion, circulation, which is in circulation,of Rs1 trillion, whichof Rs1 is intrillion, circulation, which is in circulation, Uganda, Pakistan, Ghana and EgyptUganda, Pakistan Pakistan, Uganda,and Ghana this Pakistan,andmeans Egypt thatGhana thePakistan and Egyptprecludes Uganda,and this Pakistan people Pakistan,means fromUganda,and thatGhana reducingthis the Pakistan,and means Egyptrisk,precludes thatGhana thePakistanpeople and Egyptprecludes fromand reducingthis Pakistanpeople bymeans risk,reducing fromand that reducingthis the administrative means risk,precludes that thepeopleandby reducingprecludes lessfrom thanreducing peoplethreeadministrativeby risk,reducing years,from therereducing andadministrative are risk,nowless than andthreeby reducingyears,less than there threeadministrativeby are reducingnowyears, there andadministrative are nowless than andthree years,less than there three areSBP nowyears,projects there nancial are now penetration SBP projects The banks nancial SBP should projects penetration be instructed nancial topenetrationThe bankscan beSBP should brought projects The be into banksinstructed nancial the SBP shouldformal projects topenetration sector.be caninstructed nancial be brought topenetrationThe into bankscan the be should formalbrought The sector.be into banksinstructed the shouldformal to sector.be caninstructed be brought to intocan the be formalbrought sector. into the formal sector. are least inclusive. are least nancial inclusive. exclusionare least inclusive. is a new kind nancial of managing exclusionare least nancial uctuationsinclusive. is a new exclusionare kindleastin income, inclusive.of is a andmanagingnew kind nancial uctuationsof managing exclusion in income, nancial uctuations managementis a andnew exclusion kindin income,costs. of is a andmanagingnew kind uctuationsofmanagement managing18,000 in income,costs.branchless uctuationsmanagement and banking in income,costs. outlets, and18,000 branchlessmanagement18,000 banking costs.branchlessmanagement outlets, banking costs. outlets,18,000 branchless18,000 banking branchlessratios outlets, to be banking raised through outlets, an enablingratios tomanage be raised all ratiosthrough possibilities to be an raised enabling and to through dissemi manage an- enabling allratios possibilities tomanage be raised and all to ratiosthrough possibilities dissemi to be an- raised enabling and to through dissemi manage an- enabling all possibilities manage and all to possibilities dissemi- and to dissemi- apartheid, depriving a large chunkapartheid, of investing depriving apartheid,in amicroenterprises large depriving chunk of a orlarge investingin chunk apartheid, inof microenterprisesinvesting depriving apartheid,in amicroenterprises orlarge in deprivingchunk of a orlarge investingin chunk inof microenterprisesinvestingaugmenting in microenterprisesorand in surpassing or theaugmentingin Islamic and nancialaugmenting surpassing products. andthe SBP surpassingIslamic is nancialtheaugmenting Islamic products. and nancialaugmenting SBPsurpassing isproducts. policy and theenvironment SBP surpassingIslamic is and nancialthe the variousIslamic products.policy nancial nateenvironment SBP its isproducts.service policy and toenvironment theSBPremote various is area. and Thenate the itsvarious service Pakistanpolicy tonateenvironment post remote itshas service more policyarea. and than Thetoenvironment the remote 13, various000 Pakistan area. and Thenate postthe itshasvarious service Pakistanmore than tonate post remote13, itshas 000 service more area. than Theto remote 13, 000 Pakistan area. The post has Pakistanmore than post 13, has 000 more than 13, 000 Role of Banks in Financial InclusionRole of theBanks population in FinancialRole of of Banks Inclusionmultiple in Financial nancialthe Inclusion populationhealthRole and of of theBanks education. multiple population in FinancialRole nancial of of Banks Inclusionmultiple inhealth Financial nancial andthe education. Inclusion populationhealth and ofthe education. Micro nancemultiple population nancial Regulatoryof multiple health Framework nancial and education.Micro nance health10,000+ and Regulatory conventional education.Micro nance Framework bank Regulatory branches.10,000+ Framework working conventionalMicro nance to10,000+ develop bank Regulatory conventional a Micro nancebranches. proper liquidityFramework bankworking Regulatory branches. to10,000+ develop Framework working conventional a proper to10,000+ develop liquidity bank conventional a outreachbranches. proper liquidity programs bankworking branches. described to develop workingabove aoutreach proper tobanks develop liquidity programs should a outreach proper describedegg liquidity onprograms the above people describedbanks to shouldbranchesaboveoutreach egg banksacross onprograms theshould the outreachpeople describedcountryegg to onprograms the andbranchesabove people described banks acrossto should branchesabovethe countryegg banksacross on theandshould the people countryegg toon theandbranches people acrossto branchesthe country across and the country and services, while Only 35 percent popuservices,- while Onlyservices, 35 percent while popuOnly -35 percent popuservices,- while Onlyservices, 35 percent while popuOnly -35 percent popu - Consequently, branchless bankingConsequently, management branchlessConsequently, framework banking branchless and newmanagement bankingConsequently, frameworkmanagement branchlessConsequently, and framework new from banking abranchless andnational newmanagement coverage banking of framework management19,000from aaccess andnational framework new banking from coverage services a andnational of new by19,000 ways coverage of accessno of banking19,000reachesfrom outservicesaaccess national to 20 bybanking million waysfromcoverage ofserviceshouseholds.a nonational of by19,000reaches ways coverage ofout accessno to of 20 banking19,000reaches million outserviceshouseholds.access to 20 bybanking million ways ofserviceshouseholds. no byreaches ways ofout no to 20reaches million outhouseholds. to 20 million households. Initiatives for nancial inclusion haveInitiatives lation for in nancial ChinaInitiatives isinclusion nancially for nancial have excluded; inclusionlation in have ChinaInitiativesSBP is lation nanciallypursuing for in nancial ChinaInitiatives excluded;a multipronged isinclusion nancially for nancial haveSBP excluded; isinclusion lationpursuing in have ChinaSBP a multipronged is lation nanciallypursuingSBP inintroduced China excluded;a multipronged is nancially Micro nance SBP excluded; Bankingis pursuingSBP introduced hasSBP a played multiprongedis pursuingMicro nanceSBP a pivotal introduced a role multiprongedBanking in Micro nance providing has played BankinginstrumentsSBP a pivotal introducedhas to roleplayed allow in Micro nance SBPproviding thea pivotal introducedIBs to role grow Bankinginstruments in Micro nance providing has to played allowBankinginstruments thea pivotal IBshas toto roleplayed growallow in personsproviding thea pivotal IBs perto role grow bankinstruments in providing branch toin allow2007instrumentspersons tothe IBsfrills per toto grow allowbankaccount, persons thebranch IBs nancial pertoin grow 2007bank toinclusionbranch frills in 2007account,It o erspersons to savingsfrills nancial per bankaccount, scheme, persons inclusionbranch nancialinsurance perin 2007bankIt o ers toinclusionbranch savingsfrills in 2007account, Itscheme, o ers to savingsfrills nancialinsurance account, scheme, inclusion nancialinsurance It o ers inclusion savings Itscheme, o ers savingsinsurance scheme, insurance come from nancial regulators,come thisfrom gure nancialcome is 65 from regulators,percent nancial in India thisregulators, gureapproachcome is 65 thisfromto percent tackle gure nancialcome the inis challengeIndia65 from regulators,percent approach nancialof in India thistoregulators, tackle gureapproach the is challenge65 thisto Regulationspercent tackle gure of the inis challengeIndiain65 2001percent approach toof speci callyin India toRegulations tackle approache cient the challengein Financiallyto2001Regulations tackle toof theInclusivespeci cally challengein 2001 Govern toe cientof -speci callyand Financially Regulationscompete e cient Inclusive inwith Financially2001Regulations Governconventional to -Inclusivespeci cally andin 2001 Governcompete toe cient -speci cally andwith Financially competeconventional e cient Inclusive with Financially 15,000 Governconventional in 2012-Inclusiveand and 12,000Governcompete in- 2017. andwith The15,000 compete conventional campaignin 2012 with and and15,000 12,000 conventionalbusiness in in 2012 2017. correspondent. and The 12,000 campaign in 2017.scheme Theand15,000 business and campaignin 2012 have correspondent. and and15,000recently 12,000 business in in 2012 started 2017. correspondent.scheme and The 12,000 andcampaign in 2017.havescheme Theandrecently business andcampaign startedhave correspondent. and recently business started correspondent.scheme and havescheme recently and startedhave recently started governments and the banking indusgovernments- .According andgovernments theto bankingPakistan andindus Access the- banking .Accordingto indushighgovernments - nancialto Pakistan.According exclusion and governmentsAccess theto in banking the Pakistanto country. andindushigh Access the - nancial banking .Accordingto exclusion indushigh - nancialto in thePakistan.Accordingmeet country. exclusion theAccess todemands in the Pakistanto country. ofhigh Accesslow nancial income tomeet exclusion highthement nancialdemands in to the Personmeet country. exclusion of the (G2P)low demands in income paymentsthe country. of menttolow incometobanks Personmeet in thement(G2P)a prudentdemands topayments Personmeet andof the(G2P)tolow sounddemands incomebankspayments inof menttoalow prudent incometobanks Person inand ment(G2P)a soundprudent topayments Person coverage and (G2P)to of sound ATM bankspayments outlets in toais projectedprudentbankscoverage inand Thea of soundgovernmentprudent ATM coverageoutlets and should is of soundprojected ATM promote outlets Thethe is projectedgovernmento eringcoverage remittances Theshould of government ATM promote coverageasoutlets well. theshould isFinancial of projected ATM o eringpromote outlets remittances Thethe is projectedgovernmento ering as well. remittances Theshould Financial government promote as well. theshould Financial o eringpromote remittances the o ering as well. remittances Financial as well. Financial try. Over 90 developing countriestry. OverFinance 90 developingtry.Survey Over (A2FS),countries90 developing only Finance15 countriesIn try.Surveythis Overcontext Finance (A2FS),90 various developing try.Surveyonly Overconventional 15 (A2FS), countries90 Indeveloping this only context Finance15 countries variousIn Surveythis conventionalcontext Finance(A2FS),consumers. various Survey only Theseconventional 15(A2FS), regulationsIn this only context have15consumers. variousInwelfare this Theseconventionalcontext bene ciariesconsumers. regulations various Theseconventional ofhave Benazirregulations welfare manner. havebene ciariesconsumers. Thewelfare establishment These ofbene ciaries consumers. 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African have countries haveSeveral AfricanSeveral countries African have countries have SBP has adopted innovative SBP has adopted SBP hasinnovative adopted innovative SBP has adopted SBP hasinnovative adopted innovative commercial banks have a certaincommercial bankscommercial have a bankscertain have a certaincommercial bankscommercial have a bankscertain have a certain opened. opened.lending areopened. found to be pro table, itlending is areopened. foundlending to be pro table, areopened. found it to is be pro table, itlending is are foundlending to be pro table, are found it to is be pro table, it is REFERENCES: The nancially excluded section The nanciallywidely recog Theexcluded- nancially section excluded widely section recog The - nanciallywidely recog Theexcluded- nancially section excluded widely section recog - widely recog - Five main barriers to nancial inclu Five- main barriers Five to nancial main barriers inclu- to nancial inclu Five- main barriers Five to nancial main harnessedbarriers inclu- to nancialthe unique inclu - aspects harnessedof the harnessedunique aspects the uniqueof aspects harnessedof the harnessedunique aspects the uniqueof aspects of solutions to overcome geographicalsolutions to overcomesolutions geographical to overcome geographicalexpectedsolutions that to banks overcomesolutions will ndgeographical to their expectedovercome thatgeographical banksexpected will that nd theirbanks percent will nd of theirexpected portfolio that inbanks expectedsmallpercent will that nd ofTelecom theirbanks percent portfoliowillcompanies nd of intheir smallshould portfolio beTelecom in smallpercent companies ofTelecom their shouldpercent portfoliocompanies beof intheir smallshould portfolio beTelecom in small companies Telecom should companies be should be sion are the distance to a bank, lacksion of areFinancial the distance Inclusionsion to are a bank,the Statistics distance lack of to aFinancial bank, lack Inclusionsion of areFinancial the Statistics distance Inclusionsion to are a bank,the Statistics mobiledistance lack of bankingto aFinancial bank, to lack Inclusiondrive of Financial nancial Statisticsmobile Inclusion banking Statistics mobileto drive banking nancial to drive nancialmobile banking mobileto drive banking nancial to drive nancial barriers, including branchless bankingbarriers, includingbarriers, branchless including banking branchless bankingbarriers, includingbarriers, branchless including banking branchless banking loans. 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There Alliance for Financial Inclusion bank account, which amount to 50%bank account, whichbank amount account, to which 50% amountInnovative to Financial50%bank account, Inclusion whichbank serve amount Innovativeaccount, as to which Financial50% amountInnovative Inclusion to Financial50% serve as Inclusion serveInnovative as FinancialInnovative Inclusion Financial serve as Inclusion serve as framework of the Islamic Financialframework the “brick-and-mortar”of theframework Islamic Financialof thenature Islamic theof Financial“brick-and-mortar”framework the “brick-and-mortar”of thenatureframework Islamic of rural Financialof areas.thenature Islamic theof Financial“brick-and-mortar” therural “brick-and-mortar” areas.natureis a need of ruralto increase areas.nature theof number is of a need ruralto increase areas.is a needthe numberruralto increase areas. of the numberis of a need to increaseis a needthe numberto increase of the number of (AFI). 2010a. “The AFI Survey on Generally there are many reasons Generally of the there world’s are Generally adult many population. therereasons are Mostmanyof the reasonsworld’s Generally adultof thepopulation. there world’s are Generally adult Mostmany population. atherereasons guide are for Mostmanyof policythe reasonsworld’s and adultregulatoryof thepopulation.a world’sguide adult forMost policy population. a guide and forregulatoryMost policy and regulatorya guide for policya guide and forregulatory policy and regulatory Service Board (IFSB) in the developService- branch Board operations.(IFSB)Service in the Board Commercial develop (IFSB)- banksin branchthe develop operations.Service- branch Board Commercial operations.(IFSB)Service banksin the Board Commercial develop (IFSB)- banksin branchthe develop operations.- branch Commercial operations.telecom banks Commercialagents and banks provide themtelecom agents telecomand provide agents them and provide themtelecom agents telecomand provide agents them and provide them Financial Inclusion Policy in Developing Countries: Prelimi- why individuals or groups may notwhy individualsof these peoplewhyor groups individuals are concentratedmay notor groupsof in these may peoplenotwhy individuals ofare these concentrated peoplewhyor groups individuals are in concentratedmayapproaches notor groups of within these may the peoplenot objectives ofare these concentrated approachesof people are within concentratedapproaches the objectives within ofthe objectives approachesof withapproaches the objectives with ofthe objectives of ment of which Pakistan has playedment a ofhave which been Pakistanment given of thehas which optionplayed Pakistan toa openhave has playedbeenment given a of havethe which optionbeen Pakistanment givento open of thehas which optionplayed The Pakistan government toa openhave has playedofbeen Pakistan given a should havethe option Thebeen governmentwith givento openthe the mandate option Theof Pakistan government toto act open should as branchless of Pakistanwith the should mandate The governmentwith to act the as mandate branchless Theof Pakistan government to act should as branchless of Pakistanwith the should mandate with to act the as mandate branchless to act as branchless nary Findings.” take full advantage of mainstreamtake fulldeveloping advantagetake ofeconomies,full mainstream advantage whereofdeveloping mainstream take economies,fulldeveloping advantage take where ofeconomies,full mainstream advantagefostering wheresafeofdeveloping mainstreamand sound adoptioneconomies,developingfostering of wheresafeeconomies, and fostering sound adoption wheresafe and ofsound adoptionfostering of safe andfostering sound adoption safe and ofsound adoption of key role. 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The World nancial account service penetrationproviders. nancial service The with World providers.a formalaccount The World penetration nancial account service with penetration providers. nanciala formal service The innovative,with World providers.a formal adequate,account The World penetration low-cost account nan innovative,with- penetration a formal adequate, innovative,with low-costa formal adequate, nan - low-cost naninnovative,- adequate,innovative, low-cost adequate, nan- low-cost nan- diligence in the development diligenceof (with in thelimiteddiligence development general in the ofbankingdevelopment (with limited diligenceof (withgeneral in thelimited diligence bankingdevelopment general among in the the ofbankingdevelopment population,(with limited particularlyof (withgeneralamong in limited expandthebanking population, generaltheamong locations particularly thebanking population, where in particularlytheexpand theamong in locations expandthe population, wheretheamong locations particularly thethe population, where in particularlytheexpand the in locationsexpand wherethe locations the where the Bank recently published a study thatBank recently nancial published institutionBank recently a instudy 2013 published that was 41% nancial a study institutionthatBank recently nancial in 2013 published institutionBank was recently41% a in study cial2013 published thatdelivery was 41% nancial a studymodels, institutionthat helping nancial in cial2013to institutiondelivery was 41% in models, cial2013 delivery washelping 41% models, to helping cialto delivery models,cial delivery helping models, to helping to low-income families. That can be donelow-income people families. willlow-income beThat able can families.beto doneopen That theirpeople can be donewilllow-income be peopleable families.to willopenlow-income beThat theirable can families.beto doneopen That theirpeople can be donewill be peopleable to willopen be theirable to open their World Bank (2008). Finance for Islamic Finance (IF), SBP has constiIslamic- functions), Finance (IF),Islamic booths SBP Finance has(for consticollection (IF),- SBPfunctions), of has constiIslamic booths- functions), Finance (for collection (IF),Islamic booths SBP Financeof has(for consticollection (IF),- SBPfunctions), of has consti booths- functions), (for collection booths of (for collection of All? Policies and Pitfalls in shows globally the most frequentlyshows on globally average, theshows but most with globally frequently wide disparitiesthe moston average,frequentlyshows but withon globally average, wide disparitiestheshows but most with globally frequently wideprovide disparitiesthe conditionsmoston average,frequently for fairbut competiwithon average, wideprovide- disparities but conditions with wideprovide for disparities fair conditions competi -for fair competiprovide- conditionsprovide for fair conditions competi -for fair competi- tuted a Shariah Advisory Board,tuted variousa Shariah feestuted andAdvisory bills),a Shariah Mobile Board, BankingAdvisory various Board,feestuted and bills),variousa Shariah Mobile feestuted andBankingAdvisory bills),a by Shariah Mobile teachingBoard, BankingAdvisory it variousin primary Board,fees schools, and bills),various highby Mobile teaching feesmobile andBanking it bills), in accounts,primaryby Mobile teaching schools, Bankingpay it in utility highprimary bills, mobileschools, highaccounts,by teaching mobile pay it in utility accounts,primaryby teaching bills, schools, pay it in utility highprimary bills, mobileschools, highaccounts, mobile pay utilityaccounts, bills, pay utility bills, Expanding Access. World Bank cited reason for not having an accountcited reasonacross for regions, notcited having reasonranging an foraccount from not having18% across in an account regions,cited reasonrangingacross for regions,from notcited having18% reasonranging in an tion foraccount from not and having18% a frameworkacross in an account regions, of incentives rangingacrosstion for regions,from and 18% a frameworkranging in tion from andof incentives 18% a framework in for of incentivestion for and a frameworktion andof incentives a framework for of incentives for which approves broad policy, thewhich Unitsapproves and whichSalesbroad and approvespolicy, Service the broadCenters. Units policy, and thewhichSales andUnitsapproves Service and whichSales broadCenters. and approvespolicy,schools Service the and broadCenters. colleges.Units policy, and theSales andUnitsschools Service and transfer Salesand Centers. colleges. and remittancesschools Service and Centers. andcolleges. funds andtransfer remittancesschoolstransfer and andcolleges. remittancesfundsschools and and andcolleges. funds andtransfer remittancestransfer and remittancesfunds and and funds and Policy Research Report, is the lack of enough money to useis the lackthe Middleof enoughis Eastthe moneylackand ofNorth toenough use Africa moneythe to Middle to useis Eastthe lacktheand MiddleofNorth enoughis Africa Eastthe moneylackand to ofNorththe toenough varioususe Africa money the banking,to Middle to useinsurance, East theand MiddleandNorththe various AfricaEast and banking,to Norththe variousinsurance, Africa banking,to and insurance, andthe various banking,the variousinsurance, banking, and insurance, and regulatory framework and newregulatory Similarly, framework regulatorySBP has andalso framework newintroduced Similarly, and newregulatorySBP hasSimilarly, also framework introducedregulatorySBP has and also Postframework newintroduced o ce Similarly, employeesand newSBP should hasSimilarly, alsobe Post introduced paySBPo ce backhas employees alsoinstallments Post introduced o ce should employeeswithout be anypay should back beinstallments Post payo ce back employeeswithout installments Post anyo ce should employeeswithout be anypay should back beinstallments pay back without installments any without any one. The next most commonly quotedone. The39% next in mostLatinone. commonly America The next and quoted most Caribbean. commonly 39% in quoted Latinone. America The39% next inand mostLatin Caribbean.one. commonly America The next non-bankingand quoted most Caribbean. commonly 39% entities in quoted Latin involved America 39% andinnon-bankingand Latin Caribbean. America entities non-bankingand Caribbean. involved entities and involved andnon-banking entitiesnon-banking involved entities and involved and
10 Journal of The Institute of Bankers Pakistan
Global Perspective put the firm’s welfare and the preserva- processes are not followed then criminals bankers/partners/associates engaged in tion of important client relationships and fraudulent activities happen in the control functions as to those running ahead of everything else. Risk is risk and banks. Newspapers and magazines businesses - and in constantly rotating no one can be perfect at managing it. globally are deluged with stories in the partners back and forth between risk Banks that can manage risk effectively last 10 years. control and business operations. The can stay ahead of the competitors in importance of risk and compliance needs these arduous times to maintain sustaina- 2. Escalation - All levels to be communicated and inculcated to ble profits and lowers risk on their Banks are accountable for every penny to the DNA of all bankers who want to balance sheet. the account holders. Bankers are not pursue their profession with honesty and above law. Regulators have punished integrity. Banks need to follow the prudent way those banks in the last 6 years for the 5. Focused Efforts - Renewed Emphasis of managing risk in order to avoid opera- wrongdoings and malpractices in many tional, reputational and market risk. advance economies and financial markets. Stress testing vs healthy balance sheet. According to my good friend and author All rewards and punishment should be Far from being over, the impact of the of the book Economic Warfare, Ziad based on performance and efficiencies. financial mess we are still witnessing Abdelnour [Wharton graduate’ 1984] - Manipulation, misrepresentation of today, not just in the US but on a global CEO Blackhawk Partners based in New products features / benefits and cheating basis as well, is still being felt the world York, USA, FIVE elements in managing with client’s funds should be dealt with over and we believe it will sooner than risk are extremely important for the strict penalties and lessons. Global banks later affect not only rules and regulations banks and are absolutely indispensable are still paying huge penalties for their but Wall Street leadership as well. In the ingredients of success in managing risk. misdeeds and mal-practices. so-called modern-day age of high-tech They are shorten with acronym PEACE - wonders and medical miracles, we now People, Escalation, Accountability, 3. Accountability - All levels have a titanic problem the world has Culture and Focus energy. At all levels, accountability brings out the never seen before: Derivative liability on a 1. People - Key to Risk Prudence best in human effort to reduce risk and scale that boggles the mind. give the optimum performance that What is even more puzzling is the fact Banks need to encourage clear communi- benefits all stakeholders. Of course, that 90% of the people have absolutely cation strategies at all levels. If staff is means acknowledging that people are no understanding or the slightest clue not comfortable with certain accounts or responsible for what their business how this is now going to affect the finan- clients, then proper action needs to be groups do, and, equally important, cial markets. done in order to avoid reputation risk. It holding senior management responsible By Shan Saeed should be escalated to the decision for evaluating all aspects of risk, includ- U.S. banks' derivative bets of $245 makers immediately. Escalation means ing the quality of the people with whom trillion, concentrated in five banks, are 14 communicating risk concerns to higher the bank chooses to do business with. times larger than the USA GDP size 17.5 levels of management, getting more According to the latest figure and my trillion. A failed political system that fingerprints on potential problem risks market intelligence reports, global banks allows unregulated banks to place uncov- Global Financial Landscape and challenging the notion that a have paid $73 billion in fines on various ered bets 15 times larger than the U.S. business group leader ought to make accounts of mismanagement and misrep- economy is a system that is headed for Changing in the Next 5 Years: independent decisions on risks that affect resentation of facts with clients. Regula- catastrophic failure. As the word spreads the entire firm. Hiring of people, doing tors have come down very hard globally of the fantastic lack of judgment in the Prudent Banks are more Risk Competent back ground checks with previous on well reputed banks in order to send American political and financial systems, employer/business schools, educational strong message to the market. the catastrophe in waiting will become a credentials validity, community activities, reality. police check, criminal records and above 4. Culture of Risk Mitigation- Strategic In a nutshell, I strongly believe going What has actually changed in the last 10 years is that banks all recommendation of the references Intent Global Economic System: forward, global banks will be focusing on have made abnormal profits but ignored the basic rule to should be run on defined process and The greatest risk protection, however, more of these lines in order to become Uncertain is the Only Word mitigate their risk on their books. Books are filled with procedures. No favoritism or nepotism comes from ascribing as much status, risk competent in the face of global unhealthy assets and mismatch in asset-liability portfolio should be tolerated at any levels. If these prestige and compensation to those financial uncertainty. I think, banks will The tail end risk and systematic risk are making them vulnerable to exogenous risk and uncertain markets as we navigate thought turbulent times. According to be more and more cautious in terms of getting higher globally. The global economy John Huizinga - Professor of Economics at Uni of Chicago, risk coming out from proprietary trading, but rather from facilitating client objec- is hoping to see the recovery light at the end Booth School of Business, USA, “We have borrowed future growth rate” This statement is significantly relevant taking tives. Banks will have to build a strong of the tunnel, however, Europe and Japan into account the QE which is unleashed in the global econo- capital base in order to weather the storm present a bleak picture. Asia is the my by few central banks. and become resilient. This means giving advice to clients in a more accountable, driving force to re-balance the economy while Risk management has taken a new form in the corporate actionable and responsible way which China improves upon her structural reforms. importance in many banks with global repute. Most prudent frequently requires the banks to support Banks are facing new charges banks are drilling down the culture among their employees to the client through prudent behavior and become better in managing risk in face of rising global market solid balance sheet commitments at the of manipulations, fraud and tampering fears. I believe that risk management is a corporate culture strategic level in order to avoid reputa- with currency rates. issue. To manage risks effectively over time, employees must tional and operational risk.
12 Journal of The Institute of Bankers Pakistan put the firm’s welfare and the preserva- processes are not followed then criminals bankers/partners/associates engaged in tion of important client relationships and fraudulent activities happen in the control functions as to those running ahead of everything else. Risk is risk and banks. Newspapers and magazines businesses - and in constantly rotating no one can be perfect at managing it. globally are deluged with stories in the partners back and forth between risk Banks that can manage risk effectively last 10 years. control and business operations. The can stay ahead of the competitors in importance of risk and compliance needs these arduous times to maintain sustaina- 2. Escalation - All levels to be communicated and inculcated to ble profits and lowers risk on their Banks are accountable for every penny to the DNA of all bankers who want to balance sheet. the account holders. Bankers are not pursue their profession with honesty and above law. Regulators have punished integrity. Banks need to follow the prudent way those banks in the last 6 years for the 5. Focused Efforts - Renewed Emphasis of managing risk in order to avoid opera- wrongdoings and malpractices in many tional, reputational and market risk. advance economies and financial markets. Stress testing vs healthy balance sheet. According to my good friend and author All rewards and punishment should be Far from being over, the impact of the of the book Economic Warfare, Ziad based on performance and efficiencies. financial mess we are still witnessing Abdelnour [Wharton graduate’ 1984] - Manipulation, misrepresentation of today, not just in the US but on a global CEO Blackhawk Partners based in New products features / benefits and cheating basis as well, is still being felt the world York, USA, FIVE elements in managing with client’s funds should be dealt with over and we believe it will sooner than risk are extremely important for the strict penalties and lessons. Global banks later affect not only rules and regulations banks and are absolutely indispensable are still paying huge penalties for their but Wall Street leadership as well. In the ingredients of success in managing risk. misdeeds and mal-practices. so-called modern-day age of high-tech They are shorten with acronym PEACE - wonders and medical miracles, we now People, Escalation, Accountability, 3. Accountability - All levels have a titanic problem the world has Culture and Focus energy. At all levels, accountability brings out the never seen before: Derivative liability on a 1. People - Key to Risk Prudence best in human effort to reduce risk and scale that boggles the mind. give the optimum performance that What is even more puzzling is the fact Banks need to encourage clear communi- benefits all stakeholders. Of course, that 90% of the people have absolutely cation strategies at all levels. If staff is means acknowledging that people are no understanding or the slightest clue not comfortable with certain accounts or responsible for what their business how this is now going to affect the finan- clients, then proper action needs to be groups do, and, equally important, cial markets. done in order to avoid reputation risk. It holding senior management responsible should be escalated to the decision for evaluating all aspects of risk, includ- U.S. banks' derivative bets of $245 makers immediately. Escalation means ing the quality of the people with whom trillion, concentrated in five banks, are 14 communicating risk concerns to higher the bank chooses to do business with. times larger than the USA GDP size 17.5 levels of management, getting more According to the latest figure and my trillion. A failed political system that fingerprints on potential problem risks market intelligence reports, global banks allows unregulated banks to place uncov- and challenging the notion that a have paid $73 billion in fines on various ered bets 15 times larger than the U.S. business group leader ought to make accounts of mismanagement and misrep- economy is a system that is headed for independent decisions on risks that affect resentation of facts with clients. Regula- catastrophic failure. As the word spreads the entire firm. Hiring of people, doing tors have come down very hard globally of the fantastic lack of judgment in the back ground checks with previous on well reputed banks in order to send American political and financial systems, employer/business schools, educational strong message to the market. the catastrophe in waiting will become a credentials validity, community activities, reality. police check, criminal records and above 4. Culture of Risk Mitigation- Strategic In a nutshell, I strongly believe going What has actually changed in the last 10 years is that banks all recommendation of the references Intent forward, global banks will be focusing on have made abnormal profits but ignored the basic rule to should be run on defined process and The greatest risk protection, however, more of these lines in order to become mitigate their risk on their books. Books are filled with procedures. No favoritism or nepotism comes from ascribing as much status, risk competent in the face of global unhealthy assets and mismatch in asset-liability portfolio should be tolerated at any levels. If these prestige and compensation to those making them vulnerable to exogenous risk and uncertain financial uncertainty. I think, banks will be more and more cautious in terms of markets as we navigate thought turbulent times. According to Currency market settlement by few banks: risk coming out from proprietary trading,
John Huizinga - Professor of Economics at Uni of Chicago, Note: UBS gure includes Finma’s order to disgorge pro ts
s but rather from facilitating client objec- Booth School of Business, USA, “We have borrowed future e 1200 t i l
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Journal of The Institute of Bankers Pakistan 13 14 Journal of The Institute of Bankers Pakistan14 Journal of The Institute of Bankers Pakistan BANKING
a single-period lossa being single-period so large itloss wipes being so large it wipes out equity. In reality,out equity.insolvency In reality,often insolvency often occurs after a sequenceoccurs of after smaller a sequence losses of smaller losses occurring over severaloccurring periods over indicating several periods indicating that serial correlationthat betweenserial correlation negative between negative shocks may exist. shocks may exist.
It should be noted It shouldthat a bevalue noted or that a value or interval that servesinterval as benchmark that serves for theas benchmark for the risk index (i.e. forrisk detecting index (i.e.whether for detectinga whether a banking system or bankinga bank is system in a safe or ora bank a is in a safe or a risky position) doesrisky not position) exist instead does its not exist instead its trend behavior is trendanalyzed. behavior Specifically, is analyzed. Specifically, an upward trend anindicates upward a trendfavorable indicates a favorable development whereasdevelopment a downward whereas trend a downward trend signals a negative development.signals a negative development.
The empirical formThe of empiricalthis index formis: of this index is:
RI = [ E(ROA) + CAPRI = ][ /E(ROA) σROA + CAP ] / σROA
П = 1 / [ 2 (RI)2 ]П = 1 / [ 2 (RI)2 ]
By Asif Ishaq Where: Where: E(ROA) = expected E(ROA)return on = assets expected return on assets CAP = EM-1(InverseCAP of =Equity EM-1(Inverse Multiplier*) of Equity Multiplier*) σROA = Standard deviationσROA = of Standard ROA deviation of ROA П =Probability of bookП =Probability value insolvency of book value insolvency RI, expressed in unitsRI, expressedof standard in unitsdeviations of standard of ROA, deviations is a of ROA, is a measure of how measuremuch a bank’sof how accounting much a bank’searnings accounting can earnings can Globally, this index, Globally, which is this a measure index, which is a measure decline until it has adecline negative until book it has value. a negative Risk Index book attempts value. Risk Index attempts of the soundnessof and the stability soundness of theand stability of the to capture the likelihoodto capture of a the bank's likelihood earnings of ina bank'sa given earnings year in a given year financial institutionsfinancial is becoming institutions more is becoming more becoming low enoughbecoming to exhaust low enoughthe bank's to exhaustcapital basethe bank'sand capital base and important. If a bankimportant. or a banking If a systembank or a banking system thus, the likelihoodthus, of the the bank likelihood becoming of the insolvent. bank becoming Higher insolvent. Higher is characterized byis characterizeda high return by on a high return on values of RI implyvalues lower of insolvencyRI imply lowerrisk because insolvency higher risk because higher assets, a high level assets,of capitalization a high level and of acapitalization and a values correspond valueswith highercorrespond levels withof equity higher relative levels toof aequity relative to a low volatility of ROAlow volatilitythen the ofbank ROA or then the bank or RISK potential shock to potentialthe earnings shock of toa bank.the earnings Thus, banks of a bank.with Thus, banks with the banking systemthe is consideredbanking system safe i.e.is considered safe i.e. risky loan portfoliosrisky can loan maintain portfolios a low can risk maintain of insolvency a low asrisk of insolvency as it has a higher risk itindex. has a Ithigher is interesting risk index. It is interesting long as they are adequatelylong as they capitalized. are adequately capitalized. to note that the indexto note includes that theall theseindex includes all these components becausecomponents each of them because has aeach of them has a The index was first The performed index was by first Hannan performed and Hanweck by Hannan and Hanweck special connotation:special ROA connotation: indicator is ROA indicator is (1988), who further(1988), derived who the further probability derived of thethe bookprobability value of the book value regarded as the bestregarded measure as ofthe bank’sbest measure of bank’s insolvency ( П ) i.e.insolvency the probability ( П ) i.e.that the the probability bank’s losses that in the a bank’s losses in a performance; its volatilityperformance; is seen itsa stand volatility- is seen a stand- INDEX certain period exceedcertain the bookperiod value exceed of thethe bookbank’s value equity of or the bank’s equity or ard measure of riskard in measure finance ofand risk the in finance and the Generally speaking, financial theory views the probability thatthe the probability assets value that of the the assets bank value becomes of the bank becomes capitalization level capitalizationrepresents a standardlevel represents a standard lower than the valuelower of its than liabilities. the value of its liabilities. for the banks’ stabilityfor theand banks’ safety. stability and safety. returns as being related to risk. Higher risk needs to be compensated by higher The relationship between The relationship RI and П between is an inverse RI and one, П with is an inverse one, with higher RI-ratios indicatinghigher RI-ratios a lower probabilityindicating a of lower insolvency. probability of insolvency. returns in order to be undertaken by If the assumptionIf is themade assumption that the potentialis made thatROAs the of potential the ROAs of the risk-averse shareholders. Banks face risks, business are normallybusiness distributed, are normally then the distributed, one-period then proba the- one-period proba- bility of insolvencybility can beof calculated insolvency as can a function be calculated of RI as ratio a function of RI ratio such as credit risk, interest rate risk, liquidi- as mentioned below.as However,mentioned empirical below. However, studies indicate empirical that studies indicate that ty risk, exchange rate risk, operational risk, ROAs are not ROAsnormally are distributednot normally but insteaddistributed are but instead are etc. Aside from developing specific indica- “fat-tailed,” so that“fat-tailed,” the actual probabilityso that the ofactual insolvency probability may of insolvency may be greater than thatbe greatercalculated than using that thecalculated assumption using ofthe assumption of tors to measure each of the above risks, a normality. normality. “Risk Index (RI)” can also be created that Moreover, this one-period Moreover, probability this one-period may understate probability the may understate the encompasses all types of risk in a single true probability of trueinsolvency probability because of insolvency it measures because the risk it of measures the risk of
Journal of The Institute of Bankers Pakistan Journal 15 of The Institute of Bankers Pakistan 15 a single-period lossa being single-period so large itloss wipes being so large it wipes Figure 1 . Risk Index and Probability of book value insolvencyFigure 1 . ofRisk Pakistan’s Index and Banking Probability Industry of book over value the period insolvency of 10 of Years Pakistan’s Banking Industry over the period of 10 Years out equity. In reality,out equity.insolvency In reality,often insolvency often occurs after a sequenceoccurs of after smaller a sequence losses of smaller losses occurring over severaloccurring periods over indicating several periods indicating that serial correlationthat betweenserial correlation negative between negative shocks may exist. shocks may exist.
It should be noted It shouldthat a bevalue noted or that a value or interval that servesinterval as benchmark that serves for theas benchmark for the risk index (i.e. forrisk detecting index (i.e.whether for detectinga whether a banking system or bankinga bank is system in a safe or ora bank a is in a safe or a risky position) doesrisky not position) exist instead does its not exist instead its trend behavior is trendanalyzed. behavior Specifically, is analyzed. Specifically, an upward trend anindicates upward a trendfavorable indicates a favorable Table 1. Pakistan’s Banking System’s Risk Index andTable the Probability1. Pakistan’s of book Banking value System’s insolvency Risk Index and the Probability of book value insolvency development whereasdevelopment a downward whereas trend a downward trend signals a negative development.signals a negative development. Year 2004 2005 2006 2007 Year 2008 2020040 9 2020051 0 2020061 1 22000172 22001038 2009
Risk Index 11.89 9.31 9.94 7.86R isk Inde5x.2 7 11.58.94 6 9.351.5 8 9.99.49 3 71.08.66 5 85..5207 5.46 The empirical formThe of empiricalthis index formis: of this index is: Average Risk Average Risk 8.44 8.44 8.44 8.44 8.44 8.484.4 4 8.484.4 4 8.84.4 4 88.4.444 88..4444 8.44 Index Index Book Value Book Value 0.0035 0.0058 0.0051 0.0081 0.0180 0.000.03156 8 0.00.05186 1 0.00.05015 1 00.0.0008414 00..00016890 0.0168 RI = [ E(ROA) + CAPRI = ][ /E(ROA) σROA + CAP ] / σROA Insolvency Insolvency
П = 1 / [ 2 (RI)2 ]П = 1 / [ 2 (RI)2 ] Figure 2 . Risk Index – Local Private Banks Vs PublicFigure Sector 2 Commercial . Risk Index Banks– Local Private Banks Vs Public Sector Commercial Banks
Where: Where: E(ROA) = expected E(ROA)return on = assets expected return on assets CAP = EM-1(InverseCAP of =Equity EM-1(Inverse Multiplier*) of Equity Multiplier*) σROA = Standard deviationσROA = of Standard ROA deviation of ROA П =Probability of bookП =Probability value insolvency of book value insolvency RI, expressed in unitsRI, expressedof standard in unitsdeviations of standard of ROA, deviations is a of ROA, is a measure of how measuremuch a bank’sof how accounting much a bank’searnings accounting can earnings can Globally, this index, Globally, which is this a measure index, which is a measure decline until it has adecline negative until book it has value. a negative Risk Index book attempts value. Risk Index attempts of the soundnessof and the stability soundness of theand stability of the to capture the likelihoodto capture of a the bank's likelihood earnings of ina bank'sa given earnings year in a given year financial institutionsfinancial is becoming institutions more is becoming more becoming low enoughbecoming to exhaust low enoughthe bank's to exhaustcapital basethe bank'sand capital base and important. If a bankimportant. or a banking If a systembank or a banking system thus, the likelihoodthus, of the the bank likelihood becoming of the insolvent. bank becoming Higher insolvent. Higher is characterized byis characterizeda high return by on a high return on values of RI implyvalues lower of insolvencyRI imply lowerrisk because insolvency higher risk because higher assets, a high level assets,of capitalization a high level and of acapitalization and a values correspond valueswith highercorrespond levels withof equity higher relative levels toof aequity relative to a low volatility of ROAlow volatilitythen the ofbank ROA or then the bank or potential shock to potentialthe earnings shock of toa bank.the earnings Thus, banks of a bank.with Thus, banks with 2004 2005 2006 2007 2008 2200049 2020051 0 2020061 1 22000172 2008 2009 the banking systemthe is consideredbanking system safe i.e.is considered safe i.e. Year Year 2013 risky loan portfoliosrisky can loan maintain portfolios a low can risk maintain of insolvency a low asrisk of insolvency as it has a higher risk itindex. has a Ithigher is interesting risk index. It is interesting Local PvT 10.66 7.98 8.96 7.2L0 ocal Pv6T.3 3 106..6363 7.59.83 1 8.99.61 1 79..2809 8.63.33 3 6.33 long as they are adequatelylong as they capitalized. are adequately capitalized. to note that the indexto note includes that theall theseindex includes all these Banks Banks components becausecomponents each of them because has aeach of them has a Public Comm 24.54 37.21 30.67 30.P55u blic Co3m.41m 243.5.649 377.2.318 301.96.73 0 3208..5650 323.9.411 3.69 The index was first The performed index was by first Hannan performed and Hanweck by Hannan and Hanweck special connotation:special ROA connotation: indicator is ROA indicator is Banks Banks (1988), who further(1988), derived who the further probability derived of thethe bookprobability value of the book value regarded as the bestregarded measure as ofthe bank’sbest measure of bank’s insolvency ( П ) i.e.insolvency the probability ( П ) i.e.that the the probability bank’s losses that in the a bank’s losses in a performance; its volatilityperformance; is seen itsa stand volatility- is seen a stand- Figure 3 . Book Value Insolvency – Local Private BanksFigure Vs Public3 . Book Sector Value Commercial Insolvency Banks– Local Private Banks Vs Public Sector Commercial Banks certain period exceedcertain the bookperiod value exceed of thethe bookbank’s value equity of or the bank’s equity or ard measure of riskard in measure finance ofand risk the in finance and the the probability thatthe the probability assets value that of the the assets bank value becomes of the bank becomes capitalization level capitalizationrepresents a standardlevel represents a standard lower than the valuelower of its than liabilities. the value of its liabilities. for the banks’ stabilityfor theand banks’ safety. stability and safety.
The relationship between The relationship RI and П between is an inverse RI and one, П with is an inverse one, with higher RI-ratios indicatinghigher RI-ratios a lower probabilityindicating a of lower insolvency. probability of insolvency. BANKS WITH If the assumptionIf is themade assumption that the potentialis made thatROAs the of potential the ROAs of the business are normallybusiness distributed, are normally then the distributed, one-period then proba the- one-period proba- RISKY LOAN PORT- bility of insolvencybility can beof calculated insolvency as can a function be calculated of RI as ratio a function of RI ratio FOLIOS CAN MAIN- as mentioned below.as However,mentioned empirical below. However, studies indicate empirical that studies indicate that ROAs are not ROAsnormally are distributednot normally but insteaddistributed are but instead are TAIN A LOW RISK “fat-tailed,” so that“fat-tailed,” the actual probabilityso that the ofactual insolvency probability may of insolvency may OF INSOLVENCY be greater than thatbe greatercalculated than using that thecalculated assumption using ofthe assumption of Year 2004 2005 2006 2007 Ye2a0r 08 20049 2200150 2200161 2200172 200138 2009 AS LONG AS THEY 0.0072 normality. normality. Local PvT 0.00440 0.00785 0.00623 0.0096L4o cal 0 .P01v2T4 9 00..0001424409 00.0.01778752 00.0.00662033 00.0.00956141 0.01249 0.01249 Banks Banks 1 ARE ADEQUATELY 0.0004 0.00083 0.00036 0.00053 0.00054 0.04311 00..0003068635 00.0.0093168 00.0.001534 00.0.0005641 0.04311 0.03665 Moreover, this one-period Moreover, probability this one-period may understate probability the may understate the Public Comm Public Comm 6 true probability of trueinsolvency probability because of insolvency it measures because the risk it of measures the risk of CAPITALIZED” Banks Banks
16 Journal of The Institute of Bankers Pakistan16 Journal of The Institute of Bankers Pakistan Figure 4 . Components of Risk Index – Pakistan’s Banking Industry. During recent years, Pakistan’s Bank- ing System has been characterized by a fast expansion of its activity as is evident by the increase in total assets, the expan- sion of the loan portfolio, deposit collec- tion, the variety of products and services provided, the increased competition, the onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the earnings after taxes and by other quanti- past has signi cantly from credit card to car purchasing in overall economy remained under pressure tative and qualitative Indicators. Howev- contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of er, in 2008, when the global economy was turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. overcome by the financial crisis, the accelerating consumption consumer nancing declined by Rs 50 banking system started to show signs of and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic a slowdown and deterioration in financial phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated indicators (RI). tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer Table 2 . The components of Risk Index for Pakistan’s Banking System Figure 1 shows that the banking indus- Rs 294 billion in 2008-09. nancing. e Expected Economic try enjoyed relatively high Risk index in Consumer nancing was introduced Conditions Index went up three consecu-
Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 the year 2004 and remained above the for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and industry average (8.4) till 2006 . However, Average ROA 1.24% 1.97% 2.17% 1.60% 0.86% 0.88% 0.97% 1.42% 1.30% 1.11% by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer- from the year 2007, it started declining Standard 0.59% 0.94% 1.11% 1.42% 1.94% 1.86% 1.75% 1.03% 0.87% 1.07% instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks Deviation (ROA) and reached as low as 5.27 (2008) and Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and CAP 5.83% 6.82% 8.82% 9.57% 9.38% 9.29% 8.78% 8.78% 7.96% 7.96% (Right Axis) remained below the industry average till other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant 2010 due to high volatility in the ROA e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit Figure 5 . Risk Index for Top 5 Banks resulting in high probability of book schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. value insolvency. The industry showed started availing them without knowing However, from 2012, there was some progress from year 2011 onwards with their negative e ects . improvement. Banks restarted to make Signi cant growth was witnessed in stable earnings and accepted E(ROA). new loan packages, realizing that years of consumer loans during July-March 2013-14 Pakistan's banking sector in the no or low activity in this area was a ecting as it increased to 9.8 percent against 4.2 Furthermore, on the basis of the past years has productively engaged itself the growth of their interest income. percent registered in the same period of results in table 3, banks have been classi- in consumer nancing by introducing fied into three categories (Near to di erent products such as credit cards, Default , Risky and Watch-List) due to auto loans, housing nance and personal their low & declining trend in RI value. loans etc. e robust growth of consumer nancing in the previous years in the rst Fig. 2 & 3 compares the Risk Index and place was ascribed to the exible econom- Probability of Book value insolvency for ic policies set according to the principles Figure 6 . Probability-Book value Insolvency , for Top 5 Banks local private banks and Public sector of free market economy and huge liquidi- commercial banks. From the fig. & table, ty available to the banks in the aermath we can observe that RI obtained for of 9/11. Public sector banks are much higher than e data showed that even well-advertised nancial year 2012-13. Consumer nanc- that obtained for Private sector banks Earlier, banks played their strategic credit card business also fell signi cantly. ing started gaining strength since Novem- indicating that Public sector banks are role in promoting economic development e loans under the credit card declined ber 2012 and continued its upward trend safer as compared to Private banks and in the country. In the last twenty years, to Rs28 billion from Rs35 billion the during July- March, 2013-14. Consumer the probability of book value insolvency three eminent foreign banks took the lead previous year. e pro table credit card durables registered a dramatic growth of is lower. in introducing credit cards in the banking business, which has great in uence in 88.2 percent in credit expansion followed sector. But unfortunately, this was limited developed and developing economies, by 17.8 percent growth in auto and 13.9 Also, Fig. 5 & 6 compares the RI and to top bureaucrats and businessmen. Later failed to get substantial headway in the percent in personal loans. It is appropriate PBVI of the Top 5 banks of the Indus- on, the task of consumer nancing was domestic market. to mention here that increased growth in try. Risk Index for UBL remained the triumphantly taken by top Pakistani auto nance is largely owing to the auto NEAR TO DEFAULT RISKY WATCH-LIST highest since 2009 among the peers, banks. ey provided the facilities of Car purchasing was the second highest nance facility actively marketed by SILK Bank Al-Barka Bank BURJ Bank followed by HBL. ABL & MCB consumer nancing to both the middle attraction for the consumers but the leading Islamic banks. outstanding loans in this particular sector KASB Bank Askari Bank Faysal Bank remained toe to toe in the last 5 years. class and the higher salaried class. ey NBP stood 3rd from 2009 till 2012 and showed an abrupt fall during the last In making personal loans, most banks SUMMIT Bank JS Bank SAMBA Bank also contributed in augmenting the stand- later lost its competitiveness in the year ard of living of the middle class, which is couple of years. e outstanding loans for judge the credit worthiness of borrowers BoP Dubai Islamic Bank First Women Bank Ltd. 2013 where it had the lowest RI among the back bone of any economy. car purchasing fell to Rs64 billion till June by their monthly income levels and set NIB Bank the TOP 5 banks. 30, 2010. e same was Rs 78 billion in ceilings accordingly. Sometime back, the Aggressive marketing continued at an 2009 and Rs105 billion in 2008. Loans NBP introduced its ‘Cash n Gold’ accelerating pace. Consumer nance was for house building under the consumer scheme, which o ered up to Rs35, 000 in encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of to boost the economic growth through Rs 61 billion the previous year. In the net contents of gold (in the form of demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate Journal of The Institute of Bankers Pakistan Journal 17 of The Institute of Bankers Pakistan 17 private sector performed much below the under the scheme was also a bit lower than
the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down meeting by 100 bps to 8.5 percent in and continues to recede, can induce Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- April 2013 also made an impact on tion. us, the recent reduction in domes- consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. overdra facility for HBL account major macroeconomic indicators have holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to follow a downward trend with some the xed and deprived sections of the e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently increase in policy interest rate by the SBP help to boost business activities and amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the Pakistan averaged 12.48 percent from people who are working in private compa- 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no of 20 percent in October of 1996 and a the recent drop in international oil price security. record low of 7.50 percent in November has induced low in ation and improved
1 2 2 9 8 4 2 7 2 7 7 2 8 1 8 8 9 7 3 9 6 8 7 9 4
4 6 2 9 9 9 4 9 1 3 3 4 5 3 3 3 8 9 0 1 1 9 0 4 0 4 7 3 2 6 7 5 4 2 9 1 6 0 2 6 2 4 7 2 1 4 1 0 3 4 1 3 7 1 2 2 4 1 1 1 7 3 1 4 3 8 8 3 6 9 0 2 4 5 1 8 5 1 7 0 1 3 6 4 3 5 7 9 8 9 1 5 9 8 9 9 6 4 5 4 5 2 9 4 3 . 0 2 5 8 8 1 ...... 2 . 2 9 0 5 0 0 0 . 0 8 3 4 1 2 2 . . 4 . . 4 3 . . . 5 2 8 3 7 7 0 . 3 3 . . . . 0 9 1 3 3 2 6 6 2 3 5 3 6 1 1 3 1 1 1 2 8 1 4 - 4 2 0 1
onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the
past has signi cantly from credit card to car purchasing in overall economy remained under pressure 6 9 7 2 7 8 7 3 8 3 1 1 4 1 9 8 1 5 4 7 6 3
8 2 9 2 5 8 5 1 3 3 3 2 6 1 0 5 2 6 8 5 3 0 2 5 9 9 6 3 2 3 6 1 contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of 8 5 8 7 8 8 7 1 8 2 8 5 6 2 2 7 9 8 6 8 2 7 6 3 0 8 2 1 7 9 5 2 9 1 2 6 5 6 3 0 3 7 5 6 3 8 5 7 3 1 9 . 4 2 8 6 turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. 0 9 1 4 2 5 4 5 8 4 8 2 2 1 . 8 9 7 7 . 0 8 0 5 7 ...... 9 1 0 0 6 6 7 7 5 6 . 6 0 . 0 6 2 9 2 . . 1 . . 3 2 . . . 4 2 8 5 5 7 0 8 1 . . . . 9 1 3 accelerating consumption consumer nancing declined by Rs 50 5 4 4 2 7 6 2 3 6 2 5 1 1 3 1 1 1 1 1 0 1 0 0
and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated
6 6 5 7 4 tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- 2 7 6 1 5 4 1 8 7 5 2 3 9 8 3 4 5 5 5 5 7
8 5 8 8 9 3 5 0 6 0 0 0 6 6 2 0 1 0 5 3 8 0 5 2 8 2 1 1 6 7 9 7 6 5 8 4 3 3 4 6 8 7 8 7 1 6 3 9 7 2 6 6 4 from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer 1
6 3 7 2 9 5 7 9 3 7 5 5 9 6 5 6 5 6 4 1 8 8 9 7 2 7 5 7 7 9 2 7 8 1 3 8 8 7 9 4 2 7 6 7 1 7 9 0 0 0 4 0 5 Rs 294 billion in 2008-09. nancing. e Expected Economic ...... 1 3 8 5 9 1 6 5 1 0 7 2 . . 9 0 2 . 5 1 . 5 . . 4 2 9 5 5 7 1 2 2 . . . . . Consumer nancing was introduced Conditions Index went up three consecu- 4 4 1 1 1 6 2 3 8 1 2 6 1 1 3 1 1 1 2 1 2 5 0 1 1 1
for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer-
1 7 5 4 8 1 3 7 2 1 1 9 1 7 3 3 8 3 1 7 4 1 8 6 4 instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks
7 2 9 5 4 2 4 9 7 6 6 1 2 3 5 2 1 8 4 0 9 0 5 6 7 4 0 9 9 9 6 9 8 8 0 9 8 6 5 3 7 7 1 3 2 3 9 3 0 9 5 0 6 Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and 1 1
9 2 7 6 0 6 3 0 5 5 2 0 4 8 4 9 6 1 6 8 1 7 8 3 2 7 . 6 2 2 4 5 6 9 7 7 7 7 7 9 1 9 6 6 7 7 3 0 9 9 9 3 5 ...... other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant 0 3 3 2 1 5 4 9 5 6 0 2 3 2 . . 9 6 2 . 5 . 4 . . 3 1 0 1 4 6 3 . 3 . . . . . 3 5 4 1 1 1 7 2 9 1 2 6 1 1 4 1 1 1 2 9 2 e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit 6 0 1 1 0
schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. started availing them without knowing However, from 2012, there was some
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Table 3. Risk Index of Individual Banks 3. Table accelerating pace. Consumer nance was for house building under the consumer scheme, which o ered up to Rs35, 000 in encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of to boost the economic growth through Rs 61 billion the previous year. In the net contents of gold (in the form of demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate 18 Journal of The Institute of Bankers Pakistan private sector performed much below the under the scheme was also a bit lower than
the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down meeting by 100 bps to 8.5 percent in and continues to recede, can induce Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- April 2013 also made an impact on tion. us, the recent reduction in domes- consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. overdra facility for HBL account major macroeconomic indicators have holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to follow a downward trend with some the xed and deprived sections of the e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently increase in policy interest rate by the SBP help to boost business activities and amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the Pakistan averaged 12.48 percent from people who are working in private compa- 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no of 20 percent in October of 1996 and a the recent drop in international oil price security. record low of 7.50 percent in November has induced low in ation and improved onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the past has signi cantly from credit card to car purchasing in overall economy remained under pressure contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. accelerating consumption consumer nancing declined by Rs 50 and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer Rs 294 billion in 2008-09. nancing. e Expected Economic Consumer nancing was introduced Conditions Index went up three consecu- for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer- instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. started availing them without knowing However, from 2012, there was some their negative e ects . improvement. Banks restarted to make Signi cant growth was witnessed in new loan packages, realizing that years of consumer loans during July-March 2013-14 Pakistan's banking sector in the no or low activity in this area was a ecting as it increased to 9.8 percent against 4.2 past years has productively engaged itself the growth of their interest income. percent registered in the same period of in consumer nancing by introducing di erent products such as credit cards, auto loans, housing nance and personal loans etc. e robust growth of consumer nancing in the previous years in the rst place was ascribed to the exible econom- ic policies set according to the principles of free market economy and huge liquidi- ty available to the banks in the aermath of 9/11. e data showed that even well-advertised nancial year 2012-13. Consumer nanc- Earlier, banks played their strategic credit card business also fell signi cantly. ing started gaining strength since Novem- role in promoting economic development e loans under the credit card declined ber 2012 and continued its upward trend in the country. In the last twenty years, to Rs28 billion from Rs35 billion the during July- March, 2013-14. Consumer three eminent foreign banks took the lead previous year. e pro table credit card durables registered a dramatic growth of in introducing credit cards in the banking business, which has great in uence in 88.2 percent in credit expansion followed sector. But unfortunately, this was limited developed and developing economies, by 17.8 percent growth in auto and 13.9 to top bureaucrats and businessmen. Later failed to get substantial headway in the percent in personal loans. It is appropriate on, the task of consumer nancing was domestic market. to mention here that increased growth in triumphantly taken by top Pakistani auto nance is largely owing to the auto banks. ey provided the facilities of Car purchasing was the second highest nance facility actively marketed by consumer nancing to both the middle attraction for the consumers but the leading Islamic banks. class and the higher salaried class. ey outstanding loans in this particular sector also contributed in augmenting the stand- showed an abrupt fall during the last In making personal loans, most banks ard of living of the middle class, which is couple of years. e outstanding loans for judge the credit worthiness of borrowers the back bone of any economy. car purchasing fell to Rs64 billion till June by their monthly income levels and set 30, 2010. e same was Rs 78 billion in ceilings accordingly. Sometime back, the Aggressive marketing continued at an 2009 and Rs105 billion in 2008. Loans NBP introduced its ‘Cash n Gold’ accelerating pace. Consumer nance was for house building under the consumer scheme, which o ered up to Rs35, 000 in encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of to boost the economic growth through Rs 61 billion the previous year. In the net contents of gold (in the form of demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate private sector performed much below the under the scheme was also a bit lower than
the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down meeting by 100 bps to 8.5 percent in and continues to recede, can induce Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- April 2013 also made an impact on tion. us, the recent reduction in domes- consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. overdra facility for HBL account major macroeconomic indicators have holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to follow a downward trend with some the xed and deprived sections of the e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently increase in policy interest rate by the SBP help to boost business activities and amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the Pakistan averaged 12.48 percent from people who are working in private compa- 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no of 20 percent in October of 1996 and a the recent drop in international oil price security. record low of 7.50 percent in November has induced low in ation and improved BANKING BANKING Surviving partners may be asked to openSurviving partners may be asked to open The memorandum and articles of The memorandum and articles of fresh account with fresh mandate.fresh account with fresh mandate. association should be thoroughly studiedassociation should be thoroughly studied Further, fresh documents should Further,be fresh documents should be and their extracts relating to the vitaland their extracts relating to the vital executed by the surviving partners andexecuted by the surviving partners and rules, regulations and powers rules,of regulations and powers of fresh personal guarantee and fresh letterfresh personal guarantee and fresh letter directors as regards to borrowing, attachdirectors- as regards to borrowing, attach- of pledge of shares should also ofbe pledge of shares should also be ing assets of the company, drawing,ing assets of the company, drawing, obtained. obtained.(d) (d) accepting and endorsing bills acceptingof and endorsing bills of exchange and promissory notes exchangeon and promissory notes on onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the Q.3 There is a firm ABC & Co. withQ.3 There is a firm ABC & Co. with behalf of the company and otherbehalf of the company and other past has signi cantly from credit card to car purchasing in overall economy remained under pressure A, B, and C as partners withA, a B, and C as partners with a relevant provisions of these documents,relevant provisions of these documents, contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of mandate authorizing any one mandateof (e) authorizing any one of (e) be drawn and kept on active file tobe be drawn and kept on active file to be turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. them to sign singly. In the meanthem to sign singly. In the mean meticulously followed in all transactionsmeticulously followed in all transactions accelerating consumption consumer nancing declined by Rs 50 time, B retires from partnership andtime, B retires from partnership and of the company. of the company. and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic his authority to sign is revoked.his authority to sign is revoked. phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- Later, a cheque signed by B beforeLater, (2)a chequeCertified signedtrue copy by ofB thebefore Articles (2) of Certified true copy of the Articles of Q.5 A joint stock company declaresQ.5 A joint stock company declares from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer his retirement is presented. How willhis retirementAssociation: is presented.It contains How the willrules andAssociation: It contains the rules and profit and issues dividends for profitits and issues dividends for its Rs 294 billion in 2008-09. nancing. e Expected Economic the bank deal with such a situation?the bankregulations deal with of thesuch company a situation? to carry regulationsout of the company to carry out ? ? shareholders. The entire amount shareholders.of The entire amount of Consumer nancing was introduced Conditions Index went up three consecu- its activities to achieve the objectits as activities to achieve the object as ? ? dividends is deposited with the maindividends is deposited with the main for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and Ans. Ordinarily, the cheque should Ans.be Ordinarily,stipulated thein thecheque object should clause. be If stipulatedany in the object clause. If any branch of the bank in a specialbranch of the bank in a special by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer- returned unpaid under this situation.returned amendments unpaid under were madethis situation. to it, the latestamendments were made to it, the latest dividend account opened for dividendthe account opened for the instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks However, a conscientious banker wouldHowever, and aduly conscientious amended copy banker may would be obtained. and duly amended copy may be obtained. purpose. The dividend warrantspurpose. The dividend warrants Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and prefer to contact the existing partnersprefer Into casecontact the companythe existing has partnersnot constituted In case the company has not constituted issued by the company are payableissued at by the company are payable at other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant before returning the cheque. If any beforeof itsreturning own articles the cheque. of association, If any of it mayits own articles of association, it may any branch of the bank at whichany branch of the bank at which e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit the existing partners validates the existingadopt Table partners A. validates the adopt Table A. these are presented for payment. Thethese are presented for payment. The schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. cheque, it will be duly paid, failing which,cheque, it will be duly paid, failing which, paying branch will pay a warrantpaying to branch will pay a warrant to the cheque will be returned. the cheque(3) Certificatewill be returned. of Incor poration: This is (3)the Certificate of Incorporation: This is the started availing them without knowing However, from 2012, there was some ‘birth certificate’ of the company. That‘birth certificate’the debit ofof theits company.main branch That wherethe debit of its main branch where their negative e ects . improvement. Banks restarted to make Signi cant growth was witnessed in company’s dividend account company’sis dividend account is If the account has debit balance, it If theis, company’saccount has legal debit existence balance, begins it onlyis, company’s legal existence begins only new loan packages, realizing that years of consumer loans during July-March 2013-14 after this certificate is issued. Theafter thisopened. certificate The debitis issued. advice The of opened.the The debit advice of the Pakistan's banking sector in the no or low activity in this area was a ecting as it increased to 9.8 percent against 4.2 should be broken to avoid applicationshould of be broken to avoid application of paying branch will be responded payingby branch will be responded by rules in Clayton Case. Moreover, if therules inoriginal Clayton certificate Case. Moreover, should beif thecalled originalfor certificate should be called for past years has productively engaged itself the growth of their interest income. percent registered in the same period of along with a photocopy. The copy mayalong withthe maina photocopy. branch The to thecopy debit may of the main branch to the debit of the in consumer nancing by introducing bank decides to allow the account bankto decides to allow the account to company’s dividend account. company’s dividend account. continue with the remaining partnerscontinue be attestedwith the and remaining kept on recordpartners while bethe attested and kept on record while the di erent products such as credit cards, PROBLEMS & SOLUTIONSPROBLEMS & SOLUTIONS with the credit facilities already extendedwith theoriginal credit mayfacilities be returned. already extended original may be returned. auto loans, housing nance and personal (i) Before all the dividend warrants (i) Before all the dividend warrants loans etc. e robust growth of consumer By Dr. S. Sabir A. Jaffery By Dr. S. Sabir A. Jaffery in the account, fresh documents shouldin the (4)account, Certificate fresh of documents Commencement should of B usiness:(4) Certificateare paid of Commencementthe company o fgoes Business: into liquiare- paid the company goes into liqui- be obtained of a new account availingbe obtained of a new account availing nancing in the previous years in the rst This is invariably required from a newlyThis is dation.invariably and required a receiver from ais newly appointed. dation. and a receiver is appointed. place was ascribed to the exible econom- the previously sanctioned facilities. the previouslyincorporated sanctioned company. facilities. A companyincorporated Will thecompany. bank payA companythe dividend Will the bank pay the dividend The writer has given detailed answersThe writer to some has givenproblems detailed which answers bankers to face some in problemstheir professional which bankers lives. face in their professional lives. ic policies set according to the principles already in operation need not be askedalready warrantsin operation after need appointment not be asked of warrantsthe after appointment of the of free market economy and huge liquidi- Q.4 What documents should Q.4I Whatfor this documents certificate. A certifiedshould copyI offor it this receiver?certificate. A certified copy of it receiver? require to open an account ofrequire a to open an account of a ty available to the banks in the aermath may be kept on record and the originalmay be kept on record and the original of 9/11. public limited company? (limited publicby be limited returned company? after examination. (limited by be returned (ii) after An outstationexamination. branch pays the (ii) An outstation branch pays the e data showed that even well-advertised nancial year 2012-13. Consumer nanc- shares). What is the utility of theseshares). What is the utility of these dividend but before the advice reachdividend- but before the advice reach- credit card business also fell signi cantly. ing started gaining strength since Novem- Q.1 Rashid and Nasir are partnersQ.1 in Rashidof a andbank Nasir officer are who partners will verifyin theof a banklandlord officer of who very will good verify means. the Howlandlord of very good means. How (5) If the company is in operation (5)for If the company is in operation for Earlier, banks played their strategic documents? documents? es the main branch, the receiveres is the main branch, the receiver is e loans under the credit card declined ber 2012 and continued its upward trend Jaffar Sons. They want to openJaffar a writing.Sons. They want to open a writing.will this account be dealt with willto this account be dealt with to some time, then a copy of the latestsome time, then a copy of the latest role in promoting economic development appointed. Will the advice appointed.be Will the advice be to Rs28 billion from Rs35 billion the during July- March, 2013-14. Consumer current account at my branch withcurrent account at my branch with secure bank’s interest? secure bank’s interest? audited balance sheet and profit and lossaudited balance sheet and profit and loss in the country. In the last twenty years, Ans. You will need the followingAns. You will need the following responded by main branch by debitresponded- by main branch by debit- previous year. e pro table credit card durables registered a dramatic growth of either to operate upon the accounteither Q.2to operate Hamid, upon Zahid, the andaccount Sajid areQ.2 Hamid, Zahid, and Sajid are account should be obtained and keptaccount on should be obtained and kept on three eminent foreign banks took the lead documents invariably to open thedocuments invariably to open the ing the company/s dividending the company/s dividend business, which has great in uence in 88.2 percent in credit expansion followed singly. They have signed the firm’ssingly. partnersThey have of signedm/s Khalid the firm’s Sons. Thepartners Ans. of (i)m/s The Khalid cheque inSons. question The will notAns. (i) The cheque in question accountwill not of a joint stock company: accountrecord. of a joint stock company: record. in introducing credit cards in the banking name instead of their own names nameon insteadfirm has of theira current own names account on withfirm hasbe paida currentas the mandateaccount to withoperate thebe paid as the mandate to operate the account? account? sector. But unfortunately, this was limited developed and developing economies, by 17.8 percent growth in auto and 13.9 (6) A certified copy of the resolution(6) of A certified copy of the resolution of failed to get substantial headway in the percent in personal loans. It is appropriate the account opening form and specithe- accountinstructions opening to form be operated and speci upon- instructionsby account to was be operateddetermined upon with bythe deathaccount was determined with the(1) death Certified true copy of the Memo(1)- Certified true copy of the Memo- to top bureaucrats and businessmen. Later the board of directors appointing yourthe board of directors appointing your domestic market. to mention here that increased growth in men signature card in their respecmen- signatureany of themcard insingly. their respecZahid -passesany ofof them one singly.of the Zahid partners. passes Surviving of one of the partners. Survivingrandum of Association of the company:randum of Association of the company: Ans (i) The bank will not pay Ansany (i) The bank will not pay any on, the task of consumer nancing was bank as banker of the company and bankthe as banker of the company and the auto nance is largely owing to the auto tive handwritings. Shall I accept thistive handwritings.away. Later, Shall a chequeI accept signedthis away.by partnersLater, amay cheque be asked signed to openby freshpartners may be asked to openIt isfresh the constitution of the companyIt It is the constitution of the company It dividend warrant after appointment dividendof warrant after appointment of triumphantly taken by top Pakistani mode of operation on the account. mode of operation on the account. Car purchasing was the second highest nance facility actively marketed by mode of operation? mode ofZahid operation? is presented who at the timeZahid accountis presented with freshwho atmandate. the time However, account with fresh mandate. However,prescribes the limit within which theprescribes the limit within which the the receiver. The entire balance lyingthe in receiver. The entire balance lying in banks. ey provided the facilities of the existing account, presumably thein existing account, presumably in the company’s dividend account willthe be company’s dividend account will be attraction for the consumers but the leading Islamic banks. of signing the cheque was dulyof signing the cheque was duly company has to operate. It contains thecompany (7) hasA tolist operate. of directors It contains incorporating the (7) A list of directors incorporating consumer nancing to both the middle credit balance, may be allowed to contincredit- balance, may be allowed to contin- placed at the disposal of the receiver. placed at the disposal of the receiver. outstanding loans in this particular sector Ans. Signing the firm’s name instead Ans.of Signingauthorised the firm’s to sign. name The instead cheque of isauthorised in to sign. The cheque is in following vital information about thefollowing their vital names information and addresses. about theThis theirlist names and addresses. This list class and the higher salaried class. ey ue for a while to help the firm to windue for a while to help the firm to wind showed an abrupt fall during the last In making personal loans, most banks partner’s own name is in order but it haspartner’s order own inname all respects.is in order Willbut itthe has cheque order in all respects. Will the cheque company: company:should be updated whenever there is shouldany be updated whenever there is any also contributed in augmenting the stand- its own hazards. This is why the practiceits own behazards. paid? This is why the practice be paid?up its business, if so requested by theup its business, if so requested by the (ii) Since the amount has already been (ii) Since the amount has already been ard of living of the middle class, which is couple of years. e outstanding loans for judge the credit worthiness of borrowers change in it. change in it. car purchasing fell to Rs64 billion till June by their monthly income levels and set could not get recognition in India andcould not get recognition in India and surviving partners. surviving partners. (a) (a) paid by the bank (any branch will paidbe by the bank (any branch will be the back bone of any economy. Pakistan. In my long banking career,Pakistan. I ZahidIn my longwas bankingalso acareer, partner I inZahid was also a partner in (8) Account opening form signed by(8) all Accounttreated ope as ningbank), form the signedbank byby exercisingall treated as bank), the bank by exercising 30, 2010. e same was Rs 78 billion in ceilings accordingly. Sometime back, the have seen only one case when firm’shave seenSiddiqui only Bros.one case This when firm firm’shas an O.D.Siddiqui (ii) Bros. Any Thisfuture firm credit has in anthe O.D. account will(ii) Any future credit in the account will the directors and the specimen signaturesthe directorsits right and of the setoff specimen will have signatures the authority its right of setoff will have the authority Aggressive marketing continued at an 2009 and Rs105 billion in 2008. Loans NBP introduced its ‘Cash n Gold’ name was being signed. You may accedename wasaccount being signed.with YouDr. may balance accede Rs.account reduce with to thatDr. extent balance the liability Rs. of thereduce to that extent the liability(b of) the (b) card(s) duly signed by those who card(s)are toduly debit signed company’s by those account. who are to debit company’s account. accelerating pace. Consumer nance was for house building under the consumer scheme, which o ered up to Rs35, 000 in to their request but then you will tobe their375,000/- request butagainst then youthe willsecurity be 375,000/-of deceased against partner the and security he will notof be helddeceased partner and he will not be held authorised to operate the accountauthorised as nd strongto operate regulator, the accountsupports as highernd strong regulator, supports higher encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of exposed to great risk. As an alternative,exposed approved to great risk.shares As inan the alternative, name of Mrs.approved liable shares for any in thefresh name withdrawals, of Mrs. whichliable for any fresh withdrawals,(c) which (c) stipulated in the board’s resolution withstipulated ratings in the of board’s the sectorresolution in withthe ratingratings of the sector in the rating to boost the economic growth through Rs 61 billion the previous year. In the net contents of gold (in the form of you may impose a condition thatyou mayTayyaba impose Zahid a condition and the thatpersonal Tayyaba will Zahidbe treated and as thenew debt.personal Hence, thewill be treated as new debt. Hence, the their signatures attested by the chairmantheir signaturesuniverse. attested This trendby the chairmanis expected universe.to This trend is expected to demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate cheques will be signed in the presencecheques guarantee will be signed of Lalin the Chand, presence a localguarantee account of shouldLal Chand, be broken a local forthwith. account should be broken forthwith. / secretary of the company. / secretarycontinue of the in company. the future. continue in the future. private sector performed much below the under the scheme was also a bit lower than
2020 JournalJournal of of TheThe Institute Institute of of Bankers Bankers Pakistan Pakistan2020 JournalJournal of of TheThe Institute Institute of of Bankers Bankers Pakistan Pakistan
the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down meeting by 100 bps to 8.5 percent in and continues to recede, can induce Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- April 2013 also made an impact on tion. us, the recent reduction in domes- consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. overdra facility for HBL account major macroeconomic indicators have holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to follow a downward trend with some the xed and deprived sections of the e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently increase in policy interest rate by the SBP help to boost business activities and amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the Pakistan averaged 12.48 percent from people who are working in private compa- 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no of 20 percent in October of 1996 and a the recent drop in international oil price security. record low of 7.50 percent in November has induced low in ation and improved Surviving partners may be asked to openSurviving partnersbe drafted may be with asked dueto open diligence be Thedrafted memorandum with due anddiligence articles of The memorandum and articles of fresh account with fresh mandate.fresh accountpreferably with withfresh themandate. assistance of preferablyassociation with should the beassistance thoroughly of studiedassociation should be thoroughly studied Further, fresh documents should Further,be freshsome documents professionals. should Any be activity someand theirprofessionals. extracts relatingAny activity to the vitaland their extracts relating to the vital executed by the surviving partners andexecuted bythat the fallssurviving beyond partners the limits and drawn thatrules, falls beyondregulations the limitsand drawnpowers rules,of regulations and powers of fresh personal guarantee and fresh letterfresh personalby thisguarantee clause andshall fresh be ultra letter vires and bydirectors this clause as shallregards be ultrato borrowing, vires and attachdirectors- as regards to borrowing, attach- of pledge of shares should also ofbe pledge absolutelyof shares void should and illegal.also be absolutelying assets void of and the illegal. company, drawing,ing assets of the company, drawing, obtained. obtained.(d) A clause stating that the liability(d) of A acceptingclause stating and that endorsingthe liability ofbills acceptingof and endorsing bills of exchange and promissory notes exchangeon and promissory notes on onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the its members shall be limited to the its members shall be limited to the past has signi cantly from credit card to car purchasing in overall economy remained under pressure Q.3 There is a firm ABC & Co. withQ.3 There amountis a firm of ABC the shares & Co. held with by them. amountbehalf of of the theshares company held by them.and otherbehalf of the company and other A, B, and C as partners withA, a B, and C as partners with a relevant provisions of these documents,relevant provisions of these documents, contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of mandate authorizing any one mandateof (e) authorizingAmount of authorizedany one capitalof an(e)d Amountbe drawn of andauthorized kept on capital active an filed tobe be drawn and kept on active file to be turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. them to sign singly. In the meanthem to signits split singly. into numberIn the of mean shares, with itsmeticulously split into number followed of shares, in all transactionswith meticulously followed in all transactions accelerating consumption consumer nancing declined by Rs 50 time, B retires from partnership andtime, B retiresface fromvalue partnershipof each share, and shall be faceof valuethe company. of each share, shall be of the company. and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic his authority to sign is revoked.his authoritydeclared to insign unequivocal is revoked. terms. declared in unequivocal terms. phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- Later, a cheque signed by B beforeLater, (2)a chequeCertified signedtrue copy by ofB thebefore Articles (2) of Certified true copy of the Articles of Q.5 A joint stock company declaresQ.5 A joint stock company declares from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer his retirement is presented. How willhis retirementAssociation: is presented.It contains How the willrules andAssociation: It contains the rules and profit and issues dividends for profitits and issues dividends for its Rs 294 billion in 2008-09. nancing. e Expected Economic the bank deal with such a situation?the bankregulations deal with of thesuch company a situation? to carry regulationsout of the company to carry out shareholders. The entire amount shareholders.of The entire amount of Consumer nancing was introduced Conditions Index went up three consecu- its activities to achieve the objectits as activities to achieve the object as dividends is deposited with the maindividends is deposited with the main for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and Ans. Ordinarily, the cheque should Ans.be Ordinarily,stipulated thein thecheque object should clause. be If stipulatedany in the object clause. If any branch of the bank in a specialbranch of the bank in a special by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer- returned unpaid under this situation.returned amendments unpaid under were madethis situation. to it, the latestamendments were made to it, the latest dividend account opened for dividendthe account opened for the instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks However, a conscientious banker wouldHowever, and aduly conscientious amended copy banker may would be obtained. and duly amended copy may be obtained. purpose. The dividend warrantspurpose. The dividend warrants Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and prefer to contact the existing partnersprefer Into casecontact the companythe existing has partnersnot constituted In case the company has not constituted issued by the company are payableissued at by the company are payable at other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant before returning the cheque. If any beforeof itsreturning own articles the cheque. of association, If any of it mayits own articles of association, it may any branch of the bank at whichany branch of the bank at which e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit the existing partners validates the existingadopt Table partners A. validates the adopt Table A. these are presented for payment. Thethese are presented for payment. The schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. cheque, it will be duly paid, failing which,cheque, it will be duly paid, failing which, paying branch will pay a warrantpaying to branch will pay a warrant to the cheque will be returned. the cheque(3) Certificatewill be returned. of Incor poration: This is (3)the Certificate of Incorporation: This is the started availing them without knowing However, from 2012, there was some ‘birth certificate’ of the company. That‘birth certificate’the debit ofof theits company.main branch That wherethe debit of its main branch where their negative e ects . improvement. Banks restarted to make Signi cant growth was witnessed in company’s dividend account company’sis dividend account is If the account has debit balance, it If theis, company’saccount has legal debit existence balance, begins it onlyis, company’s legal existence begins only new loan packages, realizing that years of consumer loans during July-March 2013-14 after this certificate is issued. Theafter thisopened. certificate The debitis issued. advice The of opened.the The debit advice of the Pakistan's banking sector in the no or low activity in this area was a ecting as it increased to 9.8 percent against 4.2 should be broken to avoid applicationshould of be broken to avoid application of paying branch will be responded payingby branch will be responded by rules in Clayton Case. Moreover, if therules inoriginal Clayton certificate Case. Moreover, should beif thecalled originalfor certificate should be called for past years has productively engaged itself the growth of their interest income. percent registered in the same period of along with a photocopy. The copy mayalong withthe maina photocopy. branch The to thecopy debit may of the main branch to the debit of the in consumer nancing by introducing bank decides to allow the account bankto decides to allow the account to company’s dividend account. company’s dividend account. continue with the remaining partnerscontinue be attestedwith the and remaining kept on recordpartners while bethe attested and kept on record while the di erent products such as credit cards, original may be returned. original may be returned. auto loans, housing nance and personal with the credit facilities already extendedwith the credit facilities already extended (i) Before all the dividend warrants (i) Before all the dividend warrants in the account, fresh documents shouldin the account, fresh documents should loans etc. e robust growth of consumer (4) Certificate of Commencement of Business:(4) Certificateare paid of Commencementthe company o fgoes Business: into liquiare- paid the company goes into liqui- nancing in the previous years in the rst be obtained of a new account availingbe obtainedThis is of invariably a new accountrequired availing from a newlyThis is dation.invariably and required a receiver from ais newly appointed. dation. and a receiver is appointed. the previously sanctioned facilities. the previously sanctioned facilities. place was ascribed to the exible econom- incorporated company. A companyincorporated Will thecompany. bank payA companythe dividend Will the bank pay the dividend ic policies set according to the principles already in operation need not be askedalready warrantsin operation after need appointment not be asked of warrantsthe after appointment of the of free market economy and huge liquidi- Q.4 What documents should Q.4I Whatfor this documents certificate. A certifiedshould copyI offor it this receiver?certificate. A certified copy of it receiver? require to open an account ofrequire a to open an account of a ty available to the banks in the aermath may be kept on record and the originalmay be kept on record and the original of 9/11. public limited company? (limited publicby be limited returned company? after examination. (limited by be returned (ii) after An outstationexamination. branch pays the (ii) An outstation branch pays the e data showed that even well-advertised nancial year 2012-13. Consumer nanc- shares). What is the utility of theseshares). What is the utility of these dividend but before the advice reachdividend- but before the advice reach- credit card business also fell signi cantly. ing started gaining strength since Novem- Q.1 Rashid and Nasir are partnersQ.1 in Rashidof a andbank Nasir officer are who partners will verifyin theof a banklandlord officer of who very will good verify means. the Howlandlord of very good means. How (5) If the company is in operation (5)for If the company is in operation for Earlier, banks played their strategic documents? documents? es the main branch, the receiveres is the main branch, the receiver is e loans under the credit card declined ber 2012 and continued its upward trend Jaffar Sons. They want to openJaffar a Sons.writing. They want to open a writing.will this account be dealt with willto this account be dealt with to some time, then a copy of the latestsome time, then a copy of the latest role in promoting economic development appointed. Will the advice appointed.be Will the advice be to Rs28 billion from Rs35 billion the during July- March, 2013-14. Consumer current account at my branch withcurrent account at my branch with secure bank’s interest? secure bank’s interest? audited balance sheet and profit and lossaudited balance sheet and profit and loss in the country. In the last twenty years, Ans. You will need the followingAns. You will need the following responded by main branch by debitresponded- by main branch by debit- previous year. e pro table credit card durables registered a dramatic growth of either to operate upon the accounteither Q.2to operate Hamid, upon Zahid, the andaccount Sajid areQ.2 Hamid, Zahid, and Sajid are account should be obtained and keptaccount on should be obtained and kept on three eminent foreign banks took the lead documents invariably to open thedocuments invariably to open the ing the company/s dividending the company/s dividend business, which has great in uence in 88.2 percent in credit expansion followed singly. They have signed the firm’ssingly. partnersThey have of signedm/s Khalid the firm’s Sons. Thepartners Ans. of (i)m/s The Khalid cheque inSons. question The will notAns. (i) The cheque in question accountwill not of a joint stock company: accountrecord. of a joint stock company: record. in introducing credit cards in the banking name instead of their own names nameon insteadfirm has of theira current own names account on withfirm hasbe paida currentas the mandateaccount to withoperate thebe paid as the mandate to operate the account? account? sector. But unfortunately, this was limited developed and developing economies, by 17.8 percent growth in auto and 13.9 (6) A certified copy of the resolution(6) of A certified copy of the resolution of failed to get substantial headway in the percent in personal loans. It is appropriate the account opening form and specithe- accountinstructions opening to form be operated and speci upon- instructionsby account to was be operateddetermined upon with bythe deathaccount was determined with the(1) death Certified true copy of the Memo(1)- Certified true copy of the Memo- to top bureaucrats and businessmen. Later the board of directors appointing yourthe board of directors appointing your domestic market. to mention here that increased growth in men signature card in their respecmen- signatureany of themcard insingly. their respecZahid -passesany ofof them one singly.of the Zahid partners. passes Surviving of one of the partners. Survivingrandum of Association of the company:randum of Association of the company: Ans (i) The bank will not pay Ansany (i) The bank will not pay any on, the task of consumer nancing was bank as banker of the company and bankthe as banker of the company and the auto nance is largely owing to the auto tive handwritings. Shall I accept thistive handwritings.away. Later, Shall a chequeI accept signedthis away.by partnersLater, amay cheque be asked signed to openby freshpartners may be asked to openIt isfresh the constitution of the companyIt It is the constitution of the company It dividend warrant after appointment dividendof warrant after appointment of triumphantly taken by top Pakistani mode of operation on the account. mode of operation on the account. Car purchasing was the second highest nance facility actively marketed by mode of operation? mode ofZahid operation? is presented who at the timeZahid accountis presented with freshwho atmandate. the time However, account with fresh mandate. However,prescribes the limit within which theprescribes the limit within which the the receiver. The entire balance lyingthe in receiver. The entire balance lying in banks. ey provided the facilities of the existing account, presumably in the company’s dividend account willthe be company’s dividend account will be attraction for the consumers but the leading Islamic banks. of signing the cheque was dulyof signingthe existing the cheque account, was presumably duly in company has to operate. It contains thecompany (7) hasA tolist operate. of directors It contains incorporating the (7) A list of directors incorporating consumer nancing to both the middle credit balance, may be allowed to contin- placed at the disposal of the receiver. placed at the disposal of the receiver. outstanding loans in this particular sector Ans. Signing the firm’s name instead Ans.of Signingauthorised the firm’s to sign. name The instead cheque of isauthorised in credit to balance, sign. The may becheque allowed is toin contin- following vital information about thefollowing their vital names information and addresses. about theThis theirlist names and addresses. This list class and the higher salaried class. ey ue for a while to help the firm to wind showed an abrupt fall during the last In making personal loans, most banks partner’s own name is in order but it haspartner’s order own inname all respects.is in order Willbut itthe has cheque order inue all for respects. a while toWill help the the cheque firm to wind company: company:should be updated whenever there is shouldany be updated whenever there is any also contributed in augmenting the stand- up its business, if so requested by the (ii) Since the amount has already been (ii) Since the amount has already been couple of years. e outstanding loans for judge the credit worthiness of borrowers its own hazards. This is why the practiceits own behazards. paid? This is why the practice be paid?up its business, if so requested by the change in it. change in it. ard of living of the middle class, which is could not get recognition in India andcould not get recognition in India and surviving partners. surviving partners. paid by the bank (any branch will paidbe by the bank (any branch will be the back bone of any economy. car purchasing fell to Rs64 billion till June by their monthly income levels and set (a) Name of the company with the(a) Name of the company with the 30, 2010. e same was Rs 78 billion in ceilings accordingly. Sometime back, the Pakistan. In my long banking career,Pakistan. I ZahidIn my longwas bankingalso acareer, partner I inZahid was also a partner in words “limited” at the end. words(8) Account“limited” ope at thening end. form signed by(8) all Accounttreated ope as ningbank), form the signedbank byby exercisingall treated as bank), the bank by exercising have seen only one case when firm’shave seenSiddiqui only Bros.one case This when firm firm’shas an O.D.Siddiqui (ii) Bros. Any Thisfuture firm credit has in anthe O.D. account will(ii) Any future credit in the account will the directors and the specimen signaturesthe directorsits right and of the setoff specimen will have signatures the authority its right of setoff will have the authority Aggressive marketing continued at an 2009 and Rs105 billion in 2008. Loans NBP introduced its ‘Cash n Gold’ name was being signed. You may accedename wasaccount being signed.with YouDr. may balance accede Rs.account reduce with to thatDr. extent balance the liability Rs. of thereduce to that extent the liability(b of) theAddress of the registered office (bof) Addresscard(s) ofduly the signedregistered by ofthosefice ofwho card(s)are toduly debit signed company’s by those account. who are to debit company’s account. accelerating pace. Consumer nance was for house building under the consumer scheme, which o ered up to Rs35, 000 in to their request but then you will tobe their375,000/- request butagainst then youthe willsecurity be 375,000/-of deceased against partner the and security he will notof be helddeceased partner and he will not be heldthe company. theauthorised company. to operate the accountauthorised as nd strongto operate regulator, the accountsupports as highernd strong regulator, supports higher encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of exposed to great risk. As an alternative,exposed approved to great risk.shares As inan the alternative, name of Mrs.approved liable shares for any in thefresh name withdrawals, of Mrs. whichliable for any fresh withdrawals,(c) which Object for which the company(c) is Objectstipulated for whichin the board’sthe company resolution is withstipulated ratings in the of board’s the sectorresolution in withthe ratingratings of the sector in the rating to boost the economic growth through Rs 61 billion the previous year. In the net contents of gold (in the form of you may impose a condition thatyou mayTayyaba impose Zahid a condition and the thatpersonal Tayyaba will Zahidbe treated and as thenew debt.personal Hence, thewill be treated as new debt. Hence, thebeing established. This clause beingtheir signaturesestablished. attested This by theclause chairman their signaturesuniverse. attested This trendby the chairmanis expected universe.to This trend is expected to demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate cheques will be signed in the presencecheques guarantee will be signed of Lalin the Chand, presence a localguarantee account of shouldLal Chand, be broken a local forthwith. account should be broken forthwith.should be self-contained. It should should/ secretary be self-contained. of the company. It should / secretarycontinue of the in company. the future. continue in the future. private sector performed much below the under the scheme was also a bit lower than
Journal of The Institute of Bankers Pakistan Journal21 of The Institute of Bankers Pakistan 21
the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down meeting by 100 bps to 8.5 percent in and continues to recede, can induce Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- April 2013 also made an impact on tion. us, the recent reduction in domes- consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. overdra facility for HBL account major macroeconomic indicators have holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to follow a downward trend with some the xed and deprived sections of the e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently increase in policy interest rate by the SBP help to boost business activities and amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the Pakistan averaged 12.48 percent from people who are working in private compa- 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no of 20 percent in October of 1996 and a the recent drop in international oil price security. record low of 7.50 percent in November has induced low in ation and improved Banking
onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the past has signi cantly from credit card to car purchasing in overall economy remained under pressure contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. accelerating consumption consumer nancing declined by Rs 50 and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer Rs 294 billion in 2008-09. nancing. e Expected Economic Consumer nancing was introduced Conditions Index went up three consecu- for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer- instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. started availing them without knowing However, from 2012, there was some their negative e ects . improvement. Banks restarted to make Signi cant growth was witnessed in new loan packages, realizing that years of consumer loans during July-March 2013-14 Pakistan's banking sector in the no or low activity in this area was a ecting as it increased to 9.8 percent against 4.2 past years has productively engaged itself the growth of their interest income. percent registered in the same period of in consumer nancing by introducing di erent products such as credit cards, auto loans, housing nance and personal loans etc. e robust growth of consumer nancing in the previous years in the rst place was ascribed to the exible econom- ic policies set according to the principles of free market economy and huge liquidi- ty available to the banks in the aermath of 9/11. e data showed that even well-advertised nancial year 2012-13. Consumer nanc- Earlier, banks played their strategic credit card business also fell signi cantly. ing started gaining strength since Novem- role in promoting economic development e loans under the credit card declined ber 2012 and continued its upward trend in the country. In the last twenty years, to Rs28 billion from Rs35 billion the during July- March, 2013-14. Consumer three eminent foreign banks took the lead previous year. e pro table credit card durables registered a dramatic growth of in introducing credit cards in the banking business, which has great in uence in 88.2 percent in credit expansion followed CONSUMER FINANCING sector. But unfortunately, this was limited developed and developing economies, by 17.8 percent growth in auto and 13.9 to top bureaucrats and businessmen. Later failed to get substantial headway in the percent in personal loans. It is appropriate on, the task of consumer nancing was domestic market. to mention here that increased growth in Back in Vogue triumphantly taken by top Pakistani auto nance is largely owing to the auto banks. ey provided the facilities of Car purchasing was the second highest nance facility actively marketed by consumer nancing to both the middle attraction for the consumers but the leading Islamic banks. class and the higher salaried class. ey outstanding loans in this particular sector By Mohammad Arifeen also contributed in augmenting the stand- showed an abrupt fall during the last In making personal loans, most banks ard of living of the middle class, which is couple of years. e outstanding loans for judge the credit worthiness of borrowers Consumer financing is a service which is laid out to provide clients with the needed finance to make the back bone of any economy. car purchasing fell to Rs64 billion till June by their monthly income levels and set 30, 2010. e same was Rs 78 billion in ceilings accordingly. Sometime back, the personal purchases varying from buying a car to a house. It is divided into different types of products. Aggressive marketing continued at an 2009 and Rs105 billion in 2008. Loans NBP introduced its ‘Cash n Gold’ Personal loans are given for the payment of goods, services and expenses and are comprised of accelerating pace. Consumer nance was for house building under the consumer scheme, which o ered up to Rs35, 000 in encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of running finance and revolving credit to individuals. The idea of consumer financing is to provide to boost the economic growth through Rs 61 billion the previous year. In the net contents of gold (in the form of demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate consumers with financing support to increase their consumption and to boost their standards of living. private sector performed much below the under the scheme was also a bit lower than
22 Journal of The Institute of Bankers Pakistan22 Journal of The Institute of Bankers Pakistan
the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down meeting by 100 bps to 8.5 percent in and continues to recede, can induce Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- April 2013 also made an impact on tion. us, the recent reduction in domes- consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. overdra facility for HBL account major macroeconomic indicators have holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to follow a downward trend with some the xed and deprived sections of the e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently increase in policy interest rate by the SBP help to boost business activities and amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the Pakistan averaged 12.48 percent from people who are working in private compa- 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no of 20 percent in October of 1996 and a the recent drop in international oil price security. record low of 7.50 percent in November has induced low in ation and improved onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the past has signi cantly from credit card to car purchasing in overall economy remained under pressure contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. A Brief Overview about Islamic BankA Brief- Overview about Islamic Bank- accelerating consumption consumer nancing declined by Rs 50 ing in Pakistan ing in Pakistan and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- Pakistan, in recent years has showedPakistan, in recent years has showed from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer strong inclination towards Islamic Bankstrong- inclination towards Islamic Bank- Rs 294 billion in 2008-09. nancing. e Expected Economic ing. e rst Commercial Islamic Banking. e rst Commercial Islamic Bank Consumer nancing was introduced Conditions Index went up three consecu- in the country was established in inthe the country was established in the for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and 2002, and within 13 years only, 2002,the and within 13 years only, the by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer- Islamic Banking share is more than 10%Islamic Banking share is more than 10% instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks of the entire Banking Industry. Over ofthe the entire Banking Industry. Over the Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and last decade, Islamic Banks have beenlast decade, Islamic Banks have been other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant successful in providing end to endsuccessful in providing end to end e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit alternatives to all conventional bankingalternatives to all conventional banking schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. products. e support coming from products.the e support coming from the started availing them without knowing However, from 2012, there was some central bank of the country is one of centralthe bank of the country is one of the their negative e ects . improvement. Banks restarted to make Signi cant growth was witnessed in major factors of the rapid growth majorof factors of the rapid growth of new loan packages, realizing that years of consumer loans during July-March 2013-14 Islamic Banking industry. With moreIslamic Banking industry. With more Pakistan's banking sector in the no or low activity in this area was a ecting as it increased to 9.8 percent against 4.2 than 1400+ Islamic Banking branchesthan 1400+banking Islamic and toBanking formulate branches a comprehen banking- • and to formulate a comprehen- • past years has productively engaged itself the growth of their interest income. percent registered in the same period of and a 20%+ growth in deposits, assets,and a 20%+sive policygrowth framework in deposits, for assets, an Islamicsive policy framework for an Islamic in consumer nancing by introducing nancing and investments, the Pakistani nancing nancial and investments, system in the the country Pakistani including nancial • system in the country including • di erent products such as credit cards, “Pakistan's banking sector in the past years Islamic Banking industry is set Islamicto theBanking review ofindustry the legal is frameworkset to andthe review of the legal framework and auto loans, housing nance and personal become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the loans etc. e robust growth of consumer has productively engaged itself in consumer the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a nancing in the previous years in the rst financing by introducing different products to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department place was ascribed to the exible econom- Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP ic policies set according to the principles such as credit cards, auto loans, housing Finance, Shariah compliance is the singleFinance, industry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and of free market economy and huge liquidi- finance and personal loans etc.” most important aspect for the Islamicmost importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the ty available to the banks in the aermath Banking & Finance industry. eBanking and & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- of 9/11. credibility of Islamic Banking Institucredibility- of Islamic Banking Institu- e data showed that even well-advertised nancial year 2012-13. Consumer nanc- as modes of Islamic nance. as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with tions (IBIs) not only depends on tionsthe (IBIs) not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / Earlier, banks played their strategic credit card business also fell signi cantly. ing started gaining strength since Novem- nancial health of the institution but nancial health of the institution but e loans under the credit card declined ber 2012 and continued its upward trend Steps Taken for Promotion of IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic role in promoting economic development also on its adherence to the Shariah.also on Bankingits adherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the in the country. In the last twenty years, to Rs28 billion from Rs35 billion the during July- March, 2013-14. Consumer Under the current strategy for promoUnder- the current strategy for promo- previous year. e pro table credit card durables registered a dramatic growth of approval of SBP Shariah Board. approval of SBP Shariah Board. three eminent foreign banks took the lead tion and development of Islamic Banktion- and• development of Islamic Bank- • in introducing credit cards in the banking business, which has great in uence in 88.2 percent in credit expansion followed ing as a parallel, viable and compatibleing as a parallel, viable and compatible developed and developing economies, by 17.8 percent growth in auto and 13.9 Besides having a Shariah Board, a Besides having a Shariah Board, a sector. But unfortunately, this was limited banking system, State Bank of Pakistanbanking system, State Bank of Pakistan separate Islamic Banking departmentseparate is Islamic Banking department is to top bureaucrats and businessmen. Later failed to get substantial headway in the percent in personal loans. It is appropriate has taken a number of steps to ensurehas taken a number of steps to ensure domestic market. to mention here that increased growth in also in place at SBP with highly qualifiedalso in place at SBP with highly qualified on, the task of consumer nancing was Shariah compliance by IBIs and Shariahfor compliance by IBIs and for & seasoned professionals who &are seasoned professionals who are triumphantly taken by top Pakistani auto nance is largely owing to the auto standardization of Shariah practices. standardization of Shariah practices. Car purchasing was the second highest nance facility actively marketed by • • engaged in policy making and variousengaged in policy making and various banks. ey provided the facilities of projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- consumer nancing to both the middle attraction for the consumers but the leading Islamic banks. e State Bank of Pakistan has played e State Bank of Pakistan has played outstanding loans in this particular sector ing industry. ing industry. class and the higher salaried class. ey a dominant role in enabling the Islamica dominant • role in enabling the Islamic • also contributed in augmenting the stand- showed an abrupt fall during the last In making personal loans, most banks Banking Industry to not only sustain butBanking Industry to not only sustain but couple of years. e outstanding loans for judge the credit worthiness of borrowers Instructions for Shariah ComplianceInstructions for Shariah Compliance ard of living of the middle class, which is rapidly grow many folds. rapidly grow many folds. in IBIs: in IBIs: the back bone of any economy. car purchasing fell to Rs64 billion till June by their monthly income levels and set 30, 2010. e same was Rs 78 billion in ceilings accordingly. Sometime back, the • • National Steering Committee Nationalfor Steering Committee for In order to strengthen the Shariah In order to strengthen the Shariah Aggressive marketing continued at an 2009 and Rs105 billion in 2008. Loans NBP introduced its ‘Cash n Gold’ Promotion on Islamic Banking Promotion on Islamic Banking for house building under the consumer scheme, which o ered up to Rs35, 000 in compliance mechanism within IBIs andcompliance mechanism within IBIs and accelerating pace. Consumer nance was • • to ensure that all relevant Islamicto ensure that all relevant Islamic encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of e Steering Committee for the e Steering Committee for the Rs 61 billion the previous year. In the net contents of gold (in the form of banking regulations are complied withbanking regulations are complied with to boost the economic growth through Promotion of Islamic banking wasPromotion • of Islamic banking was • in letter and spirit, IBIs are requiredin to letter and spirit, IBIs are required to demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate constituted by Ministry of Financeconstituted by Ministry of Finance private sector performed much below the under the scheme was also a bit lower than introduce Shariah compliance mechaintroduce- Shariah compliance mecha- (MoF), Government of Pakistan (MoF),in • Government of Pakistan in • nism as a part of their control structurenism as a part of their control structure December 2013 comprising of leadingDecember 2013 comprising of leading as per the Shariah Compliance Frameas -per the Shariah Compliance Frame- Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of Journal of The Institute of Bankers Pakistan Journal23 of The Institute of Bankers Pakistan 23 from SBP. e main objective of fromthe SBP.• e main objective of the • Pakistan. The Shariah CompliancePakistan. The Shariah Compliance Committee is to carry out an objectiveCommittee is to carry out an objective Framework covers the main aspects Frameworkfor covers the main aspects for review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs
the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- meeting by 100 bps to 8.5 percent in and continues to recede, can induce review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah April 2013 also made an impact on tion. us, the recent reduction in domes- governance and compliance frameworkgovernance and compliance framework consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. overdra facility for HBL account major macroeconomic indicators have Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international follow a downward trend with some the xed and deprived sections of the requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- increase in policy interest rate by the SBP help to boost business activities and knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- Pakistan averaged 12.48 percent from people who are working in private compa- Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks of 20 percent in October of 1996 and a the recent drop in international oil price security. services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working record low of 7.50 percent in November has induced low in ation and improved the bank are compliant / consistent withthe bank are compliant / consistent with the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class outlined for the respective modes outlinedof for the respective modes of meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set products the banks are required to productsget the banks are required to get Islamic Banking Islamic boldBanking step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for formal approval from the Shariahformal approval from the Shariah Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the the product and its related documents.the product and its related documents. Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality SBP conducts Shariah Compliance SBP conducts Shariah Compliance media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target oped Shariah Compliance Inspectionoped Shariahness about Compliance Islamic finance, Inspection and building ness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry atthe par industry.with Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in Manual for Islamic Banking Institutions.Manual capacityfor Islamic of theBanking stakeholders. Institutions. capacitythe of theinternational stakeholders. standards and alsothe international standards andunderstanding also of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. Shariah Inspection helps in identifyingShariah Inspection helps in identifying achieve standardization of Shariahachieve standardization of businessShariah and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance variation in procedures adopted variationby Market in proceduresDevelopment adopted by Market Developmentpractices locally, a mechanism practicesfor locally, a mechanismone offor the key causes of confusion andone of the key causes of confusion and different banks. The decisions on Sharidifferent- banks. The decisions on Shari- adoption/adaptation of these Shariahadoption/adaptation of these misperceptionShariah about Islamic finance.misperception about Islamic finance. ah Inspection findings are also a sourceah InspectionInitiatives findings will are be also undertakena source Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed Theby SBP.plan thus gives extensive focus Theon plan thus gives extensive focus on that helps in achieving the goal of havingthat helpsproduct in achieving diversification. the goal of having productAccording diversification. to this mechanism, Accordingthe to this mechanism,intensifying the the awareness efforts bothintensifying at the awareness efforts both at standardized procedures for Shariahstandardized procedures for Shariah meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors ofindustry all IBIs and individual intuitions level.industry and individual intuitions level. practices in the Islamic banking industry.practicesShariah in the Islamic Governance banking Framework industry. Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah StandardsIslamic one Open Market OperationsIslamic Open Market Operations 5 Year Strategic Plan for IBIs5 YearThe Strategic State Bank Plan of Pakistanfor IBIs has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoptionSolution / for Liquidity ManagementSolution for Liquidity Management (2014-2018) (2014-2018)oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFIThe Stand biggest- challenge faced by the IslamThe- biggest challenge faced by the Islam- The Strategic Plan focuses on critical The coversStrategic points Plan such focuses as an on effective critical mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. ic Finance industry was the lack icof Finance industry was the lack of issues and includes necessary initiativesissues andnism includes for the necessaryBOD oversight initiatives of the IBI’snism for the BOD oversight of the IBI’s availability on Rupee denominationavailability on Rupee denomination for improving public acceptance andfor improvingShariah publiccompliance acceptance environment, and Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Schemesovereign Sukuk for deployment sovereignof Sukuk for deployment of promoting Islamic banking as a distinctpromoting accountability Islamic banking of executive as a distinct management accountability of executive management excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the and viable system for meeting the finanand- viablein implementationsystem for meeting of thethe framework,finan- in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan hasoption been of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank cial services need of the public in generalcial servicesindependent need of the and public effective in general Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce ofspecially Pakistan in collaboration with ofthe Pakistan in collaboration with the and business community in particular.and businessappointed community as per Fit in and particular. Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through industryvarious developed an OMO alternativeindustry developed an OMO alternative The strategy paper has chalked outThe a strategyof SBP paper with hasone chalkedof its Shariah out a Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeingin form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being detailed plan with time bound objectivesdetailed membersplan with working time bound as Shariah objectives Advisor members to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariahused compli for -the benefit of the industry usedon for the benefit of the industry on which will prove to be beneficial for whichthe willadvise prove the to bankbe beneficial on day for to the day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme frequent(EFS) is basis. frequent basis. Minimum Capital Requirement Minimumfor Capital Requirement for onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the past has signi cantly from credit card to car purchasing in overall economy remained under pressure contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. accelerating consumption consumer nancing declined by Rs 50 and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer Rs 294 billion in 2008-09. nancing. e Expected Economic Consumer nancing was introduced Conditions Index went up three consecu- for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer- instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. started availing them without knowing However, from 2012, there was some their negative e ects . improvement. Banks restarted to make Signi cant growth was witnessed in new loan packages, realizing that years of consumer loans during July-March 2013-14 Pakistan's banking sector in the no or low activity in this area was a ecting as it increased to 9.8 percent against 4.2 past years has productively engaged itself the growth of their interest income. percent registered in the same period of in consumer nancing by introducing di erent products such as credit cards, auto loans, housing nance and personal loans etc. e robust growth of consumer nancing in the previous years in the rst place was ascribed to the exible econom- ic policies set according to the principles of free market economy and huge liquidi- ty available to the banks in the aermath of 9/11. e data showed that even well-advertised nancial year 2012-13. Consumer nanc- Earlier, banks played their strategic credit card business also fell signi cantly. ing started gaining strength since Novem- role in promoting economic development e loans under the credit card declined ber 2012 and continued its upward trend in the country. In the last twenty years, to Rs28 billion from Rs35 billion the during July- March, 2013-14. Consumer three eminent foreign banks took the lead previous year. e pro table credit card durables registered a dramatic growth of in introducing credit cards in the banking business, which has great in uence in 88.2 percent in credit expansion followed sector. But unfortunately, this was limited developed and developing economies, by 17.8 percent growth in auto and 13.9 to top bureaucrats and businessmen. Later failed to get substantial headway in the percent in personal loans. It is appropriate on, the task of consumer nancing was domestic market. to mention here that increased growth in triumphantly taken by top Pakistani auto nance is largely owing to the auto banks. ey provided the facilities of Car purchasing was the second highest nance facility actively marketed by consumer nancing to both the middle attraction for the consumers but the leading Islamic banks. class and the higher salaried class. ey outstanding loans in this particular sector also contributed in augmenting the stand- showed an abrupt fall during the last In making personal loans, most banks ard of living of the middle class, which is couple of years. e outstanding loans for judge the credit worthiness of borrowers the back bone of any economy. car purchasing fell to Rs64 billion till June by their monthly income levels and set 30, 2010. e same was Rs 78 billion in ceilings accordingly. Sometime back, the Aggressive marketing continued at an 2009 and Rs105 billion in 2008. Loans NBP introduced its ‘Cash n Gold’ accelerating pace. Consumer nance was for house building under the consumer scheme, which o ered up to Rs35, 000 in encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of to boost the economic growth through Rs 61 billion the previous year. In the net contents of gold (in the form of demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate private sector performed much below the under the scheme was also a bit lower than
the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down meeting by 100 bps to 8.5 percent in and continues to recede, can induce Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, A Brief Overview about Islamic BankA Brief- Overview about Islamic Bank- consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- ing in Pakistan ing in Pakistan April 2013 also made an impact on tion. us, the recent reduction in domes- consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase Pakistan, in recent years has showedPakistan, in recent years has showed bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial strong inclination towards Islamic Bankstrong- inclination towards Islamic Bank- competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. ing. e rst Commercial Islamic Banking. e rst Commercial Islamic Bank overdra facility for HBL account major macroeconomic indicators have in the country was established in inthe the country was established in the holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a 2002, and within 13 years only, 2002,the and within 13 years only, the similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the Islamic Banking share is more than 10%Islamic Banking share is more than 10% to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to of the entire Banking Industry. Over ofthe the entire Banking Industry. Over the follow a downward trend with some the xed and deprived sections of the last decade, Islamic Banks have beenlast decade, Islamic Banks have been e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a successful in providing end to endsuccessful in providing end to end nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently alternatives to all conventional bankingalternatives to all conventional banking increase in policy interest rate by the SBP help to boost business activities and products. e support coming from products.the e support coming from the amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial central bank of the country is one of centralthe bank of the country is one of the move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative major factors of the rapid growth majorof factors of the rapid growth of men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic Islamic Banking industry. With moreIslamic Banking industry. With more curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the than 1400+ Islamic Banking branchesthan 1400+ Islamic Banking branches Pakistan averaged 12.48 percent from people who are working in private compa- banking and to formulate a comprehenbanking- • and to formulate a comprehen- • and a 20%+ growth in deposits, assets,and a 20%+ growth in deposits, assets, 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no sive policy framework for an Islamicsive policy framework for an Islamic nancing and investments, the Pakistani nancing and investments, the Pakistani of 20 percent in October of 1996 and a the recent drop in international oil price security. nancial system in the country including nancial • system in the country including • Islamic Banking industry is set Islamicto Banking industry is set to record low of 7.50 percent in November has induced low in ation and improved the review of the legal framework andthe review of the legal framework and become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP Finance, Shariah compliance is the singleFinance, industry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and most important aspect for the Islamicmost importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the Banking & Finance industry. eBanking and & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- credibility of Islamic Banking Institucredibility- as modesof Islamic of Islamic Banking nance. Institu- as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with tions (IBIs) not only depends on tionsthe (IBIs) not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / nancial health of the institution but nancial Steps health Taken of thefor institutionPromotion butof IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic also on its adherence to the Shariah.also on Bankingits adherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the Under the current strategy for promoUnder- the current strategy for promo- approval of SBP Shariah Board. approval of SBP Shariah Board. tion and development of Islamic Banktion- and• development of Islamic Bank- • ing as a parallel, viable and compatibleing as a parallel, viable and compatible Besides having a Shariah Board, a Besides having a Shariah Board, a banking system, State Bank of Pakistanbanking system, State Bank of Pakistan separate Islamic Banking departmentseparate is Islamic Banking department is has taken a number of steps to ensurehas taken a number of steps to ensure also in place at SBP with highly qualifiedalso in place at SBP with highly qualified Shariah compliance by IBIs and Shariahfor compliance by IBIs and for & seasoned professionals who &are seasoned professionals who are standardization of Shariah practices. standardization• of Shariah practices. • engaged in policy making and variousengaged in policy making and various projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- e State Bank of Pakistan has played e State Bank of Pakistan has played ing industry. ing industry. a dominant role in enabling the Islamica dominant • role in enabling the Islamic • Banking Industry to not only sustain butBanking Industry to not only sustain but Instructions for Shariah ComplianceInstructions for Shariah Compliance rapidly grow many folds. rapidly grow many folds. in IBIs: in IBIs: • • National Steering Committee Nationalfor Steering Committee for In order to strengthen the Shariah In order to strengthen the Shariah Promotion on Islamic Banking Promotion on Islamic Banking compliance mechanism within IBIs andcompliance mechanism within IBIs and • • to ensure that all relevant Islamicto ensure that all relevant Islamic e Steering Committee for the e Steering Committee for the banking regulations are complied withbanking regulations are complied with Promotion of Islamic banking wasPromotion • of Islamic banking was • in letter and spirit, IBIs are requiredin to letter and spirit, IBIs are required to constituted by Ministry of Financeconstituted by Ministry of Finance introduce Shariah compliance mechaintroduce- Shariah compliance mecha- (MoF), Government of Pakistan (MoF),in • Government of Pakistan in • nism as a part of their control structurenism as a part of their control structure December 2013 comprising of leadingDecember 2013 comprising of leading as per the Shariah Compliance Frameas -per the Shariah Compliance Frame- Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of 24 Journal of The Institute of Bankers Pakistan from SBP. e main objective of fromthe SBP.• e main objective of the • Pakistan. The Shariah CompliancePakistan. The Shariah Compliance Committee is to carry out an objectiveCommittee is to carry out an objective Framework covers the main aspects Frameworkfor covers the main aspects for review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs
such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah governance and compliance frameworkgovernance and compliance framework Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working the bank are compliant / consistent withthe bank are compliant / consistent with the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class outlined for the respective modes outlinedof for the respective modes of meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set products the banks are required to productsget the banks are required to get Islamic Banking Islamic boldBanking step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for formal approval from the Shariahformal approval from the Shariah Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the the product and its related documents.the product and its related documents. Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality SBP conducts Shariah Compliance SBP conducts Shariah Compliance media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target oped Shariah Compliance Inspectionoped Shariahness about Compliance Islamic finance, Inspection and building ness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry atthe par industry.with Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in Manual for Islamic Banking Institutions.Manual capacityfor Islamic of theBanking stakeholders. Institutions. capacitythe of theinternational stakeholders. standards and alsothe international standards andunderstanding also of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. Shariah Inspection helps in identifyingShariah Inspection helps in identifying achieve standardization of Shariahachieve standardization of businessShariah and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance variation in procedures adopted variationby Market in proceduresDevelopment adopted by Market Developmentpractices locally, a mechanism practicesfor locally, a mechanismone offor the key causes of confusion andone of the key causes of confusion and different banks. The decisions on Sharidifferent- banks. The decisions on Shari- adoption/adaptation of these Shariahadoption/adaptation of these misperceptionShariah about Islamic finance.misperception about Islamic finance. ah Inspection findings are also a sourceah InspectionInitiatives findings will are be also undertakena source Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed Theby SBP.plan thus gives extensive focus Theon plan thus gives extensive focus on that helps in achieving the goal of havingthat helpsproduct in achieving diversification. the goal of having productAccording diversification. to this mechanism, Accordingthe to this mechanism,intensifying the the awareness efforts bothintensifying at the awareness efforts both at standardized procedures for Shariahstandardized procedures for Shariah meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors ofindustry all IBIs and individual intuitions level.industry and individual intuitions level. practices in the Islamic banking industry.practicesShariah in the Islamic Governance banking Framework industry. Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah StandardsIslamic one Open Market OperationsIslamic Open Market Operations 5 Year Strategic Plan for IBIs5 YearThe Strategic State Bank Plan of Pakistanfor IBIs has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoptionSolution / for Liquidity ManagementSolution for Liquidity Management (2014-2018) (2014-2018)oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFIThe Stand biggest- challenge faced by the IslamThe- biggest challenge faced by the Islam- The Strategic Plan focuses on critical The coversStrategic points Plan such focuses as an on effective critical mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. ic Finance industry was the lack icof Finance industry was the lack of issues and includes necessary initiativesissues andnism includes for the necessaryBOD oversight initiatives of the IBI’snism for the BOD oversight of the IBI’s availability on Rupee denominationavailability on Rupee denomination for improving public acceptance andfor improvingShariah publiccompliance acceptance environment, and Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Schemesovereign Sukuk for deployment sovereignof Sukuk for deployment of promoting Islamic banking as a distinctpromoting accountability Islamic banking of executive as a distinct management accountability of executive management excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the and viable system for meeting the finanand- viablein implementationsystem for meeting of thethe framework,finan- in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan hasoption been of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank cial services need of the public in generalcial servicesindependent need of the and public effective in general Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce ofspecially Pakistan in collaboration with ofthe Pakistan in collaboration with the and business community in particular.and businessappointed community as per Fit in and particular. Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through industryvarious developed an OMO alternativeindustry developed an OMO alternative The strategy paper has chalked outThe a strategyof SBP paper with hasone chalkedof its Shariah out a Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeingin form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being detailed plan with time bound objectivesdetailed membersplan with working time bound as Shariah objectives Advisor members to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariahused compli for -the benefit of the industry usedon for the benefit of the industry on which will prove to be beneficial for whichthe willadvise prove the to bankbe beneficial on day for to the day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme frequent(EFS) is basis. frequent basis. Minimum Capital Requirement Minimumfor Capital Requirement for onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the past has signi cantly from credit card to car purchasing in overall economy remained under pressure contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. accelerating consumption consumer nancing declined by Rs 50 and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer Rs 294 billion in 2008-09. nancing. e Expected Economic Consumer nancing was introduced Conditions Index went up three consecu- for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer- instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. started availing them without knowing However, from 2012, there was some their negative e ects . improvement. Banks restarted to make Signi cant growth was witnessed in new loan packages, realizing that years of consumer loans during July-March 2013-14 Pakistan's banking sector in the no or low activity in this area was a ecting as it increased to 9.8 percent against 4.2 past years has productively engaged itself the growth of their interest income. percent registered in the same period of in consumer nancing by introducing di erent products such as credit cards, auto loans, housing nance and personal loans etc. e robust growth of consumer nancing in the previous years in the rst place was ascribed to the exible econom- ic policies set according to the principles of free market economy and huge liquidi- ty available to the banks in the aermath of 9/11. e data showed that even well-advertised nancial year 2012-13. Consumer nanc- Earlier, banks played their strategic credit card business also fell signi cantly. ing started gaining strength since Novem- role in promoting economic development e loans under the credit card declined ber 2012 and continued its upward trend in the country. In the last twenty years, to Rs28 billion from Rs35 billion the during July- March, 2013-14. Consumer three eminent foreign banks took the lead previous year. e pro table credit card durables registered a dramatic growth of in introducing credit cards in the banking business, which has great in uence in 88.2 percent in credit expansion followed sector. But unfortunately, this was limited developed and developing economies, by 17.8 percent growth in auto and 13.9 to top bureaucrats and businessmen. Later failed to get substantial headway in the percent in personal loans. It is appropriate on, the task of consumer nancing was domestic market. to mention here that increased growth in triumphantly taken by top Pakistani auto nance is largely owing to the auto banks. ey provided the facilities of Car purchasing was the second highest nance facility actively marketed by consumer nancing to both the middle attraction for the consumers but the leading Islamic banks. class and the higher salaried class. ey outstanding loans in this particular sector also contributed in augmenting the stand- showed an abrupt fall during the last In making personal loans, most banks ard of living of the middle class, which is couple of years. e outstanding loans for judge the credit worthiness of borrowers the back bone of any economy. car purchasing fell to Rs64 billion till June by their monthly income levels and set 30, 2010. e same was Rs 78 billion in ceilings accordingly. Sometime back, the Aggressive marketing continued at an 2009 and Rs105 billion in 2008. Loans NBP introduced its ‘Cash n Gold’ accelerating pace. Consumer nance was for house building under the consumer scheme, which o ered up to Rs35, 000 in encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of to boost the economic growth through Rs 61 billion the previous year. In the net contents of gold (in the form of demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate private sector performed much below the under the scheme was also a bit lower than
the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down meeting by 100 bps to 8.5 percent in and continues to recede, can induce Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, A Brief Overview about Islamic BankA Brief- Overview about Islamic Bank- consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- ing in Pakistan ing in Pakistan April 2013 also made an impact on tion. us, the recent reduction in domes- consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase Pakistan, in recent years has showedPakistan, in recent years has showed bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial strong inclination towards Islamic Bankstrong- inclination towards Islamic Bank- competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. ing. e rst Commercial Islamic Banking. e rst Commercial Islamic Bank overdra facility for HBL account major macroeconomic indicators have in the country was established in inthe the country was established in the holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a 2002, and within 13 years only, 2002,the and within 13 years only, the similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the Islamic Banking share is more than 10%Islamic Banking share is more than 10% to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to of the entire Banking Industry. Over ofthe the entire Banking Industry. Over the follow a downward trend with some the xed and deprived sections of the last decade, Islamic Banks have beenlast decade, Islamic Banks have been e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a successful in providing end to endsuccessful in providing end to end nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently alternatives to all conventional bankingalternatives to all conventional banking increase in policy interest rate by the SBP help to boost business activities and products. e support coming from products.the e support coming from the amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial central bank of the country is one of centralthe bank of the country is one of the move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative major factors of the rapid growth majorof factors of the rapid growth of men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic Islamic Banking industry. With moreIslamic Banking industry. With more curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the than 1400+ Islamic Banking branchesthan 1400+ Islamic Banking branches Pakistan averaged 12.48 percent from people who are working in private compa- banking and to formulate a comprehenbanking- • and to formulate a comprehen- • and a 20%+ growth in deposits, assets,and a 20%+ growth in deposits, assets, 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no sive policy framework for an Islamicsive policy framework for an Islamic nancing and investments, the Pakistani nancing and investments, the Pakistani of 20 percent in October of 1996 and a the recent drop in international oil price security. nancial system in the country including nancial • system in the country including • Islamic Banking industry is set Islamicto Banking industry is set to record low of 7.50 percent in November has induced low in ation and improved the review of the legal framework andthe review of the legal framework and become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP Finance, Shariah compliance is the singleFinance, industry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and most important aspect for the Islamicmost importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the Banking & Finance industry. eBanking and & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- credibility of Islamic Banking Institucredibility- as modesof Islamic of Islamic Banking nance. Institu- as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with tions (IBIs) not only depends on tionsthe (IBIs) not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / nancial health of the institution but nancial Steps health Taken of thefor institutionPromotion butof IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic also on its adherence to the Shariah.also on Bankingits adherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the Under the current strategy for promoUnder- the current strategy for promo- approval of SBP Shariah Board. approval of SBP Shariah Board. tion and development of Islamic Banktion- and• development of Islamic Bank- • ing as a parallel, viable and compatibleing as a parallel, viable and compatible Besides having a Shariah Board, a Besides having a Shariah Board, a banking system, State Bank of Pakistanbanking system, State Bank of Pakistan separate Islamic Banking departmentseparate is Islamic Banking department is has taken a number of steps to ensurehas taken a number of steps to ensure also in place at SBP with highly qualifiedalso in place at SBP with highly qualified Shariah compliance by IBIs and Shariahfor compliance by IBIs and for & seasoned professionals who &are seasoned professionals who are standardization of Shariah practices. standardization• of Shariah practices. • engaged in policy making and variousengaged in policy making and various projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- e State Bank of Pakistan has played e State Bank of Pakistan has played ing industry. ing industry. a dominant role in enabling the Islamica dominant • role in enabling the Islamic • Banking Industry to not only sustain butBanking Industry to not only sustain but Instructions for Shariah ComplianceInstructions for Shariah Compliance rapidly grow many folds. rapidly grow many folds. in IBIs: in IBIs: • • National Steering Committee Nationalfor Steering Committee for In order to strengthen the Shariah In order to strengthen the Shariah Promotion on Islamic Banking Promotion on Islamic Banking compliance mechanism within IBIs andcompliance mechanism within IBIs and • • to ensure that all relevant Islamicto ensure that all relevant Islamic e Steering Committee for the e Steering Committee for the banking regulations are complied withbanking regulations are complied with Promotion of Islamic banking wasPromotion • of Islamic banking was • in letter and spirit, IBIs are requiredin to letter and spirit, IBIs are required to constituted by Ministry of Financeconstituted by Ministry of Finance introduce Shariah compliance mechaintroduce- Shariah compliance mecha- (MoF), Government of Pakistan (MoF),in • Government of Pakistan in • nism as a part of their control structurenism as a part of their control structure December 2013 comprising of leadingDecember 2013 comprising of leading as per the Shariah Compliance Frameas -per the Shariah Compliance Frame- Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of from SBP. e main objective of fromthe SBP.• e main objective of the • Pakistan. The Shariah CompliancePakistan. The Shariah Compliance Committee is to carry out an objectiveCommittee is to carry out an objective Framework covers the main aspects Frameworkfor covers the main aspects for review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs
such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah governance and compliance frameworkgovernance and compliance framework Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working the bank are compliant / consistent withthe bank are compliant / consistent with the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class outlined for the respective modes outlinedof for the respective modes of meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set products the banks are required to productsget the banks are required to get Islamic Banking Islamic boldBanking step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for formal approval from the Shariahformal approval from the Shariah Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the the product and its related documents.the product and its related documents. Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality SBP conducts Shariah Compliance SBP conducts Shariah Compliance media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target oped Shariah Compliance Inspectionoped Shariahness about Compliance Islamic finance, Inspection and building ness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry atthe par industry.with Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in Manual for Islamic Banking Institutions.Manual capacityfor Islamic of theBanking stakeholders. Institutions. capacitythe of theinternational stakeholders. standards and alsothe international standards andunderstanding also of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. Shariah Inspection helps in identifyingShariah Inspection helps in identifying achieve standardization of Shariahachieve standardization of businessShariah and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance variation in procedures adopted variationby Market in proceduresDevelopment adopted by Market Developmentpractices locally, a mechanism practicesfor locally, a mechanismone offor the key causes of confusion andone of the key causes of confusion and different banks. The decisions on Sharidifferent- banks. The decisions on Shari- adoption/adaptation of these Shariahadoption/adaptation of these misperceptionShariah about Islamic finance.misperception about Islamic finance. ah Inspection findings are also a sourceah InspectionInitiatives findings will are be also undertakena source Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed Theby SBP.plan thus gives extensive focus Theon plan thus gives extensive focus on that helps in achieving the goal of havingthat helpsproduct in achieving diversification. the goal of having productAccording diversification. to this mechanism, Accordingthe to this mechanism,intensifying the the awareness efforts bothintensifying at the awareness efforts both at standardized procedures for Shariahstandardized procedures for Shariah meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors ofindustry all IBIs and individual intuitions level.industry and individual intuitions level. practices in the Islamic banking industry.practicesShariah in the Islamic Governance banking Framework industry. Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah StandardsIslamic one Open Market OperationsIslamic Open Market Operations 5 Year Strategic Plan for IBIs5 YearThe Strategic State Bank Plan of Pakistanfor IBIs has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoptionSolution / for Liquidity ManagementSolution for Liquidity Management (2014-2018) (2014-2018)oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFIThe Stand biggest- challenge faced by the IslamThe- biggest challenge faced by the Islam- The Strategic Plan focuses on critical The coversStrategic points Plan such focuses as an on effective critical mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. ic Finance industry was the lack icof Finance industry was the lack of issues and includes necessary initiativesissues andnism includes for the necessaryBOD oversight initiatives of the IBI’snism for the BOD oversight of the IBI’s availability on Rupee denominationavailability on Rupee denomination for improving public acceptance andfor improvingShariah publiccompliance acceptance environment, and Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Schemesovereign Sukuk for deployment sovereignof Sukuk for deployment of promoting Islamic banking as a distinctpromoting accountability Islamic banking of executive as a distinct management accountability of executive management excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the and viable system for meeting the finanand- viablein implementationsystem for meeting of thethe framework,finan- in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan hasoption been of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank cial services need of the public in generalcial servicesindependent need of the and public effective in general Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce ofspecially Pakistan in collaboration with ofthe Pakistan in collaboration with the and business community in particular.and businessappointed community as per Fit in and particular. Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through industryvarious developed an OMO alternativeindustry developed an OMO alternative The strategy paper has chalked outThe a strategyof SBP paper with hasone chalkedof its Shariah out a Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeingin form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being detailed plan with time bound objectivesdetailed membersplan with working time bound as Shariah objectives Advisor members to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariahused compli for -the benefit of the industry usedon for the benefit of the industry on which will prove to be beneficial for whichthe willadvise prove the to bankbe beneficial on day for to the day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme frequent(EFS) is basis. frequent basis. Minimum Capital Requirement Minimumfor Capital Requirement for onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the past has signi cantly from credit card to car purchasing in overall economy remained under pressure contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. accelerating consumption consumer nancing declined by Rs 50 and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer Rs 294 billion in 2008-09. nancing. e Expected Economic Consumer nancing was introduced Conditions Index went up three consecu- for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer- instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. started availing them without knowing However, from 2012, there was some their negative e ects . improvement. Banks restarted to make Signi cant growth was witnessed in new loan packages, realizing that years of consumer loans during July-March 2013-14 Pakistan's banking sector in the no or low activity in this area was a ecting as it increased to 9.8 percent against 4.2 past years has productively engaged itself the growth of their interest income. percent registered in the same period of in consumer nancing by introducing di erent products such as credit cards, auto loans, housing nance and personal loans etc. e robust growth of consumer nancing in the previous years in the rst place was ascribed to the exible econom- ic policies set according to the principles of free market economy and huge liquidi- ty available to the banks in the aermath of 9/11. e data showed that even well-advertised nancial year 2012-13. Consumer nanc- Earlier, banks played their strategic credit card business also fell signi cantly. ing started gaining strength since Novem- role in promoting economic development e loans under the credit card declined ber 2012 and continued its upward trend in the country. In the last twenty years, to Rs28 billion from Rs35 billion the during July- March, 2013-14. Consumer three eminent foreign banks took the lead previous year. e pro table credit card durables registered a dramatic growth of in introducing credit cards in the banking business, which has great in uence in 88.2 percent in credit expansion followed sector. But unfortunately, this was limited developed and developing economies, by 17.8 percent growth in auto and 13.9 to top bureaucrats and businessmen. Later failed to get substantial headway in the percent in personal loans. It is appropriate on, the task of consumer nancing was domestic market. to mention here that increased growth in triumphantly taken by top Pakistani auto nance is largely owing to the auto banks. ey provided the facilities of Car purchasing was the second highest nance facility actively marketed by consumer nancing to both the middle attraction for the consumers but the leading Islamic banks. class and the higher salaried class. ey outstanding loans in this particular sector also contributed in augmenting the stand- showed an abrupt fall during the last In making personal loans, most banks ard of living of the middle class, which is couple of years. e outstanding loans for judge the credit worthiness of borrowers the back bone of any economy. car purchasing fell to Rs64 billion till June by their monthly income levels and set 30, 2010. e same was Rs 78 billion in ceilings accordingly. Sometime back, the Aggressive marketing continued at an 2009 and Rs105 billion in 2008. Loans NBP introduced its ‘Cash n Gold’ accelerating pace. Consumer nance was for house building under the consumer scheme, which o ered up to Rs35, 000 in encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of to boost the economic growth through Rs 61 billion the previous year. In the net contents of gold (in the form of demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate private sector performed much below the under the scheme was also a bit lower than
Banking
SALIENT FEATURES OF CAPTIAL in 2010-11 and total assets reached to MAREKT: Rs. 275 billion proving its rapid growth. Salient features of capital markets of the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, Pakistan are: Investment Banks: has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down meeting by 100 bps to 8.5 percent in and continues to recede, can induce Debt Capital Markets: Investment banks have been facing multi- Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, ple problems in Pakistan like low capitaliA Brief- Overview about Islamic BankA Brief- Overview about Islamic Bank- consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- It is the market where debt securities are zation, high cost of funds and limiteding in Pakistan ing in Pakistan April 2013 also made an impact on tion. us, the recent reduction in domes- transected and from where business avenues for mobilization. consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further enterprises (companies) and government over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase can acquire long term funds. Debt capital Voluntary Pension System: Pakistan, in recent years has showedPakistan, in recent years has showed bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial market is composed of private placement strong inclination towards Islamic Bankstrong- inclination towards Islamic Bank- competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. as well as organized markets and exchang- Government of Pakistan intendsing. to e rst Commercial Islamic Banking. e rst Commercial Islamic Bank overdra facility for HBL account major macroeconomic indicators have es. is market deals in the nancial reform existing pension system. Fortuin the- country was established in inthe the country was established in the holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a instruments that pay interest. In this nately, the dependency rate for Pakistan2002, is and within 13 years only, 2002,the and within 13 years only, the similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the market, di erent bonds and loans are favorable for converting existing de nedIslamic Banking share is more than 10%Islamic Banking share is more than 10% to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to taken as prime nancial instruments. bene t system into de ned contributionof the entire Banking Industry. Over ofthe the entire Banking Industry. Over the follow a downward trend with some the xed and deprived sections of the Debt capital market, on the basis of system. last decade, Islamic Banks have beenlast decade, Islamic Banks have been e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a element of interest is also called ‘ xed successful in providing end to endsuccessful in providing end to end nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently income market’. Real Estate Investment Trusts (REITs):alternatives to all conventional bankingalternatives to all conventional banking increase in policy interest rate by the SBP help to boost business activities and products. e support coming from products.the e support coming from the amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial National Savings Schemes (NSS): REITs is an addition to the capitalcentral bank of the country is one of centralthe bank of the country is one of the move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative markets in Pakistan therefore, adjustmentmajor factors of the rapid growth majorof factors of the rapid growth of men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic e Central Directorate of National in frame work would be required priorIslamic to Banking industry. With moreIslamic Banking industry. With more curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the Savings CDNS performs the function of joining investment community. Some than 1400+ Islamic Banking branchesthan 1400+banking Islamic and toBanking formulate branches a comprehen banking- • and to formulate a comprehen- • Pakistan averaged 12.48 percent from people who are working in private compa- deposit bank and sells securities issued by amendments in REITs regulation were and a 20%+ growth in deposits, assets,and a 20%+sive policygrowth framework in deposits, for assets, an Islamicsive policy framework for an Islamic 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no the government through 37 saving centers made in 2010 to remove impediments nancing and investments, the Pakistani nancing nancial and investments, system in the the country Pakistani including nancial • system in the country including • of 20 percent in October of 1996 and a the recent drop in international oil price security. working throughout Pakistan. NSS, blocking its growth. In the light of these Islamic Banking industry is set Islamicto theBanking review ofindustry the legal is frameworkset to andthe review of the legal framework and record low of 7.50 percent in November has induced low in ation and improved especially focusing on individual savings, amendments, fund size for launching the become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the sells di erent types of securities. NSS REITs projects was reduced from Rs. 5 the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a schemes are available for a period of 3, 5 billion to Rs. 2billion. Moreover, Hybrid Pakistan Mercantile Exchange Limited:to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department and 10 years. Segment of Subsidized concept was introduced and also the Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP Scheme (Pensioners bene t account and registration fee of REIT property was Finance, ShariahPakistan compliance Mercantile is theExchange singleFinance, Limitedindustry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and Behbood Fund) are also available. reduced in Punjab and Sindh. Stamp duty most importantNCEL aspect(National for Commoditythe Islamicmost Exchange importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the of REIT property was reduced from 2% Banking Limited)& Finance is the industry. rst demutualized eBanking onlineand & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- Government Securities: to 0.5% and from 2% to 1% on property CAPITAL MARKETS credibility commodityof Islamic exchange.Banking isInstitu credibilityexchange- as wasmodesof Islamic of Islamic Banking nance. Institu- as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with sale. Stamp duty in Sindh has been tions (IBIs)established not only dependsin April, on tionsthe2002 (IBIs) and not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / Pakistan Investment Bonds (PIBs), as reduced from 3% to 2.5%. Registration nancial healthcommenced of the its institution activity in but nancial2007. PMEXSteps health Taken of thefor institutionPromotion butof IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic government securities, provide benchmark fee on purchase of property through also on itsprovides adherence a regular to the platform Shariah.also for tradingon Bankingits ofadherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the to the debt markets. e government of REIT has been waived in both the IN PAKISTAN Under the commoditiescurrent strategy and forcurrencies promoUnder - for thefuture current strategy for promo- approval of SBP Shariah Board. approval of SBP Shariah Board. Pakistan is committed to provide long term provinces and fee on sale has been reduced tion and developmentcontracts. e of Islamicproduct Bank tionportfolio- and• development of of Islamic Bank- • papers in the market to develop the long from 1% to 0.5%. ing as a parallel,PMEX viablehas been and designed compatible toing cater as a specu parallel,- viable and compatible Besides having a Shariah Board, a Besides having a Shariah Board, a By Saeed Ahmed Siddiqui end of the government debt yield curve. banking system,lative Stateand hedgingBank of needsPakistanbanking of di erent system, State Bank of Pakistan separate Islamic Banking departmentseparate is Islamic Banking department is Leasing: has taken stakeholdersa number of and steps investment to ensurehas groups. taken ea number of steps to ensure also in place at SBP with highly qualifiedalso in place at SBP with highly qualified Mudarbas: Shariah compliancefuture contracts by IBIs presently and Shariahfor available compliance in by IBIs and for & seasoned professionals who &are seasoned professionals who are Various problems are being faced by the standardizationPMEX of areShariah the di erent practices. sizestandardization contracts• of of Shariah practices. • engaged in policy making and variousengaged in policy making and various Mudarba, as distinctive Islamic business leasing sector in Pakistan like liquidity he capital market performs two important tasks: gold and silver and the contracts of rice, projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- Capital markets are the barometer model, has played a very important role issue, low capitalization, limited resources rst, it facilitates mobilization and intermediation of e Statepalm Bank oil, of Pakistancrude oil, has sugar, played cotton e State and Bank of Pakistan has played ing industry. ing industry. for non-banking nance sector. Mudarba for mobilization, high cost of funds, level of economic health and an important private savings and second, allocation of medium a dominantinterest role in rates. enabling the Islamica dominant • role in enabling the Islamic • has achieved fast growth in pro tability of non-performing rates, limited outreach and long term nancial resources for investment Banking Industry to not only sustain butBanking Industry to not only sustain but Instructions for Shariah ComplianceInstructions for Shariah Compliance component of the financial sector of terms. Mudarba sector has now created its etc. through a variety of debt and equity instruments of both public rapidly growDerivative many folds. Markets: rapidly grow many folds. in IBIs: in IBIs: own place in the nancial sector and is an economy. It is a vehicle which and private sector. Capital market plays a crucial role in mobiliz- • • now capable to create its own market in Settlement System: ing the domestic resources and channelizing them in most National ForSteering providing Committee investors Nationalforwith basic Steering Committee for In order to strengthen the Shariah In order to strengthen the Shariah the nancial sector of Pakistan. collects capital from the areas where productive investments. An ecient capital market provides Promotionhedging on Islamic instruments, Banking nancingPromotion options on Islamic Banking compliance mechanism within IBIs andcompliance mechanism within IBIs and PRISM (Pakistan Real Time Inter-bank attractive opportunities of investment to both local and foreign and increased investment alternatives,• • to ensure that all relevant Islamicto ensure that all relevant Islamic it is in surplus for transferring the Mutual Fund: Settlement System) began as a result of investors. Timely ow of information provides fair chances to e Steeringdeliverable Committee future contracts for the and e cash-set Steering- Committee for the banking regulations are complied withbanking regulations are complied with growing awareness of sound risk manage- capital to the areas where it is short participants in potential pro ts nevertheless capital market of Promotiontlement of Islamic future contractsbanking arewasPromotion available • forof Islamic banking was • in letter and spirit, IBIs are requiredin to letter and spirit, IBIs are required to Growth rate of mutual fund, in 2009-10 ment so that the settlement of large value Pakistan has mostly been under the control of a few rich families constitutedtrading by Ministryin at the threeof Financestockconstituted exchanges ofby Ministry of Finance introduce Shariah compliance mechaintroduce- Shariah compliance mecha- in supply and needed badly. was 4.4% a year which increased to 10% funds may be made easier. and groups. (MoF), GovernmentPakistan. of Pakistan (MoF),in • Government of Pakistan in • nism as a part of their control structurenism as a part of their control structure December 2013 comprising of leadingDecember 2013 comprising of leading as per the Shariah Compliance Frameas -per the Shariah Compliance Frame- Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of 26 Journal of The Institute of Bankers Pakistan from SBP. e main objective of fromthe SBP.• e main objective of the • Pakistan. The Shariah CompliancePakistan. The Shariah Compliance Committee is to carry out an objectiveCommittee is to carry out an objective Framework covers the main aspects Frameworkfor covers the main aspects for review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs
such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah governance and compliance frameworkgovernance and compliance framework Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working the bank are compliant / consistent withthe bank are compliant / consistent with the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class outlined for the respective modes outlinedof for the respective modes of meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set products the banks are required to productsget the banks are required to get Islamic Banking Islamic boldBanking step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for formal approval from the Shariahformal approval from the Shariah Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the the product and its related documents.the product and its related documents. Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality SBP conducts Shariah Compliance SBP conducts Shariah Compliance media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target oped Shariah Compliance Inspectionoped Shariahness about Compliance Islamic finance, Inspection and building ness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry atthe par industry.with Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in Manual for Islamic Banking Institutions.Manual capacityfor Islamic of theBanking stakeholders. Institutions. capacitythe of theinternational stakeholders. standards and alsothe international standards andunderstanding also of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. Shariah Inspection helps in identifyingShariah Inspection helps in identifying achieve standardization of Shariahachieve standardization of businessShariah and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance variation in procedures adopted variationby Market in proceduresDevelopment adopted by Market Developmentpractices locally, a mechanism practicesfor locally, a mechanismone offor the key causes of confusion andone of the key causes of confusion and different banks. The decisions on Sharidifferent- banks. The decisions on Shari- adoption/adaptation of these Shariahadoption/adaptation of these misperceptionShariah about Islamic finance.misperception about Islamic finance. ah Inspection findings are also a sourceah InspectionInitiatives findings will are be also undertakena source Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed Theby SBP.plan thus gives extensive focus Theon plan thus gives extensive focus on that helps in achieving the goal of havingthat helpsproduct in achieving diversification. the goal of having productAccording diversification. to this mechanism, Accordingthe to this mechanism,intensifying the the awareness efforts bothintensifying at the awareness efforts both at standardized procedures for Shariahstandardized procedures for Shariah meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors ofindustry all IBIs and individual intuitions level.industry and individual intuitions level. practices in the Islamic banking industry.practicesShariah in the Islamic Governance banking Framework industry. Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah StandardsIslamic one Open Market OperationsIslamic Open Market Operations 5 Year Strategic Plan for IBIs5 YearThe Strategic State Bank Plan of Pakistanfor IBIs has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoptionSolution / for Liquidity ManagementSolution for Liquidity Management (2014-2018) (2014-2018)oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFIThe Stand biggest- challenge faced by the IslamThe- biggest challenge faced by the Islam- The Strategic Plan focuses on critical The coversStrategic points Plan such focuses as an on effective critical mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. ic Finance industry was the lack icof Finance industry was the lack of issues and includes necessary initiativesissues andnism includes for the necessaryBOD oversight initiatives of the IBI’snism for the BOD oversight of the IBI’s availability on Rupee denominationavailability on Rupee denomination for improving public acceptance andfor improvingShariah publiccompliance acceptance environment, and Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Schemesovereign Sukuk for deployment sovereignof Sukuk for deployment of promoting Islamic banking as a distinctpromoting accountability Islamic banking of executive as a distinct management accountability of executive management excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the and viable system for meeting the finanand- viablein implementationsystem for meeting of thethe framework,finan- in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan hasoption been of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank cial services need of the public in generalcial servicesindependent need of the and public effective in general Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce ofspecially Pakistan in collaboration with ofthe Pakistan in collaboration with the and business community in particular.and businessappointed community as per Fit in and particular. Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through industryvarious developed an OMO alternativeindustry developed an OMO alternative The strategy paper has chalked outThe a strategyof SBP paper with hasone chalkedof its Shariah out a Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeingin form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being detailed plan with time bound objectivesdetailed membersplan with working time bound as Shariah objectives Advisor members to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariahused compli for -the benefit of the industry usedon for the benefit of the industry on which will prove to be beneficial for whichthe willadvise prove the to bankbe beneficial on day for to the day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme frequent(EFS) is basis. frequent basis. Minimum Capital Requirement Minimumfor Capital Requirement for onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the past has signi cantly from credit card to car purchasing in overall economy remained under pressure contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. accelerating consumption consumer nancing declined by Rs 50 and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer Rs 294 billion in 2008-09. nancing. e Expected Economic Consumer nancing was introduced Conditions Index went up three consecu- for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer- instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. started availing them without knowing However, from 2012, there was some their negative e ects . improvement. Banks restarted to make Signi cant growth was witnessed in new loan packages, realizing that years of consumer loans during July-March 2013-14 Pakistan's banking sector in the no or low activity in this area was a ecting as it increased to 9.8 percent against 4.2 past years has productively engaged itself the growth of their interest income. percent registered in the same period of in consumer nancing by introducing di erent products such as credit cards, auto loans, housing nance and personal loans etc. e robust growth of consumer nancing in the previous years in the rst place was ascribed to the exible econom- ic policies set according to the principles of free market economy and huge liquidi- ty available to the banks in the aermath of 9/11. e data showed that even well-advertised nancial year 2012-13. Consumer nanc- Earlier, banks played their strategic credit card business also fell signi cantly. ing started gaining strength since Novem- role in promoting economic development e loans under the credit card declined ber 2012 and continued its upward trend in the country. In the last twenty years, to Rs28 billion from Rs35 billion the during July- March, 2013-14. Consumer three eminent foreign banks took the lead previous year. e pro table credit card durables registered a dramatic growth of in introducing credit cards in the banking business, which has great in uence in 88.2 percent in credit expansion followed sector. But unfortunately, this was limited developed and developing economies, by 17.8 percent growth in auto and 13.9 to top bureaucrats and businessmen. Later failed to get substantial headway in the percent in personal loans. It is appropriate on, the task of consumer nancing was domestic market. to mention here that increased growth in triumphantly taken by top Pakistani auto nance is largely owing to the auto banks. ey provided the facilities of Car purchasing was the second highest nance facility actively marketed by consumer nancing to both the middle attraction for the consumers but the leading Islamic banks. class and the higher salaried class. ey outstanding loans in this particular sector also contributed in augmenting the stand- showed an abrupt fall during the last In making personal loans, most banks ard of living of the middle class, which is couple of years. e outstanding loans for judge the credit worthiness of borrowers the back bone of any economy. car purchasing fell to Rs64 billion till June by their monthly income levels and set 30, 2010. e same was Rs 78 billion in ceilings accordingly. Sometime back, the Aggressive marketing continued at an 2009 and Rs105 billion in 2008. Loans NBP introduced its ‘Cash n Gold’ accelerating pace. Consumer nance was for house building under the consumer scheme, which o ered up to Rs35, 000 in encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of to boost the economic growth through Rs 61 billion the previous year. In the net contents of gold (in the form of demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate private sector performed much below the under the scheme was also a bit lower than
SALIENT FEATURES OF CAPTIAL in 2010-11 and total assets reached to the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, MAREKT: Rs. 275 billion proving its rapid has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down “An efficient A Brief Overview about Islamic BankA Brief- Overview about Islamic Bank- growth. meeting by 100 bps to 8.5 percent in and continues to recede, can induce ing in Pakistan ing in Pakistan Salient features of capital markets of Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, Pakistan are: Investment Banks: consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- capital market April 2013 also made an impact on tion. us, the recent reduction in domes- Pakistan, in recent years has showedPakistan, in recent years has showed Debt Capital Markets: Investment banks have been facing multi- consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further strong inclination towards Islamic Bankstrong- inclination towards Islamic Bank- ple problems in Pakistan like low capitali- over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase ing. e rst Commercial Islamic Banking. e rst Commercial Islamic Bank It is the market where debt securities are zation, high cost of funds and limited provides bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial in the country was established in inthe the country was established in the transected and from where business avenues for mobilization. competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. 2002, and within 13 years only, 2002,the and within 13 years only, the enterprises (companies) and government overdra facility for HBL account major macroeconomic indicators have Islamic Banking share is more than 10%Islamic Banking share is more than 10% can acquire long term funds. Debt capital Voluntary Pension System: holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a attractive of the entire Banking Industry. Over ofthe the entire Banking Industry. Over the market is composed of private placement similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the last decade, Islamic Banks have beenlast decade, Islamic Banks have been as well as organized markets and exchang- Government of Pakistan intends to to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to successful in providing end to endsuccessful in providing end to end es. is market deals in the nancial reform existing pension system. Fortu- follow a downward trend with some the xed and deprived sections of the opportunities alternatives to all conventional bankingalternatives to all conventional banking instruments that pay interest. In this nately, the dependency rate for Pakistan is e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a products. e support coming from products.the e support coming from the market, di erent bonds and loans are favorable for converting existing de ned nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently central bank of the country is one of centralthe bank of the country is one of the taken as prime nancial instruments. bene t system into de ned contribution increase in policy interest rate by the SBP help to boost business activities and major factors of the rapid growth majorof factors of the rapid growth of Debt capital market, on the basis of system. of investment amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial Islamic Banking industry. With moreIslamic Banking industry. With more element of interest is also called ‘ xed move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative than 1400+ Islamic Banking branchesthan 1400+banking Islamic and toBanking formulate branches a comprehen banking- • and to formulate a comprehen- • income market’. Real Estate Investment Trusts (REITs): men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic and a 20%+ growth in deposits, assets,and a 20%+sive policygrowth framework in deposits, for assets, an Islamicsive policy framework for an Islamic curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the to both local nancing and investments, the Pakistani nancing nancial and investments, system in the the country Pakistani including nancial • system in the country including • National Savings Schemes (NSS): REITs is an addition to the capital Pakistan averaged 12.48 percent from people who are working in private compa- Islamic Banking industry is set Islamicto theBanking review ofindustry the legal is frameworkset to andthe review of the legal framework and markets in Pakistan therefore, adjustment 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the e Central Directorate of National in frame work would be required prior to of 20 percent in October of 1996 and a the recent drop in international oil price security. and foreign the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a Savings CDNS performs the function of joining investment community. Some record low of 7.50 percent in November has induced low in ation and improved to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department deposit bank and sells securities issued by amendments in REITs regulation were Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP the government through 37 saving centers made in 2010 to remove impediments Finance, Shariah compliance is the singleFinance, industry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and working throughout Pakistan. NSS, blocking its growth. In the light of these investors.” most important aspect for the Islamicmost importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the especially focusing on individual savings, amendments, fund size for launching the Banking & Finance industry. eBanking and & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- sells di erent types of securities. NSS REITs projects was reduced from Rs. 5 credibility of Islamic Banking Institucredibility- as modesof Islamic of Islamic Banking nance. Institu- as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with schemes are available for a period of 3, 5 billion to Rs. 2billion. Moreover, Hybrid Pakistan Mercantile Exchange Limited: tions (IBIs) not only depends on tionsthe (IBIs) not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / and 10 years. Segment of Subsidized concept was introduced and also the nancial health of the institution but nancial Steps health Taken of thefor institutionPromotion butof IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic Scheme (Pensioners bene t account and registration fee of REIT property was Pakistan Mercantile Exchange Limited also on its adherence to the Shariah.also on Bankingits adherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the Behbood Fund) are also available. reduced in Punjab and Sindh. Stamp duty NCEL (National Commodity Exchange Under the current strategy for promoUnder- the current strategy for promo- approval of SBP Shariah Board. approval of SBP Shariah Board. of REIT property was reduced from 2% Limited) is the rst demutualized online tion and development of Islamic Banktion- and• development of Islamic Bank- • Government Securities: to 0.5% and from 2% to 1% on property commodity exchange. is exchange was ing as a parallel, viable and compatibleing as a parallel, viable and compatible Besides having a Shariah Board, a Besides having a Shariah Board, a sale. Stamp duty in Sindh has been established in April, 2002 and banking system, State Bank of Pakistanbanking system, State Bank of Pakistan separate Islamic Banking departmentseparate is Islamic Banking department is Pakistan Investment Bonds (PIBs), as reduced from 3% to 2.5%. Registration commenced its activity in 2007. PMEX has taken a number of steps to ensurehas taken a number of steps to ensure also in place at SBP with highly qualifiedalso in place at SBP with highly qualified government securities, provide benchmark fee on purchase of property through provides a regular platform for trading of Shariah compliance by IBIs and Shariahfor compliance by IBIs and for & seasoned professionals who &are seasoned professionals who are to the debt markets. e government of REIT has been waived in both the commodities and currencies for future standardization of Shariah practices. standardization• of Shariah practices. • engaged in policy making and variousengaged in policy making and various Pakistan is committed to provide long term provinces and fee on sale has been reduced contracts. e product portfolio of projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- papers in the market to develop the long from 1% to 0.5%. PMEX has been designed to cater specu- e State Bank of Pakistan has played e State Bank of Pakistan has played ing industry. ing industry. end of the government debt yield curve. lative and hedging needs of di erent a dominant role in enabling the Islamica dominant • role in enabling the Islamic • Leasing: stakeholders and investment groups. e Banking Industry to not only sustain butBanking Industry to not only sustain but Instructions for Shariah ComplianceInstructions for Shariah Compliance Mudarbas: future contracts presently available in rapidly grow many folds. rapidly grow many folds. in IBIs: in IBIs: Various problems are being faced by the PMEX are the di erent size contracts of • • Mudarba, as distinctive Islamic business leasing sector in Pakistan like liquidity he capital market performs two important tasks: gold and silver and the contracts of rice, National Steering Committee Nationalfor Steering Committee for In order to strengthen the Shariah In order to strengthen the Shariah model, has played a very important role issue, low capitalization, limited resources rst, it facilitates mobilization and intermediation of palm oil, crude oil, sugar, cotton and Promotion on Islamic Banking Promotion on Islamic Banking compliance mechanism within IBIs andcompliance mechanism within IBIs and for non-banking nance sector. Mudarba for mobilization, high cost of funds, level private savings and second, allocation of medium interest rates. • • to ensure that all relevant Islamicto ensure that all relevant Islamic has achieved fast growth in pro tability of non-performing rates, limited outreach and long term nancial resources for investment e Steering Committee for the e Steering Committee for the banking regulations are complied withbanking regulations are complied with terms. Mudarba sector has now created its etc. through a variety of debt and equity instruments of both public Derivative Markets: Promotion of Islamic banking wasPromotion • of Islamic banking was • in letter and spirit, IBIs are requiredin to letter and spirit, IBIs are required to own place in the nancial sector and is and private sector. Capital market plays a crucial role in mobiliz- constituted by Ministry of Financeconstituted by Ministry of Finance introduce Shariah compliance mechaintroduce- Shariah compliance mecha- now capable to create its own market in Settlement System: ing the domestic resources and channelizing them in most For providing investors with basic (MoF), Government of Pakistan (MoF),in • Government of Pakistan in • nism as a part of their control structurenism as a part of their control structure the nancial sector of Pakistan. productive investments. An ecient capital market provides hedging instruments, nancing options December 2013 comprising of leadingDecember 2013 comprising of leading as per the Shariah Compliance Frameas -per the Shariah Compliance Frame- PRISM (Pakistan Real Time Inter-bank attractive opportunities of investment to both local and foreign and increased investment alternatives, Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of Mutual Fund: Settlement System) began as a result of investors. Timely ow of information provides fair chances to deliverable future contracts and cash-set- from SBP. e main objective of fromthe SBP.• e main objective of the • Pakistan. The Shariah CompliancePakistan. The Shariah Compliance growing awareness of sound risk manage- participants in potential pro ts nevertheless capital market of tlement future contracts are available for Committee is to carry out an objectiveCommittee is to carry out an objective Framework covers the main aspects Frameworkfor covers the main aspects for Growth rate of mutual fund, in 2009-10 ment so that the settlement of large value Pakistan has mostly been under the control of a few rich families trading in at the three stock exchanges of review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs and groups. was 4.4% a year which increased to 10% funds may be made easier. Pakistan.
Journal of The Institute of Bankers Pakistan 27
such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah governance and compliance frameworkgovernance and compliance framework Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working the bank are compliant / consistent withthe bank are compliant / consistent with the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class outlined for the respective modes outlinedof for the respective modes of meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set products the banks are required to productsget the banks are required to get Islamic Banking Islamic boldBanking step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for formal approval from the Shariahformal approval from the Shariah Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the the product and its related documents.the product and its related documents. Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality SBP conducts Shariah Compliance SBP conducts Shariah Compliance media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target oped Shariah Compliance Inspectionoped Shariahness about Compliance Islamic finance, Inspection and building ness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry atthe par industry.with Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in Manual for Islamic Banking Institutions.Manual capacityfor Islamic of theBanking stakeholders. Institutions. capacitythe of theinternational stakeholders. standards and alsothe international standards andunderstanding also of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. Shariah Inspection helps in identifyingShariah Inspection helps in identifying achieve standardization of Shariahachieve standardization of businessShariah and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance variation in procedures adopted variationby Market in proceduresDevelopment adopted by Market Developmentpractices locally, a mechanism practicesfor locally, a mechanismone offor the key causes of confusion andone of the key causes of confusion and different banks. The decisions on Sharidifferent- banks. The decisions on Shari- adoption/adaptation of these Shariahadoption/adaptation of these misperceptionShariah about Islamic finance.misperception about Islamic finance. ah Inspection findings are also a sourceah InspectionInitiatives findings will are be also undertakena source Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed Theby SBP.plan thus gives extensive focus Theon plan thus gives extensive focus on that helps in achieving the goal of havingthat helpsproduct in achieving diversification. the goal of having productAccording diversification. to this mechanism, Accordingthe to this mechanism,intensifying the the awareness efforts bothintensifying at the awareness efforts both at standardized procedures for Shariahstandardized procedures for Shariah meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors ofindustry all IBIs and individual intuitions level.industry and individual intuitions level. practices in the Islamic banking industry.practicesShariah in the Islamic Governance banking Framework industry. Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah StandardsIslamic one Open Market OperationsIslamic Open Market Operations 5 Year Strategic Plan for IBIs5 YearThe Strategic State Bank Plan of Pakistanfor IBIs has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoptionSolution / for Liquidity ManagementSolution for Liquidity Management (2014-2018) (2014-2018)oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFIThe Stand biggest- challenge faced by the IslamThe- biggest challenge faced by the Islam- The Strategic Plan focuses on critical The coversStrategic points Plan such focuses as an on effective critical mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. ic Finance industry was the lack icof Finance industry was the lack of issues and includes necessary initiativesissues andnism includes for the necessaryBOD oversight initiatives of the IBI’snism for the BOD oversight of the IBI’s availability on Rupee denominationavailability on Rupee denomination for improving public acceptance andfor improvingShariah publiccompliance acceptance environment, and Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Schemesovereign Sukuk for deployment sovereignof Sukuk for deployment of promoting Islamic banking as a distinctpromoting accountability Islamic banking of executive as a distinct management accountability of executive management excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the and viable system for meeting the finanand- viablein implementationsystem for meeting of thethe framework,finan- in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan hasoption been of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank cial services need of the public in generalcial servicesindependent need of the and public effective in general Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce ofspecially Pakistan in collaboration with ofthe Pakistan in collaboration with the and business community in particular.and businessappointed community as per Fit in and particular. Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through industryvarious developed an OMO alternativeindustry developed an OMO alternative The strategy paper has chalked outThe a strategyof SBP paper with hasone chalkedof its Shariah out a Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeingin form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being detailed plan with time bound objectivesdetailed membersplan with working time bound as Shariah objectives Advisor members to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariahused compli for -the benefit of the industry usedon for the benefit of the industry on which will prove to be beneficial for whichthe willadvise prove the to bankbe beneficial on day for to the day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme frequent(EFS) is basis. frequent basis. Minimum Capital Requirement Minimumfor Capital Requirement for onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the past has signi cantly from credit card to car purchasing in overall economy remained under pressure contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. accelerating consumption consumer nancing declined by Rs 50 and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer Rs 294 billion in 2008-09. nancing. e Expected Economic Consumer nancing was introduced Conditions Index went up three consecu- for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer- instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. started availing them without knowing However, from 2012, there was some their negative e ects . improvement. Banks restarted to make Signi cant growth was witnessed in new loan packages, realizing that years of consumer loans during July-March 2013-14 Pakistan's banking sector in the no or low activity in this area was a ecting as it increased to 9.8 percent against 4.2 past years has productively engaged itself the growth of their interest income. percent registered in the same period of in consumer nancing by introducing di erent products such as credit cards, auto loans, housing nance and personal loans etc. e robust growth of consumer nancing in the previous years in the rst place was ascribed to the exible econom- ic policies set according to the principles of free market economy and huge liquidi- ty available to the banks in the aermath of 9/11. e data showed that even well-advertised nancial year 2012-13. Consumer nanc- Earlier, banks played their strategic credit card business also fell signi cantly. ing started gaining strength since Novem- role in promoting economic development e loans under the credit card declined ber 2012 and continued its upward trend in the country. In the last twenty years, to Rs28 billion from Rs35 billion the during July- March, 2013-14. Consumer three eminent foreign banks took the lead previous year. e pro table credit card durables registered a dramatic growth of in introducing credit cards in the banking business, which has great in uence in 88.2 percent in credit expansion followed sector. But unfortunately, this was limited developed and developing economies, by 17.8 percent growth in auto and 13.9 to top bureaucrats and businessmen. Later failed to get substantial headway in the percent in personal loans. It is appropriate on, the task of consumer nancing was domestic market. to mention here that increased growth in triumphantly taken by top Pakistani auto nance is largely owing to the auto banks. ey provided the facilities of Car purchasing was the second highest nance facility actively marketed by consumer nancing to both the middle attraction for the consumers but the leading Islamic banks. class and the higher salaried class. ey outstanding loans in this particular sector also contributed in augmenting the stand- showed an abrupt fall during the last In making personal loans, most banks ard of living of the middle class, which is couple of years. e outstanding loans for judge the credit worthiness of borrowers the back bone of any economy. car purchasing fell to Rs64 billion till June by their monthly income levels and set 30, 2010. e same was Rs 78 billion in ceilings accordingly. Sometime back, the Aggressive marketing continued at an 2009 and Rs105 billion in 2008. Loans NBP introduced its ‘Cash n Gold’ accelerating pace. Consumer nance was for house building under the consumer scheme, which o ered up to Rs35, 000 in encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of to boost the economic growth through Rs 61 billion the previous year. In the net contents of gold (in the form of demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate private sector performed much below the under the scheme was also a bit lower than
Banking
the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down A Brief Overview about Islamic BankA Brief- Overview about Islamic Bank- meeting by 100 bps to 8.5 percent in and continues to recede, can induce ing in Pakistan ing in Pakistan Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- April 2013 also made an impact on tion. us, the recent reduction in domes- Pakistan, in recent years has showedPakistan, in recent years has showed consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further strong inclination towards Islamic Bankstrong- inclination towards Islamic Bank- over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase ing. e rst Commercial Islamic Banking. e rst Commercial Islamic Bank bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial in the country was established in inthe the country was established in the competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. 2002, and within 13 years only, 2002,the and within 13 years only, the overdra facility for HBL account major macroeconomic indicators have Islamic Banking share is more than 10%Islamic Banking share is more than 10% holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a of the entire Banking Industry. Over ofthe the entire Banking Industry. Over the similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the last decade, Islamic Banks have beenlast decade, Islamic Banks have been to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to successful in providing end to endsuccessful in providing end to end follow a downward trend with some the xed and deprived sections of the alternatives to all conventional bankingalternatives to all conventional banking e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a products. e support coming from products.the e support coming from the nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently central bank of the country is one of centralthe bank of the country is one of the increase in policy interest rate by the SBP help to boost business activities and major factors of the rapid growth majorof factors of the rapid growth of amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial Islamic Banking industry. With moreIslamic Banking industry. With more move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative than 1400+ Islamic Banking branchesthan 1400+banking Islamic and toBanking formulate branches a comprehen banking- • and to formulate a comprehen- • men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic and a 20%+ growth in deposits, assets,and a 20%+sive policygrowth framework in deposits, for assets, an Islamicsive policy framework for an Islamic curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the nancing and investments, the Pakistani nancing nancial and investments, system in the the country Pakistani including nancial • system in the country including • Pakistan averaged 12.48 percent from people who are working in private compa- Regulatory Support for the Growth of Islamic Banking industry is set Islamicto theBanking review ofindustry the legal is frameworkset to andthe review of the legal framework and 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the of 20 percent in October of 1996 and a the recent drop in international oil price security. the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a record low of 7.50 percent in November has induced low in ation and improved to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department ISLAMIC BANKING Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP Finance, Shariah compliance is the singleFinance, industry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and By Obaid Usmani most important aspect for the Islamicmost importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the Banking & Finance industry. eBanking and & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- credibility of Islamic Banking Institucredibility- as modesof Islamic of Islamic Banking nance. Institu- as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with tions (IBIs) not only depends on tionsthe (IBIs) not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / nancial health of the institution but nancial Steps health Taken of thefor institutionPromotion butof IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic also on its adherence to the Shariah.also on Bankingits adherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the Under the current strategy for promoUnder- the current strategy for promo- approval of SBP Shariah Board. approval of SBP Shariah Board. tion and development of Islamic Banktion- and• development of Islamic Bank- • ing as a parallel, viable and compatibleing as a parallel, viable and compatible Besides having a Shariah Board, a Besides having a Shariah Board, a banking system, State Bank of Pakistanbanking system, State Bank of Pakistan separate Islamic Banking departmentseparate is Islamic Banking department is has taken a number of steps to ensurehas taken a number of steps to ensure also in place at SBP with highly qualifiedalso in place at SBP with highly qualified Shariah compliance by IBIs and Shariahfor compliance by IBIs and for & seasoned professionals who &are seasoned professionals who are standardization of Shariah practices. standardization• of Shariah practices. • engaged in policy making and variousengaged in policy making and various projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- e State Bank of Pakistan has played e State Bank of Pakistan has played ing industry. ing industry. a dominant role in enabling the Islamica dominant • role in enabling the Islamic • Banking Industry to not only sustain butBanking Industry to not only sustain but Instructions for Shariah ComplianceInstructions for Shariah Compliance rapidly grow many folds. rapidly grow many folds. in IBIs: in IBIs: • • National Steering Committee Nationalfor Steering Committee for In order to strengthen the Shariah In order to strengthen the Shariah Promotion on Islamic Banking Promotion on Islamic Banking compliance mechanism within IBIs andcompliance mechanism within IBIs and This article highlights the main steps taken by the government & State • • to ensure that all relevant Islamicto ensure that all relevant Islamic e Steering Committee for the e Steering Committee for the banking regulations are complied withbanking regulations are complied with Bank of Pakistan including new initiatives which either directly contributes Promotion of Islamic banking wasPromotion • of Islamic banking was • in letter and spirit, IBIs are requiredin to letter and spirit, IBIs are required to constituted by Ministry of Financeconstituted by Ministry of Finance introduce Shariah compliance mechaintroduce- Shariah compliance mecha- to or indirectly augments the process of Standardization of Shariah (MoF), Government of Pakistan (MoF),in • Government of Pakistan in • nism as a part of their control structurenism as a part of their control structure December 2013 comprising of leadingDecember 2013 comprising of leading as per the Shariah Compliance Frameas -per the Shariah Compliance Frame- practices in the Islamic banking industry of Pakistan both in the local as Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of from SBP. e main objective of fromthe SBP.• e main objective of the • Pakistan. The Shariah CompliancePakistan. The Shariah Compliance well as global context. Committee is to carry out an objectiveCommittee is to carry out an objective Framework covers the main aspects Frameworkfor covers the main aspects for review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs
28 Journal of The Institute of Bankers Pakistan28 Journal of The Institute of Bankers Pakistan
such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah governance and compliance frameworkgovernance and compliance framework Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working the bank are compliant / consistent withthe bank are compliant / consistent with the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class outlined for the respective modes outlinedof for the respective modes of meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set products the banks are required to productsget the banks are required to get Islamic Banking Islamic boldBanking step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for formal approval from the Shariahformal approval from the Shariah Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the the product and its related documents.the product and its related documents. Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality SBP conducts Shariah Compliance SBP conducts Shariah Compliance media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target oped Shariah Compliance Inspectionoped Shariahness about Compliance Islamic finance, Inspection and building ness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry atthe par industry.with Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in Manual for Islamic Banking Institutions.Manual capacityfor Islamic of theBanking stakeholders. Institutions. capacitythe of theinternational stakeholders. standards and alsothe international standards andunderstanding also of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. Shariah Inspection helps in identifyingShariah Inspection helps in identifying achieve standardization of Shariahachieve standardization of businessShariah and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance variation in procedures adopted variationby Market in proceduresDevelopment adopted by Market Developmentpractices locally, a mechanism practicesfor locally, a mechanismone offor the key causes of confusion andone of the key causes of confusion and different banks. The decisions on Sharidifferent- banks. The decisions on Shari- adoption/adaptation of these Shariahadoption/adaptation of these misperceptionShariah about Islamic finance.misperception about Islamic finance. ah Inspection findings are also a sourceah InspectionInitiatives findings will are be also undertakena source Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed Theby SBP.plan thus gives extensive focus Theon plan thus gives extensive focus on that helps in achieving the goal of havingthat helpsproduct in achieving diversification. the goal of having productAccording diversification. to this mechanism, Accordingthe to this mechanism,intensifying the the awareness efforts bothintensifying at the awareness efforts both at standardized procedures for Shariahstandardized procedures for Shariah meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors ofindustry all IBIs and individual intuitions level.industry and individual intuitions level. practices in the Islamic banking industry.practicesShariah in the Islamic Governance banking Framework industry. Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah StandardsIslamic one Open Market OperationsIslamic Open Market Operations 5 Year Strategic Plan for IBIs5 YearThe Strategic State Bank Plan of Pakistanfor IBIs has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoptionSolution / for Liquidity ManagementSolution for Liquidity Management (2014-2018) (2014-2018)oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFIThe Stand biggest- challenge faced by the IslamThe- biggest challenge faced by the Islam- The Strategic Plan focuses on critical The coversStrategic points Plan such focuses as an on effective critical mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. ic Finance industry was the lack icof Finance industry was the lack of issues and includes necessary initiativesissues andnism includes for the necessaryBOD oversight initiatives of the IBI’snism for the BOD oversight of the IBI’s availability on Rupee denominationavailability on Rupee denomination for improving public acceptance andfor improvingShariah publiccompliance acceptance environment, and Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Schemesovereign Sukuk for deployment sovereignof Sukuk for deployment of promoting Islamic banking as a distinctpromoting accountability Islamic banking of executive as a distinct management accountability of executive management excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the and viable system for meeting the finanand- viablein implementationsystem for meeting of thethe framework,finan- in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan hasoption been of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank cial services need of the public in generalcial servicesindependent need of the and public effective in general Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce ofspecially Pakistan in collaboration with ofthe Pakistan in collaboration with the and business community in particular.and businessappointed community as per Fit in and particular. Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through industryvarious developed an OMO alternativeindustry developed an OMO alternative The strategy paper has chalked outThe a strategyof SBP paper with hasone chalkedof its Shariah out a Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeingin form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being detailed plan with time bound objectivesdetailed membersplan with working time bound as Shariah objectives Advisor members to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariahused compli for -the benefit of the industry usedon for the benefit of the industry on which will prove to be beneficial for whichthe willadvise prove the to bankbe beneficial on day for to the day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme frequent(EFS) is basis. frequent basis. Minimum Capital Requirement Minimumfor Capital Requirement for onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the past has signi cantly from credit card to car purchasing in overall economy remained under pressure contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. accelerating consumption consumer nancing declined by Rs 50 and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer Rs 294 billion in 2008-09. nancing. e Expected Economic Consumer nancing was introduced Conditions Index went up three consecu- for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer- instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. started availing them without knowing However, from 2012, there was some their negative e ects . improvement. Banks restarted to make Signi cant growth was witnessed in new loan packages, realizing that years of consumer loans during July-March 2013-14 Pakistan's banking sector in the no or low activity in this area was a ecting as it increased to 9.8 percent against 4.2 past years has productively engaged itself the growth of their interest income. percent registered in the same period of in consumer nancing by introducing di erent products such as credit cards, auto loans, housing nance and personal loans etc. e robust growth of consumer nancing in the previous years in the rst place was ascribed to the exible econom- ic policies set according to the principles of free market economy and huge liquidi- ty available to the banks in the aermath of 9/11. e data showed that even well-advertised nancial year 2012-13. Consumer nanc- Earlier, banks played their strategic credit card business also fell signi cantly. ing started gaining strength since Novem- role in promoting economic development e loans under the credit card declined ber 2012 and continued its upward trend in the country. In the last twenty years, to Rs28 billion from Rs35 billion the during July- March, 2013-14. Consumer three eminent foreign banks took the lead previous year. e pro table credit card durables registered a dramatic growth of in introducing credit cards in the banking business, which has great in uence in 88.2 percent in credit expansion followed sector. But unfortunately, this was limited developed and developing economies, by 17.8 percent growth in auto and 13.9 to top bureaucrats and businessmen. Later failed to get substantial headway in the percent in personal loans. It is appropriate on, the task of consumer nancing was domestic market. to mention here that increased growth in triumphantly taken by top Pakistani auto nance is largely owing to the auto banks. ey provided the facilities of Car purchasing was the second highest nance facility actively marketed by consumer nancing to both the middle attraction for the consumers but the leading Islamic banks. class and the higher salaried class. ey outstanding loans in this particular sector also contributed in augmenting the stand- showed an abrupt fall during the last In making personal loans, most banks ard of living of the middle class, which is couple of years. e outstanding loans for judge the credit worthiness of borrowers the back bone of any economy. car purchasing fell to Rs64 billion till June by their monthly income levels and set 30, 2010. e same was Rs 78 billion in ceilings accordingly. Sometime back, the Aggressive marketing continued at an 2009 and Rs105 billion in 2008. Loans NBP introduced its ‘Cash n Gold’ accelerating pace. Consumer nance was for house building under the consumer scheme, which o ered up to Rs35, 000 in encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of to boost the economic growth through Rs 61 billion the previous year. In the net contents of gold (in the form of demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate private sector performed much below the under the scheme was also a bit lower than
the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down A Brief Overview about Islamic BankA Brief- Overview about IslamicMark eBank Sha- res of IB Industry Mar(%) ke Shares of IB Industry (%) meeting by 100 bps to 8.5 percent in and continues to recede, can induce ing in Pakistan ing in Pakistan Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, 14 14 consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- 12.1 12.1 11.2 11.2 April 2013 also made an impact on tion. us, the recent reduction in domes- Pakistan, in recent years has showedPakistan, 12 in recent years has showed 12 9.7 10.1 9.8 9.7 10.1 9.8 strong inclination towards Islamic Bankstrong- inclination towards9.5 Islamic Bank- 9.5 9.1 9.1 consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further 10 8.6 10 8.6 8.1 8.1 over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase ing. e rst Commercial Islamic Banking. e rst Commercial Islamic Bank bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial in the country was established in inthe the country8 was established in the 8 competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. 2002, and within 13 years only, 2002,the and6 within 13 years only, the 6 Islamic Banking share is more than 10%Islamic Banking share is more than 10% overdra facility for HBL account major macroeconomic indicators have 4 4 holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a of the entire Banking Industry. Over ofthe the entire Banking Industry. Over the similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the last decade, Islamic Banks have beenlast decade,2 Islamic Banks have been 2 to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to successful in providing end to endsuccessful 0 in providing end to end 0 follow a downward trend with some the xed and deprived sections of the alternatives to all conventional bankingalternatives to all conventionalTotal Assets banking Deposits Total NAesste Ftsinancind & InvestmentDeposits Net Financind & Investment products. e support coming from products.the e support coming from the e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a 12-Dec 13-Sep 13-Dec 12-Dec 13-Sep 13-Dec nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently central bank of the country is one of centralthe bank of the country is one of the increase in policy interest rate by the SBP help to boost business activities and major factors of the rapid growth majorof factors of the rapid growth of amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial Islamic Banking industry. With moreIslamic Banking industry. With more move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative than 1400+ Islamic Banking branchesthan 1400+banking Islamic and toBanking formulate branches a comprehen banking- • andMinimum to formulate capital a comprehenrequirement- • Minimum capital requirement men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic and a 20%+ growth in deposits, assets,and a 20%+sive policygrowth framework in deposits, for assets, an Islamicsive policy framework for an Islamic curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the nancing and investments, the Pakistani nancing nancial and investments, system in the the country Pakistani including nancial • systemCenter in theof countryExcellence including for Islamic• Center of Excellence for Islamic Pakistan averaged 12.48 percent from people who are working in private compa- Islamic Banking industry is set Islamicto theBanking review ofindustry the legal is frameworkset to andthe reviewFinance of the legal framework and Finance 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the of 20 percent in October of 1996 and a the recent drop in international oil price security. the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a record low of 7.50 percent in November has induced low in ation and improved to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP Finance, Shariah compliance is the singleFinance, industry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and most important aspect for the Islamicmost importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the Banking & Finance industry. eBanking and & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- credibility of Islamic Banking Institucredibility- as modesof Islamic of Islamic Banking nance. Institu- as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with tions (IBIs) not only depends on tionsthe (IBIs) not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / nancial health of the institution but nancial Steps health Taken of thefor institutionPromotion butof IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic also on its adherence to the Shariah.also on Bankingits adherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the Under the current strategy for promoUnder- the current strategy for promo- approval of SBP Shariah Board. approval of SBP Shariah Board. tion and development of Islamic Banktion- and• developmentEstablishment of of Islamic a Shariah Bank Board- &• aEstablishment of a Shariah Board & a ing as a parallel, viable and compatibleing as a parallel,separate viable Islamic and Banking compatible Department separate BesidesIslamic Bankinghaving aDepartment Shariah Board, a Besides having a Shariah Board, a banking system, State Bank of Pakistanbanking system,at SBP Stateto directly Bank supervise of Pakistan & monitor at SBPseparate to directly Islamic supervise Banking & monitor department separate is Islamic Banking department is has taken a number of steps to ensurehas taken thea number Islamic ofBanking steps toindustry. ensure the Islamicalso in Bankingplace at SBPindustry. with highly qualifiedalso in place at SBP with highly qualified Shariah compliance by IBIs and Shariahfor compliance by IBIs and for & seasoned professionals who &are seasoned professionals who are standardization of Shariah practices. standardization• Instructions of Shariah for practices.Shariah Compliance• Instructions engaged for in Shariahpolicy makingCompliance and variousengaged in policy making and various in IBIs. in IBIs.projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- e State Bank of Pakistan has played e State Bank of Pakistan has played ing industry. ing industry. a dominant role in enabling the Islamica dominant • 5 yearrole Strategicin enabling Plan the for Islamic Islamic Bank• -5 year Strategic Plan for Islamic Bank- Banking Industry to not only sustain butBanking Industrying Institutions to not only sustain but ing InstitutionsInstructions for Shariah ComplianceInstructions for Shariah Compliance rapidly grow many folds. rapidly grow many folds. in IBIs: in IBIs: • Introduction of Shariah Governance• Introduction of Shariah Governance National Steering Committee Nationalfor FrameworkSteering Committee for Framework In order to strengthen the Shariah In order to strengthen the Shariah Promotion on Islamic Banking Promotion on Islamic Banking compliance mechanism within IBIs andcompliance mechanism within IBIs and • Adoptions of AAOIFI Standards. • Adoptionsto ensure of AAOIFI that Standards.all relevant Islamicto ensure that all relevant Islamic e Steering Committee for the e Steering Committee for the banking regulations are complied withbanking regulations are complied with Promotion of Islamic banking wasPromotion • Islamic of Islamic Export Re nancebanking Scheme.was • Islamicin Exportletter and Re nance spirit, IBIsScheme. are requiredin to letter and spirit, IBIs are required to constituted by Ministry of Financeconstituted by Ministry of Finance introduce Shariah compliance mechaintroduce- Shariah compliance mecha- (MoF), Government of Pakistan (MoF),in • GovernmentMedia Campaign of Pakistan for Promotion in •ofMedia nism Campaign as a part for of theirPromotion control of structure nism as a part of their control structure December 2013 comprising of leadingDecember Islamic2013 comprisingBanking. of leading Islamicas Banking.per the Shariah Compliance Frameas -per the Shariah Compliance Frame- Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of from SBP. e main objective of fromthe SBP.• Islamic e mainOpen objective Market ofOperation the • –Islamic Pakistan. Open MarketThe Shariah Operation Compliance – Pakistan. The Shariah Compliance Committee is to carry out an objectiveCommittee Liquidity is to carry Management out an objective Solution LiquidityFramework Management covers Solutionthe main aspects Frameworkfor covers the main aspects for review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs
Journal of The Institute of Bankers Pakistan Journal29 of The Institute of Bankers Pakistan 29
such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah governance and compliance frameworkgovernance and compliance framework Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working the bank are compliant / consistent withthe bank are compliant / consistent with the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class outlined for the respective modes outlinedof for the respective modes of meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set products the banks are required to productsget the banks are required to get Islamic Banking Islamic boldBanking step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for formal approval from the Shariahformal approval from the Shariah Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the the product and its related documents.the product and its related documents. Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality SBP conducts Shariah Compliance SBP conducts Shariah Compliance media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target oped Shariah Compliance Inspectionoped Shariahness about Compliance Islamic finance, Inspection and building ness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry atthe par industry.with Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in Manual for Islamic Banking Institutions.Manual capacityfor Islamic of theBanking stakeholders. Institutions. capacitythe of theinternational stakeholders. standards and alsothe international standards andunderstanding also of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. Shariah Inspection helps in identifyingShariah Inspection helps in identifying achieve standardization of Shariahachieve standardization of businessShariah and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance variation in procedures adopted variationby Market in proceduresDevelopment adopted by Market Developmentpractices locally, a mechanism practicesfor locally, a mechanismone offor the key causes of confusion andone of the key causes of confusion and different banks. The decisions on Sharidifferent- banks. The decisions on Shari- adoption/adaptation of these Shariahadoption/adaptation of these misperceptionShariah about Islamic finance.misperception about Islamic finance. ah Inspection findings are also a sourceah InspectionInitiatives findings will are be also undertakena source Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed Theby SBP.plan thus gives extensive focus Theon plan thus gives extensive focus on that helps in achieving the goal of havingthat helpsproduct in achieving diversification. the goal of having productAccording diversification. to this mechanism, Accordingthe to this mechanism,intensifying the the awareness efforts bothintensifying at the awareness efforts both at standardized procedures for Shariahstandardized procedures for Shariah meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors ofindustry all IBIs and individual intuitions level.industry and individual intuitions level. practices in the Islamic banking industry.practicesShariah in the Islamic Governance banking Framework industry. Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah StandardsIslamic one Open Market OperationsIslamic Open Market Operations 5 Year Strategic Plan for IBIs5 YearThe Strategic State Bank Plan of Pakistanfor IBIs has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoptionSolution / for Liquidity ManagementSolution for Liquidity Management (2014-2018) (2014-2018)oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFIThe Stand biggest- challenge faced by the IslamThe- biggest challenge faced by the Islam- The Strategic Plan focuses on critical The coversStrategic points Plan such focuses as an on effective critical mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. ic Finance industry was the lack icof Finance industry was the lack of issues and includes necessary initiativesissues andnism includes for the necessaryBOD oversight initiatives of the IBI’snism for the BOD oversight of the IBI’s availability on Rupee denominationavailability on Rupee denomination for improving public acceptance andfor improvingShariah publiccompliance acceptance environment, and Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Schemesovereign Sukuk for deployment sovereignof Sukuk for deployment of promoting Islamic banking as a distinctpromoting accountability Islamic banking of executive as a distinct management accountability of executive management excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the and viable system for meeting the finanand- viablein implementationsystem for meeting of thethe framework,finan- in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan hasoption been of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank cial services need of the public in generalcial servicesindependent need of the and public effective in general Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce ofspecially Pakistan in collaboration with ofthe Pakistan in collaboration with the and business community in particular.and businessappointed community as per Fit in and particular. Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through industryvarious developed an OMO alternativeindustry developed an OMO alternative The strategy paper has chalked outThe a strategyof SBP paper with hasone chalkedof its Shariah out a Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeingin form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being detailed plan with time bound objectivesdetailed membersplan with working time bound as Shariah objectives Advisor members to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariahused compli for -the benefit of the industry usedon for the benefit of the industry on which will prove to be beneficial for whichthe willadvise prove the to bankbe beneficial on day for to the day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme frequent(EFS) is basis. frequent basis. Minimum Capital Requirement Minimumfor Capital Requirement for onsumer nancing in the Every sector of consumer nancing expectation in the last scal year while the past has signi cantly from credit card to car purchasing in overall economy remained under pressure contributed to economic Pakistan witnessed a sharp decline during owing to rising in ation, higher cost of turnaround of Pakistan by the scal year 2009-10. e overall production and an agreement with IMF. A Brief Overview about Islamic BankA Brief- Overview about Islamic Bank- accelerating consumption consumer nancing declined by Rs 50 ing in Pakistan ing in Pakistan and investments. ere has been a billion, or 17 percent, during the year Subsequent to the 2013 democratic phenomenal increase in private consump- under review over the previous scal year. general election, people anticipated tions due to easy availability of credit e outstanding stock of consumer loans economic improvement which encour- Pakistan, in recent years has showedPakistan, in recent years has showed from banks. fell to Rs 244 billion in 2009-10 against aged banks to enhance their consumer strong inclination towards Islamic Bankstrong- inclination towards Islamic Bank- Rs 294 billion in 2008-09. nancing. e Expected Economic ing. e rst Commercial Islamic Banking. e rst Commercial Islamic Bank Consumer nancing was introduced Conditions Index went up three consecu- in the country was established in inthe the country was established in the for the rst time in Pakistan around 1990 ere was lethargic growth in consumer tive times between November 2013 and 2002, and within 13 years only, 2002,the and within 13 years only, the by Citibank (a foreign bank) and it nancing in the past few years. Consumer May 2014, showing people’s overall cheer- Islamic Banking share is more than 10%Islamic Banking share is more than 10% instantly turned out to be a great success. nancing, having grown at a fast pace till fulness about the economy’s future. Banks of the entire Banking Industry. Over ofthe the entire Banking Industry. Over the Seeing this success, many local as well as 2008, became inactive and even turned responded to the positive feelings and last decade, Islamic Banks have beenlast decade, Islamic Banks have been other foreign banks introduced cost negative between 2008 and 2011, because consumer nancing saw a signi cant successful in providing end to endsuccessful in providing end to end e ective nancing schemes. ese of low economic growth and banks’ increase primarily on the back of credit alternatives to all conventional bankingalternatives to all conventional banking schemes were so tempting that people reluctance to it to contain bad loans. extended for the purchase of vehicles. products. e support coming from products.the e support coming from the started availing them without knowing However, from 2012, there was some central bank of the country is one of centralthe bank of the country is one of the their negative e ects . improvement. Banks restarted to make Signi cant growth was witnessed in major factors of the rapid growth majorof factors of the rapid growth of new loan packages, realizing that years of consumer loans during July-March 2013-14 Islamic Banking industry. With moreIslamic Banking industry. With more Pakistan's banking sector in the no or low activity in this area was a ecting as it increased to 9.8 percent against 4.2 than 1400+ Islamic Banking branchesthan 1400+banking Islamic and toBanking formulate branches a comprehen banking- • and to formulate a comprehen- • past years has productively engaged itself the growth of their interest income. percent registered in the same period of and a 20%+ growth in deposits, assets,and a 20%+sive policygrowth framework in deposits, for assets, an Islamicsive policy framework for an Islamic in consumer nancing by introducing nancing and investments, the Pakistani nancing nancial and investments, system in the the country Pakistani including nancial • system in the country including • di erent products such as credit cards, Islamic Banking industry is set Islamicto theBanking review ofindustry the legal is frameworkset to andthe review of the legal framework and auto loans, housing nance and personal become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the loans etc. e robust growth of consumer the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a nancing in the previous years in the rst to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department place was ascribed to the exible econom- Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP ic policies set according to the principles Finance, Shariah compliance is the singleFinance, industry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and of free market economy and huge liquidi- most important aspect for the Islamicmost importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the ty available to the banks in the aermath Banking & Finance industry. eBanking and & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- of 9/11. credibility of Islamic Banking Institucredibility- of Islamic Banking Institu- e data showed that even well-advertised nancial year 2012-13. Consumer nanc- as modes of Islamic nance. as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with tions (IBIs) not only depends on tionsthe (IBIs) not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / Earlier, banks played their strategic credit card business also fell signi cantly. ing started gaining strength since Novem- nancial health of the institution but nancial health of the institution but e loans under the credit card declined ber 2012 and continued its upward trend Steps Taken for Promotion of IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic role in promoting economic development also on its adherence to the Shariah.also on Bankingits adherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the in the country. In the last twenty years, to Rs28 billion from Rs35 billion the during July- March, 2013-14. Consumer Under the current strategy for promoUnder- the current strategy for promo- previous year. e pro table credit card durables registered a dramatic growth of approval of SBP Shariah Board. approval of SBP Shariah Board. three eminent foreign banks took the lead tion and development of Islamic Banktion- and• development of Islamic Bank- • in introducing credit cards in the banking business, which has great in uence in 88.2 percent in credit expansion followed ing as a parallel, viable and compatibleing as a parallel, viable and compatible developed and developing economies, by 17.8 percent growth in auto and 13.9 Besides having a Shariah Board, a Besides having a Shariah Board, a sector. But unfortunately, this was limited banking system, State Bank of Pakistanbanking system, State Bank of Pakistan separate Islamic Banking departmentseparate is Islamic Banking department is to top bureaucrats and businessmen. Later failed to get substantial headway in the percent in personal loans. It is appropriate has taken a number of steps to ensurehas taken a number of steps to ensure domestic market. to mention here that increased growth in also in place at SBP with highly qualifiedalso in place at SBP with highly qualified on, the task of consumer nancing was Shariah compliance by IBIs and Shariahfor compliance by IBIs and for & seasoned professionals who &are seasoned professionals who are triumphantly taken by top Pakistani auto nance is largely owing to the auto standardization of Shariah practices. standardization of Shariah practices. Car purchasing was the second highest nance facility actively marketed by • • engaged in policy making and variousengaged in policy making and various banks. ey provided the facilities of projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- consumer nancing to both the middle attraction for the consumers but the leading Islamic banks. e State Bank of Pakistan has played e State Bank of Pakistan has played outstanding loans in this particular sector ing industry. ing industry. class and the higher salaried class. ey a dominant role in enabling the Islamica dominant • role in enabling the Islamic • also contributed in augmenting the stand- showed an abrupt fall during the last In making personal loans, most banks Banking Industry to not only sustain butBanking Industry to not only sustain but couple of years. e outstanding loans for judge the credit worthiness of borrowers Instructions for Shariah ComplianceInstructions for Shariah Compliance ard of living of the middle class, which is rapidly grow many folds. rapidly grow many folds. in IBIs: in IBIs: the back bone of any economy. car purchasing fell to Rs64 billion till June by their monthly income levels and set 30, 2010. e same was Rs 78 billion in ceilings accordingly. Sometime back, the • • National Steering Committee Nationalfor Steering Committee for In order to strengthen the Shariah In order to strengthen the Shariah Aggressive marketing continued at an 2009 and Rs105 billion in 2008. Loans NBP introduced its ‘Cash n Gold’ Promotion on Islamic Banking Promotion on Islamic Banking for house building under the consumer scheme, which o ered up to Rs35, 000 in compliance mechanism within IBIs andcompliance mechanism within IBIs and accelerating pace. Consumer nance was • • to ensure that all relevant Islamicto ensure that all relevant Islamic encouraged by the State Bank of Pakistan nancing dropped to Rs 54.5 billion from personal loan against each 10 grammes of e Steering Committee for the e Steering Committee for the Rs 61 billion the previous year. In the net contents of gold (in the form of banking regulations are complied withbanking regulations are complied with to boost the economic growth through Promotion of Islamic banking wasPromotion • of Islamic banking was • in letter and spirit, IBIs are requiredin to letter and spirit, IBIs are required to demand- pulls pressure. scal year 2008, it was Rs 66 billion. e jewellery or gold bars). e interest rate constituted by Ministry of Financeconstituted by Ministry of Finance private sector performed much below the under the scheme was also a bit lower than introduce Shariah compliance mechaintroduce- Shariah compliance mecha- (MoF), Government of Pakistan (MoF),in • Government of Pakistan in • nism as a part of their control structurenism as a part of their control structure December 2013 comprising of leadingDecember 2013 comprising of leading as per the Shariah Compliance Frameas -per the Shariah Compliance Frame- Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of from SBP. e main objective of fromthe SBP.• e main objective of the • Pakistan. The Shariah CompliancePakistan. The Shariah Compliance Committee is to carry out an objectiveCommittee is to carry out an objective Framework covers the main aspects Frameworkfor covers the main aspects for review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs
the going rate on personal loans and that of 2002. e State Bank of Pakistan cut its trade outlook. e speed and intensity, has made this scheme a huge success. key interest rate for the second straight with which the in ation has come down such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- meeting by 100 bps to 8.5 percent in and continues to recede, can induce review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- Habib Bank’s acquisition of the January, citing lower in ationary pressure expectations of rather low in ation, resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the consumer loan portfolio of Citibank in due to falling oil prices. which may induce additional consump- Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah April 2013 also made an impact on tion. us, the recent reduction in domes- governance and compliance frameworkgovernance and compliance framework consumer nancing trends. e taking Bankers are of the opinion that tic commodity prices may lead to further Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an over of this clientele, by a large network consumer nancing will contribute a reduction in interest rate and increase instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit bank like HBL, has made local banks’ larger part of pro ts of the banking indus- consumer nancing from commercial ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. competition ercer. ‘Salary Plus,’ an try with the recovery of economy. e banks. Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. overdra facility for HBL account major macroeconomic indicators have Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- holders (also launched in April 2013) and improved further since the last monetary e State Bank should implement a Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards similar schemes of other banks continue policy decision of November 2014. CPI favorable policy which enhances the appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and to enlarge personal loan volumes. in ation and its expectations continue to access of consumer nancing products to Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international follow a downward trend with some the xed and deprived sections of the requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry e marked decline in consumer exceptions. In the last two months of society by keeping the interest rates at a meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring nancing in the past was also owing to the November and December 2014, trade nominal level. is would consequently have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- increase in policy interest rate by the SBP help to boost business activities and knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- amid fears of rising in ation rate. is de cit declined. Furthermore, consid- growth in the country. e Commercial turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing move was widely criticized by business- erable foreign exchange in ows have Banks must introduce any innovative of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial men and economists and is not a cure to contributed in maintaining an upward nancing for improving the economic banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important curb the price-hike. Interest Rate in direction in foreign exchange reserves. and social lot of the majority of the Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- Pakistan averaged 12.48 percent from people who are working in private compa- Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the 1992 until 2015, reaching an all time high It may be clearly mentioned that while nies with low xed income and with no sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks of 20 percent in October of 1996 and a the recent drop in international oil price security. services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working record low of 7.50 percent in November has induced low in ation and improved the bank are compliant / consistent withthe bank“ areComing compliant to the / consistent core of withIslamic Finance, Shariah compliance is the the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class outlined for the respective modes outlinedof single for the most respective important modes aspect of for the Islamic Banking & Finance meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set products the banks are required to productsget the banks are required to get Islamic Banking Islamic boldBanking step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for formal approval from the Shariahformal industry.approval Thefrom credibility the Shariah of Islamic Banking Institutions (IBIs) not only Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the the product and its related documents.the productdepends and its on related the documents. nancial health of the institution but also on its Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality SBP conducts Shariah Compliance SBP adherenceconducts Shariah to the ComplianceShariah. ” media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target oped Shariah Compliance Inspectionoped Shariahness about Compliance Islamic finance, Inspection and building ness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry atthe par industry.with Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in Manual for Islamic Banking Institutions.Manual capacityfor Islamic of theBanking stakeholders. Institutions. capacitythe of theinternational stakeholders. standards and alsothe international standards andunderstanding also of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. Shariah Inspection helps in identifyingShariah Inspection helps in identifying achieve standardization of Shariahachieve standardization of businessShariah and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance variation in procedures adopted variationby Market in proceduresDevelopment adopted by Market Developmentpractices locally, a mechanism practicesfor locally, a mechanismone offor the key causes of confusion andone of the key causes of confusion and different banks. The decisions on Sharidifferent- banks. The decisions on Shari- adoption/adaptation of these Shariahadoption/adaptation of these misperceptionShariah about Islamic finance.misperception about Islamic finance. ah Inspection findings are also a sourceah InspectionInitiatives findings will are be also undertakena source Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed Theby SBP.plan thus gives extensive focus Theon plan thus gives extensive focus on that helps in achieving the goal of havingthat helpsproduct in achieving diversification. the goal of having productAccording diversification. to this mechanism, Accordingthe to this mechanism,intensifying the the awareness efforts bothintensifying at the awareness efforts both at standardized procedures for Shariahstandardized procedures for Shariah meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors ofindustry all IBIs and individual intuitions level.industry and individual intuitions level. practices in the Islamic banking industry.practicesShariah in the Islamic Governance banking Framework industry. Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah StandardsIslamic one Open Market OperationsIslamic Open Market Operations 5 Year Strategic Plan for IBIs5 YearThe Strategic State Bank Plan of Pakistanfor IBIs has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoptionSolution / for Liquidity ManagementSolution for Liquidity Management (2014-2018) (2014-2018)oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFIThe Stand biggest- challenge faced by the IslamThe- biggest challenge faced by the Islam- The Strategic Plan focuses on critical The coversStrategic points Plan such focuses as an on effective critical mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. ic Finance industry was the lack icof Finance industry was the lack of issues and includes necessary initiativesissues andnism includes for the necessaryBOD oversight initiatives of the IBI’snism for the BOD oversight of the IBI’s availability on Rupee denominationavailability on Rupee denomination for improving public acceptance andfor improvingShariah publiccompliance acceptance environment, and Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Schemesovereign Sukuk for deployment sovereignof Sukuk for deployment of promoting Islamic banking as a distinctpromoting accountability Islamic banking of executive as a distinct management accountability of executive management excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the and viable system for meeting the finanand- viablein implementationsystem for meeting of thethe framework,finan- in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan hasoption been of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank cial services need of the public in generalcial servicesindependent need of the and public effective in general Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce ofspecially Pakistan in collaboration with ofthe Pakistan in collaboration with the and business community in particular.and businessappointed community as per Fit in and particular. Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through industryvarious developed an OMO alternativeindustry developed an OMO alternative The strategy paper has chalked outThe a strategyof SBP paper with hasone chalkedof its Shariah out a Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeingin form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being detailed plan with time bound objectivesdetailed membersplan with working time bound as Shariah objectives Advisor members to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariahused compli for -the benefit of the industry usedon for the benefit of the industry on which will prove to be beneficial for whichthe willadvise prove the to bankbe beneficial on day for to the day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme frequent(EFS) is basis. frequent basis. Minimum Capital Requirement Minimumfor Capital Requirement for
30 Journal of The Institute of Bankers Pakistan30 Journal of The Institute of Bankers Pakistan A Brief Overview about Islamic BankA Brief- Overview about Islamic Bank- ing in Pakistan ing in Pakistan
Pakistan, in recent years has showedPakistan, in recent years has showed strong inclination towards Islamic Bankstrong- inclination towards Islamic Bank- ing. e rst Commercial Islamic Banking. e rst Commercial Islamic Bank in the country was established in inthe the country was established in the 2002, and within 13 years only, 2002,the and within 13 years only, the Islamic Banking share is more than 10%Islamic Banking share is more than 10% of the entire Banking Industry. Over ofthe the entire Banking Industry. Over the last decade, Islamic Banks have beenlast decade, Islamic Banks have been successful in providing end to endsuccessful in providing end to end alternatives to all conventional bankingalternatives to all conventional banking products. e support coming from products.the e support coming from the central bank of the country is one of centralthe bank of the country is one of the major factors of the rapid growth majorof factors of the rapid growth of Islamic Banking industry. With moreIslamic Banking industry. With more than 1400+ Islamic Banking branchesthan 1400+banking Islamic and toBanking formulate branches a comprehen banking- • and to formulate a comprehen- • and a 20%+ growth in deposits, assets,and a 20%+sive policygrowth framework in deposits, for assets, an Islamicsive policy framework for an Islamic nancing and investments, the Pakistani nancing nancial and investments, system in the the country Pakistani including nancial • system in the country including • Islamic Banking industry is set Islamicto theBanking review ofindustry the legal is frameworkset to andthe review of the legal framework and become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP Finance, Shariah compliance is the singleFinance, industry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and most important aspect for the Islamicmost importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the Banking & Finance industry. eBanking and & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- credibility of Islamic Banking Institucredibility- as modesof Islamic of Islamic Banking nance. Institu- as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with tions (IBIs) not only depends on tionsthe (IBIs) not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / nancial health of the institution but nancial Steps health Taken of thefor institutionPromotion butof IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic also on its adherence to the Shariah.also on Bankingits adherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the Under the current strategy for promoUnder- the current strategy for promo- approval of SBP Shariah Board. approval of SBP Shariah Board. tion and development of Islamic Banktion- and• development of Islamic Bank- • ing as a parallel, viable and compatibleing as a parallel, viable and compatible Besides having a Shariah Board, a Besides having a Shariah Board, a banking system, State Bank of Pakistanbanking system, State Bank of Pakistan separate Islamic Banking departmentseparate is Islamic Banking department is has taken a number of steps to ensurehas taken a number of steps to ensure also in place at SBP with highly qualifiedalso in place at SBP with highly qualified Shariah compliance by IBIs and Shariahfor compliance by IBIs and for & seasoned professionals who &are seasoned professionals who are standardization of Shariah practices. standardization• of Shariah practices. • engaged in policy making and variousengaged in policy making and various projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- e State Bank of Pakistan has played e State Bank of Pakistan has played ing industry. ing industry. a dominant role in enabling the Islamica dominant • role in enabling the Islamic • Banking Industry to not only sustain butBanking Industry to not only sustain but Instructions for Shariah ComplianceInstructions for Shariah Compliance rapidly grow many folds. rapidly grow many folds. in IBIs: in IBIs: • • National Steering Committee Nationalfor Steering Committee for In order to strengthen the Shariah In order to strengthen the Shariah Promotion on Islamic Banking Promotion on Islamic Banking compliance mechanism within IBIs andcompliance mechanism within IBIs and • • to ensure that all relevant Islamicto ensure that all relevant Islamic e Steering Committee for the e Steering Committee for the banking regulations are complied withbanking regulations are complied with Promotion of Islamic banking wasPromotion • of Islamic banking was • in letter and spirit, IBIs are requiredin to letter and spirit, IBIs are required to constituted by Ministry of Financeconstituted by Ministry of Finance introduce Shariah compliance mechaintroduce- Shariah compliance mecha- (MoF), Government of Pakistan (MoF),in • Government of Pakistan in • nism as a part of their control structurenism as a part of their control structure December 2013 comprising of leadingDecember 2013 comprising of leading as per the Shariah Compliance Frameas -per the Shariah Compliance Frame- Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of from SBP. e main objective of fromthe SBP.• e main objective of the • Pakistan. The Shariah CompliancePakistan. The Shariah Compliance Committee is to carry out an objectiveCommittee is to carry out an objective Framework covers the main aspects Frameworkfor covers the main aspects for review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs
such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- “ Coming to the core of Islamic No. AAOIFI Shariah Standards Adopted by SBP resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah Finance, Shariah compliance is the Default in Payment by a Debtor governance and compliance frameworkgovernance and compliance framework 1. Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an single most important aspect for the instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit 2. Murabaha to the Purchase Orderer ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. Islamic Banking & Finance industry. Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- 3. Ijarah & Ijarah Muntahia Bittamleek Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards The credibility of Islamic Banking appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international Institutions (IBIs) not only depends 4. Mudaraba requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring on the nancial health of the institu- 5. Investment Sukuk have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- tion but also on its turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing 6. Sharika (Musharaka) & Modern Corporations of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial adherence to the Shariah. ” banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working the bank are compliant / consistent withthe bank are compliant / consistent with the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class outlined for the respective modes outlinedof for the respective modes of meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set products the banks are required to productsget the banks are required to get Islamic Banking Islamic boldBanking step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for formal approval from the Shariahformal approval from the Shariah Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the the product and its related documents.the product and its related documents. Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality SBP conducts Shariah Compliance SBP conducts Shariah Compliance media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target oped Shariah Compliance Inspectionoped Shariahness about Compliance Islamic finance, Inspection and building ness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry atthe par industry.with Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in Manual for Islamic Banking Institutions.Manual capacityfor Islamic of theBanking stakeholders. Institutions. capacitythe of theinternational stakeholders. standards and alsothe international standards andunderstanding also of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. Shariah Inspection helps in identifyingShariah Inspection helps in identifying achieve standardization of Shariahachieve standardization of businessShariah and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance variation in procedures adopted variationby Market in proceduresDevelopment adopted by Market Developmentpractices locally, a mechanism practicesfor locally, a mechanismone offor the key causes of confusion andone of the key causes of confusion and different banks. The decisions on Sharidifferent- banks. The decisions on Shari- adoption/adaptation of these Shariahadoption/adaptation of these misperceptionShariah about Islamic finance.misperception about Islamic finance. ah Inspection findings are also a sourceah InspectionInitiatives findings will are be also undertakena source Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed Theby SBP.plan thus gives extensive focus Theon plan thus gives extensive focus on that helps in achieving the goal of havingthat helpsproduct in achieving diversification. the goal of having productAccording diversification. to this mechanism, Accordingthe to this mechanism,intensifying the the awareness efforts bothintensifying at the awareness efforts both at standardized procedures for Shariahstandardized procedures for Shariah meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors ofindustry all IBIs and individual intuitions level.industry and individual intuitions level. practices in the Islamic banking industry.practicesShariah in the Islamic Governance banking Framework industry. Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah StandardsIslamic one Open Market OperationsIslamic Open Market Operations 5 Year Strategic Plan for IBIs5 YearThe Strategic State Bank Plan of Pakistanfor IBIs has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoptionSolution / for Liquidity ManagementSolution for Liquidity Management (2014-2018) (2014-2018)oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFIThe Stand biggest- challenge faced by the IslamThe- biggest challenge faced by the Islam- The Strategic Plan focuses on critical The coversStrategic points Plan such focuses as an on effective critical mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. ic Finance industry was the lack icof Finance industry was the lack of issues and includes necessary initiativesissues andnism includes for the necessaryBOD oversight initiatives of the IBI’snism for the BOD oversight of the IBI’s availability on Rupee denominationavailability on Rupee denomination for improving public acceptance andfor improvingShariah publiccompliance acceptance environment, and Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Schemesovereign Sukuk for deployment sovereignof Sukuk for deployment of promoting Islamic banking as a distinctpromoting accountability Islamic banking of executive as a distinct management accountability of executive management excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the and viable system for meeting the finanand- viablein implementationsystem for meeting of thethe framework,finan- in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan hasoption been of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank cial services need of the public in generalcial servicesindependent need of the and public effective in general Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce ofspecially Pakistan in collaboration with ofthe Pakistan in collaboration with the and business community in particular.and businessappointed community as per Fit in and particular. Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through industryvarious developed an OMO alternativeindustry developed an OMO alternative The strategy paper has chalked outThe a strategyof SBP paper with hasone chalkedof its Shariah out a Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeingin form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being detailed plan with time bound objectivesdetailed membersplan with working time bound as Shariah objectives Advisor members to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariahused compli for -the benefit of the industry usedon for the benefit of the industry on which will prove to be beneficial for whichthe willadvise prove the to bankbe beneficial on day for to the day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme frequent(EFS) is basis. frequent basis. Minimum Capital Requirement Minimumfor Capital Requirement for
Journal of The Institute of Bankers Pakistan Journal31 of The Institute of Bankers Pakistan 31 A Brief Overview about Islamic BankA Brief- Overview about Islamic Bank- ing in Pakistan ing in Pakistan
Pakistan, in recent years has showedPakistan, in recent years has showed strong inclination towards Islamic Bankstrong- inclination towards Islamic Bank- ing. e rst Commercial Islamic Banking. e rst Commercial Islamic Bank in the country was established in inthe the country was established in the 2002, and within 13 years only, 2002,the and within 13 years only, the Islamic Banking share is more than 10%Islamic Banking share is more than 10% of the entire Banking Industry. Over ofthe the entire Banking Industry. Over the last decade, Islamic Banks have beenlast decade, Islamic Banks have been successful in providing end to endsuccessful in providing end to end alternatives to all conventional bankingalternatives to all conventional banking products. e support coming from products.the e support coming from the central bank of the country is one of centralthe bank of the country is one of the major factors of the rapid growth majorof factors of the rapid growth of Islamic Banking industry. With moreIslamic Banking industry. With more than 1400+ Islamic Banking branchesthan 1400+banking Islamic and toBanking formulate branches a comprehen banking- • and to formulate a comprehen- • and a 20%+ growth in deposits, assets,and a 20%+sive policygrowth framework in deposits, for assets, an Islamicsive policy framework for an Islamic nancing and investments, the Pakistani nancing nancial and investments, system in the the country Pakistani including nancial • system in the country including • Islamic Banking industry is set Islamicto theBanking review ofindustry the legal is frameworkset to andthe review of the legal framework and become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP Finance, Shariah compliance is the singleFinance, industry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and most important aspect for the Islamicmost importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the Banking & Finance industry. eBanking and & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- credibility of Islamic Banking Institucredibility- as modesof Islamic of Islamic Banking nance. Institu- as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with tions (IBIs) not only depends on tionsthe (IBIs) not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / nancial health of the institution but nancial Steps health Taken of thefor institutionPromotion butof IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic also on its adherence to the Shariah.also on Bankingits adherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the Under the current strategy for promoUnder- the current strategy for promo- approval of SBP Shariah Board. approval of SBP Shariah Board. tion and development of Islamic Banktion- and• development of Islamic Bank- • ing as a parallel, viable and compatibleing as a parallel, viable and compatible Besides having a Shariah Board, a Besides having a Shariah Board, a banking system, State Bank of Pakistanbanking system, State Bank of Pakistan separate Islamic Banking departmentseparate is Islamic Banking department is has taken a number of steps to ensurehas taken a number of steps to ensure also in place at SBP with highly qualifiedalso in place at SBP with highly qualified Shariah compliance by IBIs and Shariahfor compliance by IBIs and for & seasoned professionals who &are seasoned professionals who are standardization of Shariah practices. standardization• of Shariah practices. • engaged in policy making and variousengaged in policy making and various projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- e State Bank of Pakistan has played e State Bank of Pakistan has played ing industry. ing industry. a dominant role in enabling the Islamica dominant • role in enabling the Islamic • Banking Industry to not only sustain butBanking Industry to not only sustain but Instructions for Shariah ComplianceInstructions for Shariah Compliance rapidly grow many folds. rapidly grow many folds. in IBIs: in IBIs: • • National Steering Committee Nationalfor Steering Committee for In order to strengthen the Shariah In order to strengthen the Shariah Promotion on Islamic Banking Promotion on Islamic Banking compliance mechanism within IBIs andcompliance mechanism within IBIs and • • to ensure that all relevant Islamicto ensure that all relevant Islamic e Steering Committee for the e Steering Committee for the banking regulations are complied withbanking regulations are complied with Promotion of Islamic banking wasPromotion • of Islamic banking was • in letter and spirit, IBIs are requiredin to letter and spirit, IBIs are required to constituted by Ministry of Financeconstituted by Ministry of Finance introduce Shariah compliance mechaintroduce- Shariah compliance mecha- (MoF), Government of Pakistan (MoF),in • Government of Pakistan in • nism as a part of their control structurenism as a part of their control structure December 2013 comprising of leadingDecember 2013 comprising of leading as per the Shariah Compliance Frameas -per the Shariah Compliance Frame- Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of from SBP. e main objective of fromthe SBP.• e main objective of the • Pakistan. The Shariah CompliancePakistan. The Shariah Compliance Committee is to carry out an objectiveCommittee is to carry out an objective Framework covers the main aspects Frameworkfor covers the main aspects for review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs
Microfinance
e fastest trending risk according eregulations fastest trending as they risk think according this is theregulations pressing as theyrisks facingthink thethis sector is the are thosepressing of risks facing the sector are those of such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- to the survey is competition, which wasto theleast survey of is their competition, problems. which Unlike was someleast ofthe their day-to-day problems. running Unlike of somethe business the i.e. day-to-day running of the business i.e. review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- ranked at number 11 in the risk surveyranked other at number stakeholders 11 in the who risk ranked survey devel other- stakeholdersover indebtedness who ranked and credit devel risk.- over indebtedness and credit risk. resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the of 2011 (as depicted in table 2).of 2011opment (as anddepicted delivery in oftable appropriate 2). opment and delivery of appropriate Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah Growth in outreach in the last couple Growthof products in outreach as keyin the risks, last couple MFBs of seemproducts as key risks, MFBs seem governance and compliance frameworkgovernance and compliance framework Risks to years, particularly in urban areas, has ledyears, con dentparticularly about in urban their areas, ability has toled do so.con dent about their ability to do so. Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an to a sharp increase in competition andto a sharpRisks increase that are in perceivedcompetition to andbe risingRisks that are perceived to be rising instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit hence it is currently being perceived henceas include it is currently the usual being suspectperceived but as alsoinclude the usual suspect but also ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. the fastest rising risk in the industry.the fastestinclude rising managing risk in technology. the industry. include managing technology. Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. MICROFINANCE Competition is followed by securityCompetition is followed by security Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- which holds the same position as thewhich Practitioners holds the same –Non-bank position MFPs as the Practitioners –Non-bank MFPs Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards previous survey. Although micro previous- survey. Although micro - appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and nance operations are limited in thenance Generally, operations macro are limited or environmental in the Generally, macro or environmental Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international in Pakistan - A Study highly volatile regions of Khyhighly- risks volatile seem regions to be of worrying Khynon-bank- risks seem to be worrying non-bank requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry ber-Pakhtunkhwa (KPK) andber-Pakhtunkhwa MFIs more than micro-risks(KPK) thatand relateMFIs more than micro-risks that relate meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring By Ammar arshad have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- Balochistan, the overall threat in termsBalochistan, to their the own overall institutions. threat in terms As theyto their own institutions. As they knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- of security remains high making instituof- securityworry remains about pro tabilityhigh making or institu credit- risk,worry about pro tability or credit risk, turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing tions cautious of entering even slightlytions theycautious are equallyof entering worried even aboutslightly factors they are equally worried about factors of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial risky areas. risky areas.such as security, in ation, interest ratessuch as security, in ation, interest rates banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important and natural disasters. Nonbank MFPsand natural disasters. Nonbank MFPs Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- Risks to Microfinance in Pakistan is the second study of its he report describes risks as viewed byhe areport sample describes of risks as viewed by a sample In ofterms of preparedness, MFPs Inhave terms ranked of preparedness, macroeconomic MFPs trends haveas ranked macroeconomic trends as Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the kind, which seeks to map the risks being faced in Pakistan’s stakeholders: practitioners, investors,stakeholders: donors, practitioners, investors, feeldonors, least prepared to deal with risksfeel leastthe mostprepared severe to and deal fastest with rising risks threat the most severe and fastest rising threat sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks microfinance sector as seen by various stakeholders. The researchers and consultants. e viewsresearchers of theand consultants. e views thatof emergethe outside their institutions.that emergein the outsidesector – their the institutions.persistent energy in the sector – the persistent energy services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working first study, conducted in 2011 by the Pakistan Microfinance stakeholders were recorded throughstakeholders an online were recorded through an e online top two risks in terms of lowest e topcrises two and risks in ation in terms have of severely lowest a ect crises- and in ation have severely a ect- the bank are compliant / consistent withthe bank are compliant / consistent with the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of Network (PMN), served as a starting point in the discussion survey which ranked risks in termssurvey of severity, which rankedtrend and risks in terms of severity, trendability and to cope are both external andability ed to small cope scaleare bothMFIs external which andare mosted small scale MFIs which are most the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class on risks and threats encompassing the Pakistan microfinance Micro nance Providers’ ability to copeMicro nance with the risk. Providers’ e key ability to cope with the risk.include e key natural disasters and politicalinclude vulnerable natural disastersto such shocks. and political Sustainabili vulnerable- to such shocks. Sustainabili- outlined for the respective modes outlinedof for the respective modes of meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. sector. This study aims to update the risks highlighted in ndings of the survey show macro-economic ndings of thetrends survey and show macro-economic trendsinterference. and interference.ty also seems to be a key concern tyas also seems to be a key concern as financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set the initial publication in the face of changing business and security as the topmost concerns for stakeholderssecurity as the in topmost the micro concerns- for stakeholders in the micro- most non-bank MFPs remain unprofmost- non-bank MFPs remain unprof- products the banks are required to productsget the banks are required to get Islamic Banking Islamic boldBanking step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for macroeconomic environment while keeping in mind the nance industry (Table 1). e ranking nance of industry macroeconomic (Table 1). e ranking of macroeconomic e survey targeted di erent eitable survey and continue targeted to relydi erent heavily onitable and continue to rely heavily on formal approval from the Shariahformal approval from the Shariah Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art new initiatives and developments in the microfinance trends has not budged since the rst trendsrisk survey has not in 2011 budged and since is the rst risk survey in 2011stakeholder and is groups including practistakeholder- funding. groups Issues includingaround stang, practi -operafunding.- Issues around stang, opera- Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the sector. still perceived as the biggest threat facedstill byperceived the sector. as the biggest threat faced by the sector.tioners (whose numbers far outweightioners tions (whose and numbers corporate far outweigh governance tions and corporate governance the product and its related documents.the product and its related documents. Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. other respondents), policymakers,other continuerespondents), to be considered policymakers, less signi continue- to be considered less signi - ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality donors and investors (including equitydonors cant and over investors the years. (including equity cant over the years. SBP conducts Shariah Compliance SBP conducts Shariah Compliance media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, investors and commercial banks),investors and commercial banks), Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target researchers and consultants working researchersin Furthermore, and consultants the working study in also Furthermore, the study also oped Shariah Compliance Inspectionoped Shariah Compliance Inspection the industry. Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in ness about Islamic finance, and buildingness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry at par with micro nance. Practitioners have beenmicro nance. provides Practitionersa global comparison have been of topprovides a global comparison of top Manual for Islamic Banking Institutions.Manual for Islamic Banking Institutions. understanding of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. capacity of the stakeholders. capacitythe of theinternational stakeholders. standards and alsothe international standards and also further categorized into MFBs andfurther risks categorized which shows into that MFBs stakeholders and risksin which shows that stakeholders in Shariah Inspection helps in identifyingShariah Inspection helps in identifying business and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance achieve standardization of Shariahachieve standardization of Shariah non-bank MFPs in order to capturenon-bank Pakistan MFPs perceive in order to capture Pakistan perceive variation in procedures adopted variationby Market in proceduresDevelopment adopted by Market Developmentpractices locally, a mechanism practicesfor locally, a mechanismone offor the key causes of confusion andone of the key causes of confusion and perceptions unique to each group. perceptionsexogenous/external unique to each group. exogenous/external different banks. The decisions on Sharidifferent- banks. The decisions on Shari- adoption/adaptation of these Shariahadoption/adaptation of these misperceptionShariah about Islamic finance.misperception about Islamic finance. risks (such as risks (such as ah Inspection findings are also a sourceah InspectionInitiatives findings will are be also undertakena source Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed Theby SBP.plan thus gives extensive focus Theon plan thus gives extensive focus on Practitioners - MFBs Practitionersmacroeconomic - MFBs macroeconomic that helps in achieving the goal of havingthat helpsproduct in achieving diversification. the goal of having productAccording diversification. to this mechanism, Accordingthe to this mechanism,intensifying the the awareness efforts bothintensifying at the awareness efforts both at standardized procedures for Shariahstandardized procedures for Shariah meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors ofindustry all IBIs and individual intuitions level.industry and individual intuitions level. trends and securi- trends and securi- practices in the Islamic banking industry.practicesShariah in the Islamic Governance banking Framework industry. Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly MFBs perceive pro tability as theMFBs ty) perceive to bepro tability the as the ty) to be the study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah StandardsIslamic one Open Market OperationsIslamic Open Market Operations most severe risk followed by competimost- greatestsevere risk threats followed for by competi- greatest threats for 5 Year Strategic Plan for IBIs5 YearThe Strategic State Bank Plan of Pakistanfor IBIs has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoptionSolution / for Liquidity ManagementSolution for Liquidity Management tion - the current growth of the sectortion -the the currentmicro nance growth of the sector the micro nance (2014-2018) (2014-2018)oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till is driving competition to a new level.is drivingsector, competition while to a new level. sector, while ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFIThe Stand biggest- challenge faced by the IslamThe- biggest challenge faced by the Islam- Similarly, they seem comfortable withSimilarly, globally, they seemthe most comfortable with globally, the most The Strategic Plan focuses on critical The coversStrategic points Plan such focuses as an on effective critical mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. ic Finance industry was the lack icof Finance industry was the lack of issues and includes necessary initiativesissues andnism includes for the necessaryBOD oversight initiatives of the IBI’snism for the BOD oversight of the IBI’s availability on Rupee denominationavailability on Rupee denomination for improving public acceptance andfor improvingShariah publiccompliance acceptance environment, and Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Schemesovereign Sukuk for deployment sovereignof Sukuk for deployment of promoting Islamic banking as a distinctpromoting accountability Islamic banking of executive as a distinct management accountability of executive management excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the and viable system for meeting the finanand- viablein implementationsystem for meeting of thethe framework,finan- in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan hasoption been of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank cial services need of the public in generalcial servicesindependent need of the and public effective in general Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce ofspecially Pakistan in collaboration with ofthe Pakistan in collaboration with the and business community in particular.and businessappointed community as per Fit in and particular. Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through industryvarious developed an OMO alternativeindustry developed an OMO alternative The strategy paper has chalked outThe a strategyof SBP paper with hasone chalkedof its Shariah out a Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeingin form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being detailed plan with time bound objectivesdetailed membersplan with working time bound as Shariah objectives Advisor members to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariahused compli for -the benefit of the industry usedon for the benefit of the industry on which will prove to be beneficial for whichthe willadvise prove the to bankbe beneficial on day for to the day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme frequent(EFS) is basis. frequent basis. Minimum Capital Requirement Minimumfor Capital Requirement for
32 Journal of The Institute of Bankers Pakistan32 Journal of The Institute of Bankers Pakistan A Brief Overview about Islamic BankA Brief- Overview about Islamic Bank- ing in Pakistan ing in Pakistan
Pakistan, in recent years has showedPakistan, in recent years has showed strong inclination towards Islamic Bankstrong- inclination towards Islamic Bank- ing. e rst Commercial Islamic Banking. e rst Commercial Islamic Bank in the country was established in inthe the country was established in the 2002, and within 13 years only, 2002,the and within 13 years only, the Islamic Banking share is more than 10%Islamic Banking share is more than 10% of the entire Banking Industry. Over ofthe the entire Banking Industry. Over the last decade, Islamic Banks have beenlast decade, Islamic Banks have been successful in providing end to endsuccessful in providing end to end alternatives to all conventional bankingalternatives to all conventional banking products. e support coming from products.the e support coming from the central bank of the country is one of centralthe bank of the country is one of the major factors of the rapid growth majorof factors of the rapid growth of Islamic Banking industry. With moreIslamic Banking industry. With more than 1400+ Islamic Banking branchesthan 1400+banking Islamic and toBanking formulate branches a comprehen banking- • and to formulate a comprehen- • and a 20%+ growth in deposits, assets,and a 20%+sive policygrowth framework in deposits, for assets, an Islamicsive policy framework for an Islamic nancing and investments, the Pakistani nancing nancial and investments, system in the the country Pakistani including nancial • system in the country including • Islamic Banking industry is set Islamicto theBanking review ofindustry the legal is frameworkset to andthe review of the legal framework and become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP Finance, Shariah compliance is the singleFinance, industry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and most important aspect for the Islamicmost importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the Banking & Finance industry. eBanking and & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- credibility of Islamic Banking Institucredibility- as modesof Islamic of Islamic Banking nance. Institu- as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with tions (IBIs) not only depends on tionsthe (IBIs) not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / nancial health of the institution but nancial Steps health Taken of thefor institutionPromotion butof IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic also on its adherence to the Shariah.also on Bankingits adherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the Under the current strategy for promoUnder- the current strategy for promo- approval of SBP Shariah Board. approval of SBP Shariah Board. tion and development of Islamic Banktion- and• development of Islamic Bank- • ing as a parallel, viable and compatibleing as a parallel, viable and compatible Besides having a Shariah Board, a Besides having a Shariah Board, a banking system, State Bank of Pakistanbanking system, State Bank of Pakistan separate Islamic Banking departmentseparate is Islamic Banking department is has taken a number of steps to ensurehas taken a number of steps to ensure also in place at SBP with highly qualifiedalso in place at SBP with highly qualified Shariah compliance by IBIs and Shariahfor compliance by IBIs and for & seasoned professionals who &are seasoned professionals who are standardization of Shariah practices. standardization• of Shariah practices. • engaged in policy making and variousengaged in policy making and various projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- e State Bank of Pakistan has played e State Bank of Pakistan has played ing industry. ing industry. a dominant role in enabling the Islamica dominant • role in enabling the Islamic • Banking Industry to not only sustain butBanking Industry to not only sustain but Instructions for Shariah ComplianceInstructions for Shariah Compliance rapidly grow many folds. rapidly grow many folds. in IBIs: in IBIs: • • National Steering Committee Nationalfor Steering Committee for In order to strengthen the Shariah In order to strengthen the Shariah Promotion on Islamic Banking Promotion on Islamic Banking compliance mechanism within IBIs andcompliance mechanism within IBIs and • • to ensure that all relevant Islamicto ensure that all relevant Islamic e Steering Committee for the e Steering Committee for the banking regulations are complied withbanking regulations are complied with Promotion of Islamic banking wasPromotion • of Islamic banking was • in letter and spirit, IBIs are requiredin to letter and spirit, IBIs are required to constituted by Ministry of Financeconstituted by Ministry of Finance introduce Shariah compliance mechaintroduce- Shariah compliance mecha- (MoF), Government of Pakistan (MoF),in • Government of Pakistan in • nism as a part of their control structurenism as a part of their control structure December 2013 comprising of leadingDecember 2013 comprising of leading as per the Shariah Compliance Frameas -per the Shariah Compliance Frame- Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of from SBP. e main objective of fromthe SBP.• e main objective of the • Pakistan. The Shariah CompliancePakistan. The Shariah Compliance Committee is to carry out an objectiveCommittee is to carry out an objective Framework covers the main aspects Frameworkfor covers the main aspects for review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs
e fastest trending risk according eregulations fastest trending as they risk think according this is theregulations pressing as theyrisks facingthink thethis sector is the are thosepressing of risks facing the sector are those of such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- to the survey is competition, which wasto theleast survey of is their competition, problems. which Unlike was someleast ofthe their day-to-day problems. running Unlike of somethe business the i.e. day-to-day running of the business i.e. review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- ranked at number 11 in the risk surveyranked other at number stakeholders 11 in the who risk ranked survey devel other- stakeholdersover indebtedness who ranked and credit devel risk.- over indebtedness and credit risk. resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the of 2011 (as depicted in table 2).of 2011opment (as anddepicted delivery in oftable appropriate 2). opment and delivery of appropriate Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah Growth in outreach in the last couple Growthof products in outreach as keyin the risks, last couple MFBs of seemproducts as key risks, MFBs seem governance and compliance frameworkgovernance and compliance framework years, particularly in urban areas, has ledyears, con dentparticularly about in urban their areas, ability has toled do so.con dent about their ability to do so. Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an to a sharp increase in competition andto a sharpRisks increase that are in perceivedcompetition to andbe risingRisks that are perceived to be rising instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit hence it is currently being perceived henceas include it is currently the usual being suspectperceived but as alsoinclude the usual suspect but also ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. the fastest rising risk in the industry.the fastestinclude rising managing risk in technology. the industry. include managing technology. Table 1 Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. Competition is followed by securityCompetition is followed by security Top Ten Biggest Risks (2011 position in brackets) Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- which holds the same position as thewhich Practitioners holds the same –Non-bank position MFPs as the Practitioners –Non-bank MFPs Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards previous survey. Although micro previous- survey. Although micro - 1 Macro-Economic Trends (1) appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and nance operations are limited in thenance Generally, operations macro are limited or environmental in the Generally, macro or environmental 2 Security (4) Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international 3 (2) highly volatile regions of Khyhighly- risks volatile seem regions to be of worrying Khynon-bank- risks seem to be worrying non-bank Profitability requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry ber-Pakhtunkhwa (KPK) andber-Pakhtunkhwa MFIs more than micro-risks(KPK) thatand relateMFIs more than micro-risks that relate 4 Credit Risk (3) meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring 5 Inappropriate Regulation (25) Balochistan, the overall threat in termsBalochistan, to their the own overall institutions. threat in terms As theyto their own institutions. As they have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- 6 Competition (24) of security remains high making instituof- securityworry remains about pro tabilityhigh making or institu credit- risk,worry about pro tability or credit risk, knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- 7 Political Interference (12) tions cautious of entering even slightlytions theycautious are equallyof entering worried even aboutslightly factors they are equally worried about factors turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing 8 Interest Rates (7) risky areas. risky areas.such as security, in ation, interest ratessuch as security, in ation, interest rates of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial 9 Managing Technology (17) and natural disasters. Nonbank MFPsand natural disasters. Nonbank MFPs banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important 10 Natural Disasters (13) Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- he report describes risks as viewed byhe areport sample describes of risks as viewed by a sample In ofterms of preparedness, MFPs Inhave terms ranked of preparedness, macroeconomic MFPs trends haveas ranked macroeconomic trends as Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the stakeholders: practitioners, investors,stakeholders: donors, practitioners, investors, feeldonors, least prepared to deal with risksfeel leastthe mostprepared severe to and deal fastest with rising risks threat the most severe and fastest rising threat sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks researchers and consultants. e viewsresearchers of theand consultants. e views thatof emergethe outside their institutions.that emergein the outsidesector – their the institutions.persistent energy in the sector – the persistent energy services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working stakeholders were recorded throughstakeholders an online were recorded through an e online top two risks in terms of lowest e topcrises two and risks in ation in terms have of severely lowest a ect crises- and in ation have severely a ect- Table 2 the bank are compliant / consistent withthe bank are compliant / consistent with the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of survey which ranked risks in termssurvey of severity, which rankedtrend and risks in terms of severity, trendability and to cope are both external andability ed to small cope scaleare bothMFIs external which andare mosted small scale MFIs which are most Top Ten Fastest Rising Risks the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class Micro nance Providers’ ability to copeMicro nance with the risk. Providers’ e key ability to cope with the risk.include e key natural disasters and politicalinclude vulnerable natural disastersto such shocks. and political Sustainabili vulnerable- to such shocks. Sustainabili- (2011 position in brackets) outlined for the respective modes outlinedof for the respective modes of meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. ndings of the survey show macro-economic ndings of thetrends survey and show macro-economic trendsinterference. and interference.ty also seems to be a key concern tyas also seems to be a key concern as 1 Competition (11) financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set security as the topmost concerns for stakeholderssecurity as the in topmost the micro concerns- for stakeholders in the micro- most non-bank MFPs remain unprofmost- non-bank MFPs remain unprof- 2 Security (2) products the banks are required to productsget the banks are required to get Islamic Banking Islamic Banking bold step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for nance industry (Table 1). e ranking nance of industry macroeconomic (Table 1). e ranking of macroeconomic e survey targeted di erent eitable survey and continue targeted to relydi erent heavily onitable and continue to rely heavily on 3 Macro-Economic Trends (1) formal approval from the Shariahformal approval from the Shariah Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art trends has not budged since the rst trendsrisk survey has not in 2011 budged and since is the rst risk survey in 2011 and is stakeholder groups including practistakeholder- funding. groups Issues includingaround stang, practi -operafunding.- Issues around stang, opera- 4 Managing Technology (6) Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the still perceived as the biggest threat facedstill byperceived the sector. as the biggest threat faced by the sector.tioners (whose numbers far outweightioners tions (whose and numbers corporate far outweigh governance tions and corporate governance the product and its related documents.the product and its related documents. Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. 5 Too Little Funding (18) other respondents), policymakers,other continuerespondents), to be considered policymakers, less signi continue- to be considered less signi - 6 Credit Risk (3) ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality donors and investors (including equitydonors cant and over investors the years. (including equity cant over the years. SBP conducts Shariah Compliance SBP conducts Shariah Compliance 7 Strategy (24) media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, investors and commercial banks),investors and commercial banks), Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target 8 Political Interference (12) researchers and consultants working researchersin Furthermore, and consultants the working study in also Furthermore, the study also oped Shariah Compliance Inspectionoped Shariah Compliance Inspection the industry. Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in 9 Foreign Exchange (23) ness about Islamic finance, and buildingness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry at par with micro nance. Practitioners have beenmicro nance. provides Practitionersa global comparison have been of topprovides a global comparison of top Manual for Islamic Banking Institutions.Manual for Islamic Banking Institutions. understanding of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. capacity of the stakeholders. capacitythe of theinternational stakeholders. standards and alsothe international standards and also further categorized into MFBs andfurther risks categorized which shows into that MFBs stakeholders and risksin which shows that stakeholders in 10 Interest Rates (7) Shariah Inspection helps in identifyingShariah Inspection helps in identifying business and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance achieve standardization of Shariahachieve standardization of Shariah non-bank MFPs in order to capturenon-bank Pakistan MFPs perceive in order to capture Pakistan perceive variation in procedures adopted variationby Market in proceduresDevelopment adopted by Market Developmentpractices locally, a mechanism practicesfor locally, a mechanismone offor the key causes of confusion andone of the key causes of confusion and perceptions unique to each group. perceptionsexogenous/external unique to each group. exogenous/external Table 3 different banks. The decisions on Sharidifferent- banks. The decisions on Shari- adoption/adaptation of these Shariahadoption/adaptation of these misperceptionShariah about Islamic finance.misperception about Islamic finance. risks (such as risks (such as Rank Severity Fastest Rising Least Ability to Cope ah Inspection findings are also a sourceah InspectionInitiatives findings will are be also undertakena source Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed Theby SBP.plan thus gives extensive focus Theon plan thus gives extensive focus on 1 Profitability Macro-Economic Trends Political Interference Practitioners - MFBs Practitionersmacroeconomic - MFBs macroeconomic 2 Competition Security Natural Disasters that helps in achieving the goal of havingthat helpsproduct in achieving diversification. the goal of having productAccording diversification. to this mechanism, Accordingthe to this mechanism,intensifying the the awareness efforts bothintensifying at the awareness efforts both at standardized procedures for Shariahstandardized procedures for Shariah trends and securi- trends and securi- 3 Credit Risk Competition Security meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors ofindustry all IBIs and individual intuitions level.industry and individual intuitions level. 4 Macro-Economic Trends Managing Technology Inappropriate Regulation practices in the Islamic banking industry.practicesShariah in the Islamic Governance banking Framework industry. Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly MFBs perceive pro tability as theMFBs ty) perceive to bepro tability the as the ty) to be the 5 Managing Technology Credit Risk Interest Rates study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah StandardsIslamic one Open Market OperationsIslamic Open Market Operations most severe risk followed by competimost- greatestsevere risk threats followed for by competi- greatest threats for 6 Natural Disasters Strategy Macroeconomic Trends 5 Year Strategic Plan for IBIs5 Year Strategic Plan for IBIs 7 Operations Product Development Religious Influence The State Bank of Pakistan has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoptionSolution / for Liquidity ManagementSolution for Liquidity Management tion - the current growth of the sectortion -the the currentmicro nance growth of the sector the micro nance 8 Political Interference Too Little Funding Managing Technology (2014-2018) (2014-2018)oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till is driving competition to a new level.is drivingsector, competition while to a new level. sector, while 9 Fraud Internal Political Interference Profitability Inappropriate Regulation Staffing Liquidity ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFIThe Stand biggest- challenge faced by the IslamThe- biggest challenge faced by the Islam- Similarly, they seem comfortable withSimilarly, globally, they seemthe most comfortable with globally, the most 10 The Strategic Plan focuses on critical The coversStrategic points Plan such focuses as an on effective critical mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. ic Finance industry was the lack icof Finance industry was the lack of Table 5 Table 4 issues and includes necessary initiativesissues and includes necessary initiatives availability on Rupee denominationavailability on Rupee denomination Top Ten Risks to the Microfinance Sector nism for the BOD oversight of the IBI’snism for the BOD oversight of the IBI’s Rank Severity Fastest Rising Least Ability to Cope Pakistan South Asia* Global* for improving public acceptance andfor improving public acceptance and sovereign Sukuk for deployment sovereignof Sukuk for deployment of 1 Macro-Economic Trends Macro-Economic Trends Management Quality Shariah compliance environment,Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Scheme 1 Macro-Economic Trends 1 Political interference 1 Over indebtedness promoting Islamic banking as a distinctpromoting Islamic banking as a distinct 2 Security Security Natural Disasters accountability of executive managementaccountability of executive management excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the 2 Security 2 Over indebtedness 2 Credit Risk Profitability Competition Transparency and viable system for meeting the finanand- viable system for meeting the finan- option of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank 3 3 Profitability 3 Client relationships 3 Competition in implementation of the framework,in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan has been 4 Natural Disasters Managing Technology Competition cial services need of the public in generalcial services need of the public in general of Pakistan in collaboration with ofthe Pakistan in collaboration with the 4 Credit Risk 4 Regulation 4 Risk management independent and effective Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce specially 5 Credit Risk Credit Risk Political Interference 5 Inappropriate Regulation 5 Risk management 5 Governance and business community in particular.and businessappointed community as per Fit in and particular. Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through industryvarious developed an OMO alternativeindustry developed an OMO alternative 6 Interest Rates Strategy Managing Technology 6 Competition 6 Funding 6 Strategy Competition Too Little Funding Operations The strategy paper has chalked outThe a strategyof SBP paper with hasone chalkedof its Shariah out a Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeingin form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being 7 7 Political Interference 7 Competition 7 Political Interference detailed plan with time bound objectivesdetailed plan with time bound objectives 8 Strategy Unrealistic Expectations Fraud External 8 Interest Rates 8 Liquidity 8 Management members working as Shariah Advisormembers to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariahused compli for -the benefit of the industry usedon for the benefit of the industry on 9 Unrealistic Expectations Staffing Profitability 9 Managing Technology 9 Credit risk 9 Regulation which will prove to be beneficial for whichthe willadvise prove the to bankbe beneficial on day for to the day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme frequent(EFS) is basis. frequent basis. 10 Inappropriate Regulation Interest Rates Fraud Internal 10 Natural Disasters 10 Management 10 Staffing Minimum Capital Requirement Minimumfor Capital Requirement for *Microfinance Banana Skins 2014
Journal of The Institute of Bankers Pakistan Journal33 of The Institute of Bankers Pakistan 33 A Brief Overview about Islamic BankA Brief- Overview about Islamic Bank- ing in Pakistan ing in Pakistan
Pakistan, in recent years has showedPakistan, in recent years has showed strong inclination towards Islamic Bankstrong- inclination towards Islamic Bank- ing. e rst Commercial Islamic Banking. e rst Commercial Islamic Bank in the country was established in inthe the country was established in the 2002, and within 13 years only, 2002,the and within 13 years only, the Islamic Banking share is more than 10%Islamic Banking share is more than 10% of the entire Banking Industry. Over ofthe the entire Banking Industry. Over the last decade, Islamic Banks have beenlast decade, Islamic Banks have been successful in providing end to endsuccessful in providing end to end alternatives to all conventional bankingalternatives to all conventional banking products. e support coming from products.the e support coming from the central bank of the country is one of centralthe bank of the country is one of the major factors of the rapid growth majorof factors of the rapid growth of Islamic Banking industry. With moreIslamic Banking industry. With more than 1400+ Islamic Banking branchesthan 1400+banking Islamic and toBanking formulate branches a comprehen banking- • and to formulate a comprehen- • and a 20%+ growth in deposits, assets,and a 20%+sive policygrowth framework in deposits, for assets, an Islamicsive policy framework for an Islamic nancing and investments, the Pakistani nancing nancial and investments, system in the the country Pakistani including nancial • system in the country including • Islamic Banking industry is set Islamicto theBanking review ofindustry the legal is frameworkset to andthe review of the legal framework and become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP Finance, Shariah compliance is the singleFinance, industry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and most important aspect for the Islamicmost importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the Banking & Finance industry. eBanking and & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- credibility of Islamic Banking Institucredibility- as modesof Islamic of Islamic Banking nance. Institu- as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with tions (IBIs) not only depends on tionsthe (IBIs) not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / nancial health of the institution but nancial Steps health Taken of thefor institutionPromotion butof IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic also on its adherence to the Shariah.also on Bankingits adherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the Under the current strategy for promoUnder- the current strategy for promo- approval of SBP Shariah Board. approval of SBP Shariah Board. tion and development of Islamic Banktion- and• development of Islamic Bank- • ing as a parallel, viable and compatibleing as a parallel, viable and compatible Besides having a Shariah Board, a Besides having a Shariah Board, a banking system, State Bank of Pakistanbanking system, State Bank of Pakistan separate Islamic Banking departmentseparate is Islamic Banking department is has taken a number of steps to ensurehas taken a number of steps to ensure also in place at SBP with highly qualifiedalso in place at SBP with highly qualified Shariah compliance by IBIs and Shariahfor compliance by IBIs and for & seasoned professionals who &are seasoned professionals who are standardization of Shariah practices. standardization• of Shariah practices. • engaged in policy making and variousengaged in policy making and various projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- e State Bank of Pakistan has played e State Bank of Pakistan has played ing industry. ing industry. a dominant role in enabling the Islamica dominant • role in enabling the Islamic • Banking Industry to not only sustain butBanking Industry to not only sustain but Instructions for Shariah ComplianceInstructions for Shariah Compliance rapidly grow many folds. rapidly grow many folds. in IBIs: in IBIs: • • National Steering Committee Nationalfor Steering Committee for In order to strengthen the Shariah In order to strengthen the Shariah Promotion on Islamic Banking Promotion on Islamic Banking compliance mechanism within IBIs andcompliance mechanism within IBIs and • • to ensure that all relevant Islamicto ensure that all relevant Islamic e Steering Committee for the e Steering Committee for the banking regulations are complied withbanking regulations are complied with Promotion of Islamic banking wasPromotion • of Islamic banking was • in letter and spirit, IBIs are requiredin to letter and spirit, IBIs are required to constituted by Ministry of Financeconstituted by Ministry of Finance introduce Shariah compliance mechaintroduce- Shariah compliance mecha- (MoF), Government of Pakistan (MoF),in • Government of Pakistan in • nism as a part of their control structurenism as a part of their control structure December 2013 comprising of leadingDecember 2013 comprising of leading as per the Shariah Compliance Frameas -per the Shariah Compliance Frame- Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of from SBP. e main objective of fromthe SBP.• e main objective of the • Pakistan. The Shariah CompliancePakistan. The Shariah Compliance Committee is to carry out an objectiveCommittee is to carry out an objective Framework covers the main aspects Frameworkfor covers the main aspects for review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs
such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- Opinion resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah governance and compliance frameworkgovernance and compliance framework Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial By Christian Doherty banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- Christian Doherty reports ver since the nancial crisis of verand since Zopa, the for instance, nancial bothcrisis received of theand Zopa, for instance, both received the Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the 2008, a cottage industry of alterna- 2008,Government’s a cottage industry seal of ofapproval alterna- in lateGovernment’s seal of approval in late sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks on the secured multi-bil- tive nance providers has tive2012 nancewhen Vince providers Cable announcedhas 2012an when Vince Cable announced an services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working appeared. Some of the players haveappeared. investment Some of of £20mthe players and £10m have into eachinvestment of £20m and £10m into each the bank are compliant / consistent withthe bank are compliant / consistent with the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of lion-pound lending market ourished as businesses have explored ourished provider as businesses respectively. have explored provider respectively. the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class opening up for alternative alternative ways to source nance in thealternative ways to source nance in the outlined for the respective modes outlinedof for the respective modes of meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. absence of straight bank lending. absence of straight Both Funding bank lending. Circle and Zopa have Both Funding Circle and Zopa have financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set providers who have taken the next step in crowdfunding,taken the next step in crowdfunding, products the banks are required to productsget the banks are required to get Islamic Banking Islamic boldBanking step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for As a result, there has been a surge in the As a fromresult, helpingthere has businessesbeen a surge sell in theequity fromto helping businesses sell equity to formal approval from the Shariahformal approval from the Shariah Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art spotted opportunities. popularity of a whole range of alternativepopularity sourcing of a whole commercial range of alternativelending. Indeed,sourcing commercial lending. Indeed, Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the funding strategies, with FDs and treasurfunding- since strategies, launching, with FDs Funding and treasur Circle- sayssince it launching, Funding Circle says it the product and its related documents.the product and its related documents. Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. ers casting around for solutions to restricters- castinghas around placed for £330m solutions of tolending restrict -to overhas placed £330m of lending to over ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality ed cash ow and more expensive credit.ed cash ow5,500 and businesses. more expensive credit. 5,500 businesses. ward liberation from the restriction wardof liberationunknown from small the investors restriction on theirof shareunknown small investors on their share SBP conducts Shariah Compliance SBP conducts Shariah Compliance media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, bank lending, circumventing their oenbank lending,register circumventing or having to deal their with oen the platform register or having to deal with the platform Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target For many growing businesses, sourcing For many Funding growing Circlebusinesses, says sourcing it can o er Funding Circle says it canrestrictive o er credit policies. restrictiveas credita nominee policies. for the entire crowd. If asthe a nominee for the entire crowd. If the oped Shariah Compliance Inspectionoped Shariah Compliance Inspection the industry. Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in ness about Islamic finance, and buildingness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry at par with debt nance is a matter of nding lendersdebt nanceborrowing is a matter businesses of nding quick lenders access borrowingto businesses quick access to former, there are administration costs:former, if there are administration costs: if Manual for Islamic Banking Institutions.Manual for Islamic Banking Institutions. understanding of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. capacity of the stakeholders. capacitythe of theinternational stakeholders. standards and alsothe international standards and also willing to buy into their business plans.willing tofunds, buy withinto theirdebt businesspriced by plans. auction; funds,so with debt priced by auction; Take so inCats (they market Takethe inCatslatter, the individual(they shareholdermarket thehas latter, the individual shareholder has Shariah Inspection helps in identifyingShariah Inspection helps in identifying business and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance achieve standardization of Shariahachieve standardization of Shariah is is where crowdfunding comes in. is is wherethose crowdfundingo ering investment comes in. make a bid,those o ering investment makethemselves a bid, as the antidote to fat themselvescat no voteas thein the antidote progress to of fathis investment:cat no vote in the progress of his investment: variation in procedures adopted variationby in procedures adopted by one of the key causes of confusion andone of the key causes of confusion and Market Development Market Developmentpractices locally, a mechanism practicesfor locally, a mechanism for then the borrower gets the lowest rates thenon the borrower gets the lowestbankers): rates on launched in 2011 by a syndicatebankers): and launched in either in case,2011 theby aDirectors’ syndicate dutyand to in either case, the Directors’ duty to different banks. The decisions on Sharidifferent- banks. The decisions on Shari- misperception about Islamic finance.misperception about Islamic finance. adoption/adaptation of these Shariahadoption/adaptation of these Shariah Crowdfunding has come a long way Crowdfundingo er. Typical has deals come would a long see way a company o er. Typical deals would see a ofcompany business angels looking to lend ofto businesscarry angelsout anti-money-laundering looking to lend to checks carry is out anti-money-laundering checks is ah Inspection findings are also a sourceah Inspection findings are also a source The plan thus gives extensive focus Theon plan thus gives extensive focus on Initiatives will be undertaken Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed by SBP. since 80s rockers Marillion took a callsince 80sborrow rockers £40,000 Marillion of tookexpansion a call capitalborrow £40,000 of expansiongrowing capital rms, it aims to “bypass growingthe delegated rms, it to aims the platform. to “bypass the delegatedremit to the to platform. boost lending to households andremit to boost lending to households and that helps in achieving the goal of havingthat helps in achieving the goal of having intensifying the awareness efforts bothintensifying at the awareness efforts both at product diversification. productAccording diversification. to this mechanism, Accordingthe to this mechanism, the from their record label informing themfrom it theirfrom record around label informing 300-400 them individual it from around 300-400 individualbanks – and their charges – by lendingbanks – and their charges – by lending businesses. Under the FLS, banks can accessbusinesses. Under the FLS, banks can access standardized procedures for Shariahstandardized procedures for Shariah industry and individual intuitions level.industry and individual intuitions level. meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors of all IBIs declined to underwrite the band’s USdeclined investors, to underwrite paying athe rate band’s of 4 per US cent overinvestors, paying a rate of 4 per directlycent over to small businesses”. directly to smallIn addition businesses”. to that, the exact status of In addition to that, the exact status of practices in the Islamic banking industry.practices in the Islamic banking industry. cheap loans on the condition they lendcheap to loans on the condition they lend to Shariah Governance Framework Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly tour, leaving them with few options. Buttour, leavingthree themyears. with few options. But three years. equity crowdfunding from the perspectiveequity crowdfundingbusinesses. ey from can the borrow perspective £5 from businesses.the ey can borrow £5 from the Islamic Open Market OperationsIslamic Open Market Operations study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah Standards one when keyboardist Mark Kelly, an earlywhen keyboardist Mark Kelly, an early In some ways, inCats marks the In someof the ways, Financial inCats Conduct marks theAuthority of the BankFinancial for every Conduct £1 of net Authoritylending to SMEs.Bank for every £1 of net lending to SMEs. 5 Year Strategic Plan for IBIs5 YearThe Strategic State Bank Plan of Pakistanfor IBIs has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoptionSolution / for Liquidity ManagementSolution for Liquidity Management Internet enthusiast, posted the news Internetup enthusiast, However, postedcompanies the news looking up for However, companies looking for (2014-2018) (2014-2018) latest iteration (and possible future shape)latest iteration(FCA), (and which possible has so futurefar made shape) only limited(FCA), which has so far made only limited oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till on fan site, within a few weeks enoughon fan site,large-scale within borrowing a few weeks may enough be frustrated. large-scale borrowing may be frustrated.of P2P lending – it focuses on gettingof to P2P lendingpreliminary – it focusesstatements, on getting is not fullyto clear.preliminary However, statements, the is latestnot fully gures clear. show that However, the latest gures show that The biggest challenge faced by the IslamThe- biggest challenge faced by the Islam- ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFI Stand- committed fans had pledged donationscommitted to Funding fans had Circle’s pledged typical donations loan toamounts Funding Circle’s typical loan knowamounts both investors and borrowers, and,know both e investors FCA says and it borrowers,is working and,on a set e of FCAnet says SME it islending working from on a banksset of fell netby SME lending from banks fell by The Strategic Plan focuses on critical The Strategic Plan focuses on critical ic Finance industry was the lack icof Finance industry was the lack of covers points such as an effective mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. underwrite the band’s tour. underwriteare, theunsurprisingly, band’s tour. small – loans of upare, to unsurprisingly, small – loansin of common up to with the banks, does demandin common standards with the for banks, crowdfunding, does demand but a clearstandards £435m for crowdfunding, between April but and a clearJune 2014,£435m between April and June 2014, issues and includes necessary initiativesissues and includes necessary initiatives availability on Rupee denominationavailability on Rupee denomination nism for the BOD oversight of the IBI’snism for the BOD oversight of the IBI’s £550,000 are available to businesses that£550,000 are available to businessessecurity that from those seeking nance. security setfrom of thoserules hasseeking yet to nance. emerge. set of rulesfollowing has yet ato decline emerge. of £719m in the rstfollowing a decline of £719m in the rst for improving public acceptance andfor improving public acceptance and sovereign Sukuk for deployment sovereignof Sukuk for deployment of Shariah compliance environment,Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Scheme It soon became clear that the demo - It soonmeet became the minimumclear that theturnover demo - size meetof the minimum turnover size of quarter. Just over £3.2bn was drawn fromquarter. Just over £3.2bn was drawn from promoting Islamic banking as a distinctpromoting Islamic banking as a distinct excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the accountability of executive managementaccountability of executive management cratic, transparent “Kickstarter” modelcratic, – transparent£100,000, “Kickstarter”but usually modeldeals –come £100,000,in but usually deals come inCats in also aims to solve one of the inCats Given also aimsthe genuineto solve concernone of the prompted Giventhe the Funding genuine for concern Lending prompted Scheme in thethe Funding for Lending Scheme in the and viable system for meeting the finanand- viable system for meeting the finan- option of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank in implementation of the framework,in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan has been using the Internet to bring donorsusing theunder Internet six gures. to bring donors under six gures. most pressing and thorny problems to havemost pressingby the and post-crisis thorny problems credit crunch, to have backby in the post-crisissecond quarter credit of crunch, 2014, accordingback in to secondthe quarter of 2014, according to the cial services need of the public in generalcial services need of the public in general of Pakistan in collaboration with ofthe Pakistan in collaboration with the independent and effective Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce specially together with artists – was ripe togetherfor with artists – was ripe for bedevilled crowd-based nancing platformsbedevilled 2010 crowd-based the Government nancing platformspromised to step2010 theBank Government of England. promised to step Bank of England. and business community in particular.and business community in particular. industry developed an OMO alternativeindustry developed an OMO alternative appointed as per Fit and Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through various commercial application. Soon, a cohortcommercial of To application. meet that Soon, growing a cohort need, of other To meet that growing need,– the other lack of a secondary market to –sell the lackin andof abecome secondary a signi cant market to player sell on inthe and become a signi cant player on the The strategy paper has chalked outThe a strategy paper has chalked out a in form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being of SBP with one of its Shariah Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeing like-minded entrepreneurs in the US andlike-minded platforms entrepreneurs are emerging in the to US deal and in largerplatforms are emerging to dealeither in larger shares or debt. With its secondaryeither shareslending or debt.scene. With Some its of secondary its e orts havelending scene. Alongside Some theof its FLS e orts sits thehave Business Alongside the FLS sits the Business detailed plan with time bound objectivesdetailed plan with time bound objectives used for the benefit of the industry usedon for the benefit of the industry on members working as Shariah Advisormembers to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariah compli- UK wholeheartedly embraced “theUK wholeheartedlytranches of debt. embraced US dealmaker “the Prospertranches of debt. US dealmakermarket Prosper facility, launched last year, it nowmarket facility,been more launched successful last thanyear, others.it now been moreFinance successful Partnership than others. (BFP), anotherFinance Partnership (BFP), another which will prove to be beneficial for whichthe will prove to be beneficial for the frequent basis. frequent basis. advise the bank on day to day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme (EFS) is crowd” to develop funding platforms crowd”for boaststo develop one investorfunding withplatforms $35m for lodged boastson one investor with $35m lodgedo ers investors on the option of selling theiro ers investors the option of selling their government-backed scheme. In additiongovernment-backed scheme. In addition Minimum Capital Requirement Minimumfor Capital Requirement for smaller businesses. smaller businesses.the platform ready to put it to work. the platform ready to put it to work.debt to others before the end of the term.debt to others e before Funding the end for of theLending term. Scheme e toFunding putting fundsfor Lending onto the aforementionedScheme to putting funds onto the aforementioned (FLS), which came into e ect in (FLS),the whichP2P funding came platforms,into e ect BFPin thecapital P2Phas funding platforms, BFP capital has Despite their reputation among some Despite Buttheir for reputation SMEs unable among to prise some open their But for SMEs unable to prise open ere their are downsides, however. For eresummer are downsides, of 2012, is however.the agship For vehicle summer to been of 2012, placed is the with agship ve top vehicle fund to managers been placed with ve top fund managers observers as risky, P2P peer-to-peer observersor bank as manager’srisky, P2P wallet, peer-to-peer crowd-sourced or debtbank manager’s wallet, crowd-sourcedmany debt businesses, raising capital via manythe businesses,boost lending. raising Simply capital put, via thethe schemeboost lending.(including Simply HayFin put, and the M&G) scheme who will(including HayFin and M&G) who will lenders are increasingly visible players lenderson isare o ering increasingly a genuine visible alternative. players on It o ersis –o ering a genuine alternative. Itcrowd o ers is– not entirely straightforward,crowd isinvolves not entirelythe Bank straightforward, of England funnelling involves lend the toBank approved-growth of England funnelling businesses. lend to approved-growth businesses. the funding landscape. Funding Circlethe fundingsay the landscape. lending platforms Funding –Circle a straightfor say- the lending platforms – a straightforpromising- either a large number promisingof liquidity either into a thelarge major number banks of with liquiditythe into the major banks with the
34 Journal of The Institute of Bankers Pakistan34 Journal of The Institute of Bankers Pakistan A Brief Overview about Islamic BankA Brief- Overview about Islamic Bank- ing in Pakistan ing in Pakistan
Pakistan, in recent years has showedPakistan, in recent years has showed strong inclination towards Islamic Bankstrong- inclination towards Islamic Bank- ing. e rst Commercial Islamic Banking. e rst Commercial Islamic Bank in the country was established in inthe the country was established in the 2002, and within 13 years only, 2002,the and within 13 years only, the Islamic Banking share is more than 10%Islamic Banking share is more than 10% of the entire Banking Industry. Over ofthe the entire Banking Industry. Over the last decade, Islamic Banks have beenlast decade, Islamic Banks have been successful in providing end to endsuccessful in providing end to end alternatives to all conventional bankingalternatives to all conventional banking products. e support coming from products.the e support coming from the central bank of the country is one of centralthe bank of the country is one of the major factors of the rapid growth majorof factors of the rapid growth of Islamic Banking industry. With moreIslamic Banking industry. With more than 1400+ Islamic Banking branchesthan 1400+banking Islamic and toBanking formulate branches a comprehen banking- • and to formulate a comprehen- • and a 20%+ growth in deposits, assets,and a 20%+sive policygrowth framework in deposits, for assets, an Islamicsive policy framework for an Islamic nancing and investments, the Pakistani nancing nancial and investments, system in the the country Pakistani including nancial • system in the country including • Islamic Banking industry is set Islamicto theBanking review ofindustry the legal is frameworkset to andthe review of the legal framework and become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP Finance, Shariah compliance is the singleFinance, industry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and most important aspect for the Islamicmost importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the Banking & Finance industry. eBanking and & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- credibility of Islamic Banking Institucredibility- as modesof Islamic of Islamic Banking nance. Institu- as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with tions (IBIs) not only depends on tionsthe (IBIs) not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / nancial health of the institution but nancial Steps health Taken of thefor institutionPromotion butof IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic also on its adherence to the Shariah.also on Bankingits adherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the Under the current strategy for promoUnder- the current strategy for promo- approval of SBP Shariah Board. approval of SBP Shariah Board. tion and development of Islamic Banktion- and• development of Islamic Bank- • ing as a parallel, viable and compatibleing as a parallel, viable and compatible Besides having a Shariah Board, a Besides having a Shariah Board, a banking system, State Bank of Pakistanbanking system, State Bank of Pakistan separate Islamic Banking departmentseparate is Islamic Banking department is has taken a number of steps to ensurehas taken a number of steps to ensure also in place at SBP with highly qualifiedalso in place at SBP with highly qualified Shariah compliance by IBIs and Shariahfor compliance by IBIs and for & seasoned professionals who &are seasoned professionals who are standardization of Shariah practices. standardization• of Shariah practices. • engaged in policy making and variousengaged in policy making and various projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- e State Bank of Pakistan has played e State Bank of Pakistan has played ing industry. ing industry. a dominant role in enabling the Islamica dominant • role in enabling the Islamic • Banking Industry to not only sustain butBanking Industry to not only sustain but Instructions for Shariah ComplianceInstructions for Shariah Compliance rapidly grow many folds. rapidly grow many folds. in IBIs: in IBIs: • • National Steering Committee Nationalfor Steering Committee for In order to strengthen the Shariah In order to strengthen the Shariah Promotion on Islamic Banking Promotion on Islamic Banking compliance mechanism within IBIs andcompliance mechanism within IBIs and • • to ensure that all relevant Islamicto ensure that all relevant Islamic e Steering Committee for the e Steering Committee for the banking regulations are complied withbanking regulations are complied with Promotion of Islamic banking wasPromotion • of Islamic banking was • in letter and spirit, IBIs are requiredin to letter and spirit, IBIs are required to constituted by Ministry of Financeconstituted by Ministry of Finance introduce Shariah compliance mechaintroduce- Shariah compliance mecha- (MoF), Government of Pakistan (MoF),in • Government of Pakistan in • nism as a part of their control structurenism as a part of their control structure December 2013 comprising of leadingDecember 2013 comprising of leading as per the Shariah Compliance Frameas -per the Shariah Compliance Frame- Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of from SBP. e main objective of fromthe SBP.• e main objective of the • Pakistan. The Shariah CompliancePakistan. The Shariah Compliance Committee is to carry out an objectiveCommittee is to carry out an objective Framework covers the main aspects Frameworkfor covers the main aspects for review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs
such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah governance and compliance frameworkgovernance and compliance framework Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- ver since the nancial crisis of verand since Zopa, the for instance, nancial bothcrisis received of theand Zopa, for instance, both received the Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the 2008, a cottage industry of alterna- 2008,Government’s a cottage industry seal of ofapproval alterna- in lateGovernment’s seal of approval in late sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks tive nance providers has tive2012 nancewhen Vince providers Cable announcedhas 2012an when Vince Cable announced an services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working appeared. Some of the players haveappeared. investment Some of of £20mthe players and £10m have into eachinvestment of £20m and £10m into each the bank are compliant / consistent withthe bank are compliant / consistent with the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of ourished as businesses have explored ourished provider as businesses respectively. have explored provider respectively. the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class alternative ways to source nance in thealternative ways to source nance in the outlined for the respective modes outlinedof for the respective modes of meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. absence of straight bank lending. absence of straight Both Funding bank lending. Circle and Zopa have Both Funding Circle and Zopa have financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set taken the next step in crowdfunding,taken the next step in crowdfunding, products the banks are required to productsget the banks are required to get Islamic Banking Islamic boldBanking step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for As a result, there has been a surge in the As a fromresult, helpingthere has businessesbeen a surge sell in theequity fromto helping businesses sell equity to formal approval from the Shariahformal approval from the Shariah Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art popularity of a whole range of alternativepopularity sourcing of a whole commercial range of alternativelending. Indeed,sourcing commercial lending. Indeed, Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the funding strategies, with FDs and treasurfunding- since strategies, launching, with FDs Funding and treasur Circle- sayssince it launching, Funding Circle says it the product and its related documents.the product and its related documents. Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. ers casting around for solutions to restricters- castinghas around placed for £330m solutions of tolending restrict -to overhas placed £330m of lending to over ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality ed cash ow and more expensive credit.ed cash ow5,500 and businesses. more expensive credit. 5,500 businesses. ward liberation from the restriction wardof liberationunknown from small the investors restriction on theirof shareunknown small investors on their share SBP conducts Shariah Compliance SBP conducts Shariah Compliance media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, bank lending, circumventing their oenbank lending,register circumventing or having to deal their with oen the platform register or having to deal with the platform “FUNDING CIRCLE AND Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target For many growing businesses, sourcing For many Funding growing Circlebusinesses, says sourcing it can o er Funding Circle says it canrestrictive o er credit policies. restrictiveas credita nominee policies. for the entire crowd. If asthe a nominee for the entire crowd. If the ZOPA BOTH RECEIVED THE oped Shariah Compliance Inspectionoped Shariah Compliance Inspection the industry. Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in ness about Islamic finance, and buildingness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry at par with debt nance is a matter of nding lendersdebt nanceborrowing is a matter businesses of nding quick lenders access borrowingto businesses quick access to former, there are administration costs:former, if there are administration costs: if Manual for Islamic Banking Institutions.Manual for Islamic Banking Institutions. understanding of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. GOVERNMENT’S SEAL OF capacity of the stakeholders. capacitythe of theinternational stakeholders. standards and alsothe international standards and also willing to buy into their business plans.willing tofunds, buy withinto theirdebt businesspriced by plans. auction; funds,so with debt priced by auction; Take so inCats (they market Takethe inCatslatter, the individual(they shareholdermarket thehas latter, the individual shareholder has Shariah Inspection helps in identifyingShariah Inspection helps in identifying business and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance APPROVAL IN LATE 2012.” achieve standardization of Shariahachieve standardization of Shariah is is where crowdfunding comes in. is is wherethose crowdfundingo ering investment comes in. make a bid,those o ering investment makethemselves a bid, as the antidote to fat themselvescat no voteas thein the antidote progress to of fathis investment:cat no vote in the progress of his investment: variation in procedures adopted variationby in procedures adopted by one of the key causes of confusion andone of the key causes of confusion and Market Development Market Developmentpractices locally, a mechanism practicesfor locally, a mechanism for then the borrower gets the lowest rates thenon the borrower gets the lowestbankers): rates on launched in 2011 by a syndicatebankers): and launched in either in case,2011 theby aDirectors’ syndicate dutyand to in either case, the Directors’ duty to different banks. The decisions on Sharidifferent- banks. The decisions on Shari- misperception about Islamic finance.misperception about Islamic finance. adoption/adaptation of these Shariahadoption/adaptation of these Shariah Crowdfunding has come a long way Crowdfundingo er. Typical has deals come would a long see way a company o er. Typical deals would see a ofcompany business angels looking to lend ofto businesscarry angelsout anti-money-laundering looking to lend to checks carry is out anti-money-laundering checks is ah Inspection findings are also a sourceah Inspection findings are also a source The plan thus gives extensive focus Theon plan thus gives extensive focus on Initiatives will be undertaken Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed by SBP. since 80s rockers Marillion took a callsince 80sborrow rockers £40,000 Marillion of tookexpansion a call capitalborrow £40,000 of expansiongrowing capital rms, it aims to “bypass growingthe delegated rms, it to aims the platform. to “bypass the delegatedremit to the to platform. boost lending to households andremit to boost lending to households and that helps in achieving the goal of havingthat helps in achieving the goal of having intensifying the awareness efforts bothintensifying at the awareness efforts both at product diversification. productAccording diversification. to this mechanism, Accordingthe to this mechanism, the from their record label informing themfrom it theirfrom record around label informing 300-400 them individual it from around 300-400 individualbanks – and their charges – by lendingbanks – and their charges – by lending businesses. Under the FLS, banks can accessbusinesses. Under the FLS, banks can access standardized procedures for Shariahstandardized procedures for Shariah industry and individual intuitions level.industry and individual intuitions level. meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors of all IBIs declined to underwrite the band’s USdeclined investors, to underwrite paying athe rate band’s of 4 per US cent overinvestors, paying a rate of 4 per directlycent over to small businesses”. directly to smallIn addition businesses”. to that, the exact status of In addition to that, the exact status of practices in the Islamic banking industry.practices in the Islamic banking industry. cheap loans on the condition they lendcheap to loans on the condition they lend to Shariah Governance Framework Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly tour, leaving them with few options. Buttour, leavingthree themyears. with few options. But three years. equity crowdfunding from the perspectiveequity crowdfundingbusinesses. ey from can the borrow perspective £5 from businesses.the ey can borrow £5 from the Islamic Open Market OperationsIslamic Open Market Operations study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah Standards one when keyboardist Mark Kelly, an earlywhen keyboardist Mark Kelly, an early In some ways, inCats marks the In someof the ways, Financial inCats Conduct marks theAuthority of the BankFinancial for every Conduct £1 of net Authoritylending to SMEs.Bank for every £1 of net lending to SMEs. 5 Year Strategic Plan for IBIs5 YearThe Strategic State Bank Plan of Pakistanfor IBIs has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoptionSolution / for Liquidity ManagementSolution for Liquidity Management Internet enthusiast, posted the news Internetup enthusiast, However, postedcompanies the news looking up for However, companies looking for (2014-2018) (2014-2018) latest iteration (and possible future shape)latest iteration(FCA), (and which possible has so futurefar made shape) only limited(FCA), which has so far made only limited oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till on fan site, within a few weeks enoughon fan site,large-scale within borrowing a few weeks may enough be frustrated. large-scale borrowing may be frustrated.of P2P lending – it focuses on gettingof to P2P lendingpreliminary – it focusesstatements, on getting is not fullyto clear.preliminary However, statements, the is latestnot fully gures clear. show that However, the latest gures show that The biggest challenge faced by the IslamThe- biggest challenge faced by the Islam- ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFI Stand- committed fans had pledged donationscommitted to Funding fans had Circle’s pledged typical donations loan toamounts Funding Circle’s typical loan knowamounts both investors and borrowers, and,know both e investors FCA says and it borrowers,is working and,on a set e of FCAnet says SME it islending working from on a banksset of fell netby SME lending from banks fell by The Strategic Plan focuses on critical The Strategic Plan focuses on critical ic Finance industry was the lack icof Finance industry was the lack of covers points such as an effective mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. underwrite the band’s tour. underwriteare, theunsurprisingly, band’s tour. small – loans of upare, to unsurprisingly, small – loansin of common up to with the banks, does demandin common standards with the for banks, crowdfunding, does demand but a clearstandards £435m for crowdfunding, between April but and a clearJune 2014,£435m between April and June 2014, issues and includes necessary initiativesissues and includes necessary initiatives availability on Rupee denominationavailability on Rupee denomination nism for the BOD oversight of the IBI’snism for the BOD oversight of the IBI’s £550,000 are available to businesses that£550,000 are available to businessessecurity that from those seeking nance. security setfrom of thoserules hasseeking yet to nance. emerge. set of rulesfollowing has yet ato decline emerge. of £719m in the rstfollowing a decline of £719m in the rst for improving public acceptance andfor improving public acceptance and sovereign Sukuk for deployment sovereignof Sukuk for deployment of Shariah compliance environment,Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Scheme It soon became clear that the demo - It soonmeet became the minimumclear that theturnover demo - size meetof the minimum turnover size of quarter. Just over £3.2bn was drawn fromquarter. Just over £3.2bn was drawn from promoting Islamic banking as a distinctpromoting Islamic banking as a distinct excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the accountability of executive managementaccountability of executive management cratic, transparent “Kickstarter” modelcratic, – transparent£100,000, “Kickstarter”but usually modeldeals –come £100,000,in but usually deals come inCats in also aims to solve one of the inCats Given also aimsthe genuineto solve concernone of the prompted Giventhe the Funding genuine for concern Lending prompted Scheme in thethe Funding for Lending Scheme in the and viable system for meeting the finanand- viable system for meeting the finan- option of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank in implementation of the framework,in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan has been using the Internet to bring donorsusing theunder Internet six gures. to bring donors under six gures. most pressing and thorny problems to havemost pressingby the and post-crisis thorny problems credit crunch, to have backby in the post-crisissecond quarter credit of crunch, 2014, accordingback in to secondthe quarter of 2014, according to the cial services need of the public in generalcial services need of the public in general of Pakistan in collaboration with ofthe Pakistan in collaboration with the independent and effective Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce specially together with artists – was ripe togetherfor with artists – was ripe for bedevilled crowd-based nancing platformsbedevilled 2010 crowd-based the Government nancing platformspromised to step2010 theBank Government of England. promised to step Bank of England. and business community in particular.and business community in particular. industry developed an OMO alternativeindustry developed an OMO alternative appointed as per Fit and Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through various commercial application. Soon, a cohortcommercial of To application. meet that Soon, growing a cohort need, of other To meet that growing need,– the other lack of a secondary market to –sell the lackin andof abecome secondary a signi cant market to player sell on inthe and become a signi cant player on the The strategy paper has chalked outThe a strategy paper has chalked out a in form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being of SBP with one of its Shariah Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeing like-minded entrepreneurs in the US andlike-minded platforms entrepreneurs are emerging in the to US deal and in largerplatforms are emerging to dealeither in larger shares or debt. With its secondaryeither shareslending or debt.scene. With Some its of secondary its e orts havelending scene. Alongside Some theof its FLS e orts sits thehave Business Alongside the FLS sits the Business detailed plan with time bound objectivesdetailed plan with time bound objectives used for the benefit of the industry usedon for the benefit of the industry on members working as Shariah Advisormembers to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariah compli- UK wholeheartedly embraced “theUK wholeheartedlytranches of debt. embraced US dealmaker “the Prospertranches of debt. US dealmakermarket Prosper facility, launched last year, it nowmarket facility,been more launched successful last thanyear, others.it now been moreFinance successful Partnership than others. (BFP), anotherFinance Partnership (BFP), another which will prove to be beneficial for whichthe will prove to be beneficial for the frequent basis. frequent basis. advise the bank on day to day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme (EFS) is crowd” to develop funding platforms crowd”for boaststo develop one investorfunding withplatforms $35m for lodged boastson one investor with $35m lodgedo ers investors on the option of selling theiro ers investors the option of selling their government-backed scheme. In additiongovernment-backed scheme. In addition Minimum Capital Requirement Minimumfor Capital Requirement for smaller businesses. smaller businesses.the platform ready to put it to work. the platform ready to put it to work.debt to others before the end of the term.debt to others e before Funding the end for of theLending term. Scheme e toFunding putting fundsfor Lending onto the aforementionedScheme to putting funds onto the aforementioned (FLS), which came into e ect in (FLS),the whichP2P funding came platforms,into e ect BFPin thecapital P2Phas funding platforms, BFP capital has Despite their reputation among some Despite Buttheir for reputation SMEs unable among to prise some open their But for SMEs unable to prise open ere their are downsides, however. For eresummer are downsides, of 2012, is however.the agship For vehicle summer to been of 2012, placed is the with agship ve top vehicle fund to managers been placed with ve top fund managers observers as risky, P2P peer-to-peer observersor bank as manager’srisky, P2P wallet, peer-to-peer crowd-sourced or debtbank manager’s wallet, crowd-sourcedmany debt businesses, raising capital via manythe businesses,boost lending. raising Simply capital put, via thethe schemeboost lending.(including Simply HayFin put, and the M&G) scheme who will(including HayFin and M&G) who will lenders are increasingly visible players lenderson isare o ering increasingly a genuine visible alternative. players on It o ersis –o ering a genuine alternative. Itcrowd o ers is– not entirely straightforward,crowd isinvolves not entirelythe Bank straightforward, of England funnelling involves lend the toBank approved-growth of England funnelling businesses. lend to approved-growth businesses. the funding landscape. Funding Circlethe fundingsay the landscape. lending platforms Funding –Circle a straightfor say- the lending platforms – a straightforpromising- either a large number promisingof liquidity either into a thelarge major number banks of with liquiditythe into the major banks with the
Journal of The Institute of Bankers Pakistan Journal35 of The Institute of Bankers Pakistan 35 A Brief Overview about Islamic BankA Brief- Overview about Islamic Bank- ing in Pakistan ing in Pakistan
Pakistan, in recent years has showedPakistan, in recent years has showed strong inclination towards Islamic Bankstrong- inclination towards Islamic Bank- ing. e rst Commercial Islamic Banking. e rst Commercial Islamic Bank in the country was established in inthe the country was established in the 2002, and within 13 years only, 2002,the and within 13 years only, the Islamic Banking share is more than 10%Islamic Banking share is more than 10% of the entire Banking Industry. Over ofthe the entire Banking Industry. Over the last decade, Islamic Banks have beenlast decade, Islamic Banks have been successful in providing end to endsuccessful in providing end to end alternatives to all conventional bankingalternatives to all conventional banking products. e support coming from products.the e support coming from the central bank of the country is one of centralthe bank of the country is one of the major factors of the rapid growth majorof factors of the rapid growth of Islamic Banking industry. With moreIslamic Banking industry. With more than 1400+ Islamic Banking branchesthan 1400+banking Islamic and toBanking formulate branches a comprehen banking- • and to formulate a comprehen- • and a 20%+ growth in deposits, assets,and a 20%+sive policygrowth framework in deposits, for assets, an Islamicsive policy framework for an Islamic nancing and investments, the Pakistani nancing nancial and investments, system in the the country Pakistani including nancial • system in the country including • Islamic Banking industry is set Islamicto theBanking review ofindustry the legal is frameworkset to andthe review of the legal framework and become the hub of Islamic Bankingbecome of suggestthe hub recommendations. of Islamic Banking Further, of thesuggest recommendations. Further, the the region. the region.Committee has also been given the taskCommittee Establishment has also been of givena Shariah the taskBoard &Establishment a of a Shariah Board & a to review the existing taxation regimeto to review Separate the existing Islamic taxation Banking regime Department to Separate Islamic Banking Department Coming to the core of Islamic Comingremove to thethe impediments core of Islamic of taking removethe atthe SBP impediments of taking the at SBP Finance, Shariah compliance is the singleFinance, industry Shariah complianceto next level is the of singlegrowth andindustry to next level of growth and most important aspect for the Islamicmost importantdevelopment aspect by for nding the Islamicpractical waysdevelopment The Shariah by nding Board practical of SBP advises ways on theThe Shariah Board of SBP advises on the Banking & Finance industry. eBanking and & means Finance to participation industry. based e modesand meansprocedures, to participation laws and based regulations modes pertain procedures,- laws and regulations pertain- credibility of Islamic Banking Institucredibility- as modesof Islamic of Islamic Banking nance. Institu- as modesing of Islamicto Islamic nance. Banking in line withing to Islamic Banking in line with tions (IBIs) not only depends on tionsthe (IBIs) not only depends on the Shariah principles. All the instructionsShariah / principles. All the instructions / nancial health of the institution but nancial Steps health Taken of thefor institutionPromotion butof IslamicSteps TakenGuidelines for Promotion pertaining of toIslamic the IslamicGuidelines pertaining to the Islamic also on its adherence to the Shariah.also on Bankingits adherence by SBP: to the Shariah. Bankingbanking by SBP: Industry is issued after thebanking Industry is issued after the Under the current strategy for promoUnder- the current strategy for promo- approval of SBP Shariah Board. approval of SBP Shariah Board. tion and development of Islamic Banktion- and• development of Islamic Bank- • ing as a parallel, viable and compatibleing as a parallel, viable and compatible Besides having a Shariah Board, a Besides having a Shariah Board, a banking system, State Bank of Pakistanbanking system, State Bank of Pakistan separate Islamic Banking departmentseparate is Islamic Banking department is has taken a number of steps to ensurehas taken a number of steps to ensure also in place at SBP with highly qualifiedalso in place at SBP with highly qualified Shariah compliance by IBIs and Shariahfor compliance by IBIs and for & seasoned professionals who &are seasoned professionals who are standardization of Shariah practices. standardization• of Shariah practices. • engaged in policy making and variousengaged in policy making and various projects to strengthen the Islamic Bankprojects- to strengthen the Islamic Bank- e State Bank of Pakistan has played e State Bank of Pakistan has played ing industry. ing industry. a dominant role in enabling the Islamica dominant • role in enabling the Islamic • Banking Industry to not only sustain butBanking Industry to not only sustain but Instructions for Shariah ComplianceInstructions for Shariah Compliance rapidly grow many folds. rapidly grow many folds. in IBIs: in IBIs: • • National Steering Committee Nationalfor Steering Committee for In order to strengthen the Shariah In order to strengthen the Shariah Promotion on Islamic Banking Promotion on Islamic Banking compliance mechanism within IBIs andcompliance mechanism within IBIs and • • to ensure that all relevant Islamicto ensure that all relevant Islamic e Steering Committee for the e Steering Committee for the banking regulations are complied withbanking regulations are complied with Promotion of Islamic banking wasPromotion • of Islamic banking was • in letter and spirit, IBIs are requiredin to letter and spirit, IBIs are required to constituted by Ministry of Financeconstituted by Ministry of Finance introduce Shariah compliance mechaintroduce- Shariah compliance mecha- (MoF), Government of Pakistan (MoF),in • Government of Pakistan in • nism as a part of their control structurenism as a part of their control structure December 2013 comprising of leadingDecember 2013 comprising of leading as per the Shariah Compliance Frameas -per the Shariah Compliance Frame- Shariah scholars, bankers and o cialsShariah scholars, bankers and o cials work issued by the State Bank workof issued by the State Bank of from SBP. e main objective of fromthe SBP.• e main objective of the • Pakistan. The Shariah CompliancePakistan. The Shariah Compliance Committee is to carry out an objectiveCommittee is to carry out an objective Framework covers the main aspects Frameworkfor covers the main aspects for review of the current paradigm of Islamicreview of the current paradigm of Islamic carrying out the operations of the IBIscarrying out the operations of the IBIs
such as monitoring Shariah compliance,such as industry.monitoring The Shariah main compliance, structure of theindustry. routine The Shariahmain structure issues, a ofShariah the Comroutine- Shariah issues, a Shariah Com- review of documentation, conflictreview strategyof documentation, paper is given below:conflict strategy pliancepaper is Department, given below: a Shariah complipliance- Department, a Shariah compli- resolution, training and internal Shariahresolution, training and internal Shariah ance review mechanism to assess theance review mechanism to assess the Audit. Audit. Enabling Policy Environment Enablingoperative Policy Environment effectiveness of the Shariahoperative effectiveness of the Shariah “THE EVIDENCE SO FAR WOULD governance and compliance frameworkgovernance and compliance framework SUGGEST THAT THE BUSINESS Another important aspect of these AnotherEnabling important legal, aspectregulatory, of thesesupervisory, Enabling introduced legal, regulatory, by the SB supervisory, and BOD and introducedan by the SB and BOD and an Some £400m has been earmarked for GROWTH FUND IS NOW A SERIOUS instructions was the Fit & Proper Criteinstructions- liquidity was the managementFit & Proper Criteframework,- liquidity independent management Internal framework, Shariah Auditindependent Internal Shariah Audit direct lending, while a further £100m will PLAYER ON THE INVESTMENT SCENE.” ria of the IBI’s Shariah Advisor. Eachria of thetaxation IBI’s regimeShariah and Advisor. financial Each accounting taxation Unit. regime and financial accounting Unit. be channelled through non-bank provid- Islamic banking institution (i.e. IslamicIslamic &banking reporting institution framework. (i.e. Islamic & reporting framework. ers including mezzanine nance funds. Bank and conventional bank havingBank and conventional bank having Adoption of AAOIFI Shariah StandAdoption- of AAOIFI Shariah Stand- Islamic Banking Branches) is requiredIslamic to BankingShariah Governance Branches) is & required Compliance to Shariah ardsGovernance & Compliance ards e third, and most established, is the appoint a Shariah Advisor as per Fit andappoint a Shariah Advisor as per Fit and Business Growth Fund (BGF). At its Proper Criteria prescribed by SBP. TheProper CriteriaThe focus prescribed in this areaby SBP. will The remain Theon focusThe in thisintroduction area will remainof international on The introduction of international launch in 2011, then director Stephen requirement for Shariah Advisors requirementto standardization for Shariah and Advisors harmonization to standardizationof players inand the harmonizationIslamic banking of industry players in the Islamic banking industry Welton said: “Fundamentally, for the meet the said criteria ensures that theymeet theShariah said criteria practices, ensures as well that as theyon creatingShariah haspractices, further as necessitated well as on the creating need to bringhas further necessitated the need to bring Business Growth Fund to be successful – have adequate and relevant education,have adequatedistinct andIslamic relevant banking education, products anddistinct ourIslamic industry banking at par productswith the globaland Shariour- industry at par with the global Shari- and I would judge our success in, say, ten knowledge and experience, which knowledgein services. and experience, which in services.ah standards. Shariah Standards develah- standards. Shariah Standards devel- years’ time, not in a year’s time – we need turn plays a vital role in harmonizationturn plays a vital role in harmonization oped by Accounting and Auditingoped by Accounting and Auditing to still be here in ten years’ time, continu- of Shariah Practices in different Islamicof Shariah Awareness Practices & Capacityin different Building Islamic AwarenessOrganization & Capacity Buildingfor the Islamic FinancialOrganization for the Islamic Financial ing to provide long-term capital to exactly banking institutions. banking institutions. Institutions (AAOIFI) are an importantInstitutions (AAOIFI) are an important the same companies. Because this equity Efforts will be made for coordinationEfforts andwill effectivebe made source for coordination available for bringand- effective source available for bring- gap, as coined in the 1930s, isn’t tempo- Shariah advisor of the bank is respon - Shariahand advisor collaboration of the bank amongst is respon internal- andand collaborationing in the desiredamongst standardization internal and in ingthe in the desired standardization in the rary. It will always be here because there sible to ensure that all the products andsible to externalensure that stakeholders, all the products enhancing and awareexternal- Shariahstakeholders, practices. enhancing aware- Shariah practices. already in place. The IERS schemealready is Islamicin place. Banks The IERS scheme is Islamic Banks will always be small companies. And we services, operations and documents services,of operations and documents of further being reviewed to better facilitatefurther being reviewed to better facilitate The State Bank of Pakistan is workingThe State Bank of Pakistan is working are here to plug that gap.” the bank are compliant / consistent withthe bank are compliant / consistent with the businesses in the country throughthe a businessesSome inIslamic the country banks through/ windows a Somein Islamicwith leading banks academic/ windows institutions in withof leading academic institutions of the Shariah Rules and Principlesthe Shariah Rules and Principles Shariah compliant manner. Shariah particularcompliant manner.were facing difficulties particularin Pakistan were forfacing establishing difficulties a worldin classPakistan for establishing a world class e evidence so far would suggest that outlined for the respective modes outlinedof for the respective modes of meeting the Minimum Capital Requiremeeting- Center the Minimum of Excellence Capital for RequireIslamic -Finance.Center of Excellence for Islamic Finance. the BGF is now a serious player on the financing. Before launching any newfinancing. Before launching any new Media Campaign for Promotion Mediaof mentsCampaign of SBP. for Therefore, Promotion SBP, of taking ments a ofThe SBP. center Therefore, will have SBP, a comprehensive taking a Theset center will have a comprehensive set investment scene. Designed aer a private products the banks are required to productsget the banks are required to get Islamic Banking Islamic boldBanking step, has revised the MCR boldfor step,of educationhas revised and thetraining MCR programs for offor education and training programs for equity model, the fund takes minority formal approval from the Shariahformal approval from the Shariah Islamic Banking Subsidiary from Rs. Islamic10 variousBanking audience Subsidiary groups, from stateRs. 10 of the variousart audience groups, state of the art stakes in growing companies and has Advisor regarding Shariah complianceAdvisor of regarding Shariah compliance of One of the major steps the State BankOne of of thebillion major to Rs.steps 6 thebillion State in Bank2014. of This willbillion toresearch Rs. 6 billion facilities, in 2014. partnerships This will with researchthe facilities, partnerships with the made a number of successful investments. the product and its related documents.the product and its related documents. Pakistan has taken to tackle the awarePakistan- allow has takenexisting to Islamictackle theBanks aware to continue- allow existingindustry Islamic and buy-in Banks ofto keycontinue stakeholders. industry and buy-in of key stakeholders. ness challenge was the launch of massness challengetheir operations was the withoutlaunch ofworrying mass muchtheir operationsThe center without will ensure worrying output much of qualityThe center will ensure output of quality For those more established businesses, SBP conducts Shariah Compliance SBP conducts Shariah Compliance media campaign for promotion of Islammedia- campaignabout the for MCR promotion and at of the Islam same- time,about thehuman MCR resources and at theand same capacity time, building, human resources and capacity building, commercial nance has been a common Inspection on the basis of recently develInspection- on the basis of recently devel- ic Banking supported by all playersic in Banking this supportedstep will byencourage all players conventional in this stepwhich will willencourage support conventionalto achieve the targetwhich will support to achieve the target part of the alternative nance landscape oped Shariah Compliance Inspectionoped Shariahness about Compliance Islamic finance, Inspection and building ness aboutIn orderIslamic to finance,bring the and industry building at par withIn order to bring the industry atthe par industry.with Lack of awareness andthe industry.banks toLack establish of awareness Islamic and Banking banks growthto establish of Islamic Islamic Banking Banking & finance growth in of Islamic Banking & finance in for years, but in common with crowd- Manual for Islamic Banking Institutions.Manual capacityfor Islamic of theBanking stakeholders. Institutions. capacitythe of theinternational stakeholders. standards and alsothe international standards andunderstanding also of Islamic finance andunderstanding its subsidiaries. of Islamic finance and its subsidiaries.the country in the time to come. the country in the time to come. funding, there has recently been a move Shariah Inspection helps in identifyingShariah Inspection helps in identifying achieve standardization of Shariahachieve standardization of businessShariah and operating model has beenbusiness Center and operating of Excellence model for has Islamic been Finance Center of Excellence for Islamic Finance towards using technology to “democra- variation in procedures adopted variationby Market in proceduresDevelopment adopted by Market Developmentpractices locally, a mechanism practicesfor locally, a mechanismone offor the key causes of confusion andone of the key causes of confusion and tise” the o ering. different banks. The decisions on Sharidifferent- banks. The decisions on Shari- adoption/adaptation of these Shariahadoption/adaptation of these misperceptionShariah about Islamic finance.misperception about Islamic finance. ah Inspection findings are also a sourceah Inspection findings are also a source The plan thus gives extensive focus Theon plan thus gives extensive focus on Initiatives will be undertaken Initiativesfor standards will hasbe beenundertaken developed for by SBP.standards has been developed by SBP. Platform Black is one of several new that helps in achieving the goal of havingthat helps in achieving the goal of having intensifying the awareness efforts bothintensifying at the awareness efforts both at product diversification. productAccording diversification. to this mechanism, Accordingthe to this mechanism, the websites that allow businesses to cut out standardized procedures for Shariahstandardized procedures for Shariah industry and individual intuitions level.industry and individual intuitions level. meetings of Shariah Advisors of all IBIsmeetings of Shariah Advisors of all IBIs the middleman and sell their invoices to practices in the Islamic banking industry.practices in the Islamic banking industry. Shariah Governance Framework Shariahare Governance being held Framework with a view to thoroughlyare being held with a view to thoroughly investors eager to buy SME debt. Promis- Islamic Open Market OperationsIslamic Open Market Operations study the AAOIFI Shariah Standards onestudy the AAOIFI Shariah Standards one ing to deliver cash ow on demand, 5 Year Strategic Plan for IBIs5 Year Strategic Plan for IBIs Solution for Liquidity ManagementSolution for Liquidity Management The State Bank of Pakistan has develThe- Stateby Bankone, forof Pakistantheir possible has devel adoption- by / one, for their possible adoption / Platform Black is marketing itself to both (2014-2018) (2014-2018) oped a comprehensive Shariah Governoped- a adaptationcomprehensive in the Shariah Pakistani Govern market.- Tilladaptation in the Pakistani market. Till investors and companies looking for The biggest challenge faced by the IslamThe- biggest challenge faced by the Islam- ance Framework (SGF) for IBIs whichance Frameworknow, SBP (SGF)has adopted for IBIs 6 AAOIFI which Standnow,- SBP has adopted 6 AAOIFI Stand- short-term working capital to nance The Strategic Plan focuses on critical The Strategic Plan focuses on critical ic Finance industry was the lack icof Finance industry was the lack of covers points such as an effective mechacovers- pointsards in such Pakistan. as an effective mecha- ards in Pakistan. both operations and long-term invest- issues and includes necessary initiativesissues and includes necessary initiatives availability on Rupee denominationavailability on Rupee denomination nism for the BOD oversight of the IBI’snism for the BOD oversight of the IBI’s ment. for improving public acceptance andfor improvingShariah publiccompliance acceptance environment, and Shariah Islamiccompliance Export Refinanceenvironment, Scheme Islamic Export Refinance Schemesovereign Sukuk for deployment sovereignof Sukuk for deployment of promoting Islamic banking as a distinctpromoting Islamic banking as a distinct excess funds of the Islamic Banks and excessthe funds of the Islamic Banks and the accountability of executive managementaccountability of executive management Platform Black isn’t alone. Other and viable system for meeting the finanand- viablein implementationsystem for meeting of thethe framework,finan- in an implementation The State ofBank the framework,of Pakistan anhas beenThe State Bank of Pakistan hasoption been of OMO for IBIs. The State Bankoption of OMO for IBIs. The State Bank cial services need of the public in generalcial services need of the public in general of Pakistan in collaboration with ofthe Pakistan in collaboration with the invoice trading platforms have sprung up independent and effective Shariah Boardindependent facilitating and effective trade & Shariah commerce Board specially facilitating trade & commerce specially supply to Blue Chip (ie annual revenues invoice, pre-settlement, it amounts to fees and business community in particular.and business community in particular. industry developed an OMO alternativeindustry developed an OMO alternative in order to provide competition to appointed as per Fit and Proper Criteriaappointed exports as per Fitbusiness and Proper through Criteria variousexports business through various of £50m-plus) customers. of £2,240. Once the invoice is paid, then The strategy paper has chalked outThe a strategy paper has chalked out a in form of Bai Muajjal, which is beingin form of Bai Muajjal, which is being commercial lenders as well as the big of SBP with one of its Shariah Scholarof SBP schemeswith one withof its concessionalShariah Scholar financeing schemes with concessional financeing the remainder (£12,760) is settled, at a detailed plan with time bound objectivesdetailed plan with time bound objectives used for the benefit of the industry usedon for the benefit of the industry on banks’ commercial nance o erings. members working as Shariah Advisormembers to facilities. working In as this Shariah regard, Advisor Shariah to complifacilities.- In this regard, Shariah compli- Under its model, a typical transaction nal rate of 97.79 per cent. All of these which will prove to be beneficial for whichthe will prove to be beneficial for the frequent basis. frequent basis. advise the bank on day to day andadvise theant Exportbank on Refinance day to Schemeday and (EFS) ant is Export Refinance Scheme (EFS) is looks something like this: a borrower with o erings have one thing in common: a Minimum Capital Requirement Minimumfor Capital Requirement for Market Invoice is one of the biggest, and its USP is the transparency of the a turnover between £1m-5m submits an clear stated distance between what they system, which allows those buying invoic- invoice of £100,000 at 30 days to MI. It o er and what the banks can do. It’s now es to better understand those businesses immediately is advanced 85 per cent of up to the banks to respond. they are helping to nance. It is focused that. It is then subject to a buyer’s fee of more on the larger end of the market, and 1.25 per cent per 30 days, and pays a 0.99 This article was first published in Chartered Banker, is marketing itself to companies that per cent fee to MI. On that £100,000 the magazine of the Chartered Banker Institute
36 Journal of The Institute of Bankers Pakistan
Personal & Professional Development
Andrew Stone MBA level, explains Jennifer Mallon, MBAthe level, explains Jennifer Mallon, the guarantee a programme will be accredited.guarantee a programme will be accredited. Chartered Banker Institute’s Head Charteredof Banker Institute’s Head of If the quality is not there, if we do notIf the quality is not there, if we do not examines the pivotal Accreditation and Professional DevelopAccreditation- and Professional Develop- think it’s a good programme, we willthink it’s a good programme, we will importance of ment. ment. decline to accredit it.” decline to accredit it.” in-house training and “ e Institute’s accreditation activity “ e Institute’s accreditation activity High standards give those running and High standards give those running and external professional has been expanding considerably in hasthe been expanding considerably in the managing the courses con rmation of managingthe the courses con rmation of the accreditation, as last ve years, and we’re now workinglast ve years, and we’re now working value of the value the full accreditationvalue of the value the full accreditation with more banks over a wider spreadwith of more banks over a wider spread of process. It gives them the satisfactionprocess. of It gives them the satisfaction of offered by the business areas. We also accreditbusiness areas. We also accredit knowing they are doing a good job knowingby they are doing a good job by Institute, to build programmes from UK universityprogrammes from UK university being held to a high standard. ey valuebeing held to a high standard. ey value competencies that quali cations and a growing range quali cationsof and a growing range of the feedback process we give them and itthe is feedback process we give them and it is By Andrew Stone international programmes too. It’s internationalthe programmes too. It’s the a validation of all the hard work they havea validation of all the hard work they have enhance customer whole breadth. Our accreditation servicewhole breadth.Chartered Our Banker accreditation status, the service Institute Charteredhas been Banker doing status, and theof theirInstitute and hasthe bank’sbeen doing and of their and the bank’s service – and help on caters for programmes covering everyonecaters forexperts programmes with banking covering backgrounds everyone as wellexperts withcommitment banking backgroundsto improving astheir well people.” commitment to improving their people.” from new entrants to chief executives.”from newas entrantssubject matter to chief and executives.” educational experts.as subject matter and educational experts. the path to restore Banks, sta and ultimately their Banks, sta and ultimately their trust in the industry. Part of the advantage of accrediting a Part of the is advantage breadth ofof experienceaccrediting anda wide is customersbreadth of all experience bene t from and widethis process,customers all bene t from this process, training programme through trainingthe industry programme exposure through gives thethe Institute industry says exposure Mallon. gives e banksthe Institute gain assurance says Mallon. e banks gain assurance Institute is that as well as ensuring itInstitute is valuable is that asinsights well as into ensuring the most it is e ective valuable that insights the intoquality the most of e ectivetheir internalthat the quality of their internal aligned and suited to the internalaligned courseand suited content, to the structuring internal andcourse programmes content, is structuring as high as it can and be, that programmes is as high as it can be, that working processes and culture of workingthe assessment processes methodologies,and culture of says the Mallon. assessment they methodologies, o er consistency says and Mallon. that they theyare o er consistency and that they are bank, the Institute will also work to helpbank, the“We Institute see a lot will of also programmes work to help and we “Wesee seegetting a lot of programmes a good returnand we see on theirgetting a good return on their ensure students also gain a grasp of ensurethe studentsbest practices, also gain which a grasp means of the we canbest practices,investment which in their means people. we Itcan also helpsinvestment in their people. It also helps wider context of their jobs. wider contextexplain of to their others jobs. how they can enhanceexplain retainto others good how quality they canpeople: enhance “People feelretain good quality people: “People feel and improve their programmes.” and improvevalued their and programmes.” it also adds an importantvalued and it also adds an important As Mallon points out: “Some As Mallon points out: “Some external validation to the work they do.”external validation to the work they do.” quali cations and jobs in banks can quali cationsbe and jobs in banks can be quite specialist and we can give individualsquite specialist and we can give individuals a broader picture of what goes on. a broader picture of what goes on.
“It sets the context of what banks are “It sets the context of what banks are all about, covering ethics and professionall -about, covering ethics and profession- alism, what the economic issues are thatalism, what Gainingthe economic accreditation issues are is that a rigorous Gaining It accreditation can also help isindividuals a rigorous get closer It can also help individuals get closer they need to be aware of around creditthey needprocess, to be saysaware Mallon. of around “We credit review process,the tosays achieving Mallon. Chartered “We review Banker the status,to achieving Chartered Banker status, and risk, for example. It aims to promoteand risk,content, for example. processes It aims and to promote procedures content,of she processes adds. “While and proceduresaccreditation of is notshe a adds. “While accreditation is not a broad banking knowledge so sta canbroad bankingeach course knowledge looking so atsta their can quality,each coursequali cation, looking itat can their provide quality, credit intoquali cation, it can provide credit into relate the theory to their day-to-day job.”relate theconsistency theory to theirand day-to-dayrobustness. job.” We alsoconsistency our quali cationand robustness. framework, We also meaning our quali cation framework, meaning review the assessment methodologyreview as theindividuals assessment who methodology have completed as individualsan who have completed an Raising standards in the profession is Raisingwe standardsneed to inbe theable profession to measure is thatwe needaccredited to be able programme to measure may that nd theiraccredited programme may nd their something the Institute has an unrivalledsomething someone the Institute has learned has an and unrivalled improved. someoneroute has learned to and a professionalimproved. bankingroute to a professional banking key part of the long road to key part of the long roadexperience to of, adds Mallon. “We are experiencethe of, adds Mallon. “We are the quali cation can be slightly shorter thanquali cation can be slightly shorter than restore public belief and restore public belief oldestand banking Institute in the world,oldest banking We putInstitute together in athe report world, and make We someoneput together who a isreport doing and it makewithout thissomeone who is doing it without this trust in the banking indus- trust in the banking induswith- nearly 140 years of experiencewith nearlyrecommendations 140 years ofand/or experience identify areasrecommendations bene t.” and/or identify areas bene t.” try is the greater focus by try is the greater focusraising by the quality of bankers and raisingthe thethat needquality to beof ful lledbankers before and wethe grant thatthe need to be ful lled before we grant the nancial institutions and regulators nancialon institutions and regulatorsreputation on and standing of reputation the accreditation. and standing is is all subject of theto our own accreditation. Ultimately, is is all subjectaccreditation to our own is good for Ultimately, accreditation is good for and investment in internal sta trainingand investment in internal sta trainingprofession. profession.internal quality and sign-o measures.”internal businessquality and as sign-o the end measures.” customer will businessget as the end customer will get to give sta the required skills and bestto give sta the required skills and best more value from skilled professionalsmore value from skilled professionals practice in industry knowledge. epractice in industry knowledge. e“Because the Chartered Banker brand “Because Mallon the Chartered adds: Banker“ e brandaccreditation Mallonwhom adds: they trust,“ e saysaccreditation Mallon. “It is whomno they trust, says Mallon. “It is no Chartered Banker Institute has beenChartered Banker Institute has beenis powerful in the UK and internationally,is powerful process in the also UK involves and internationally, ongoing conversations process alsolonger involves su cient ongoing to simplyconversations do a good longerjob su cient to simply do a good job playing a growing role in helping banksplaying a growing role in helping banksit adds credence to what the banks itare adds oncredence a more to informal what the level banks to keepare thoseon a moreany informalmore. Bank level customers to keep those are lookingany more. Bank customers are looking raise the bar in their internal courses raiseby the bar in their internal coursesdoing by internally. We also work with moredoing internally.managing We the also programmes work with upmore to datemanaging on for the people programmes to have upcompleted to date on compre for- people to have completed compre- reviewing the programmes and reviewingthe the programmes and thanthe 100 banks worldwide and we havethan a 100progress. banks worldwide If we identify and wea signi cant have a gap,progress. hensive If we identifytraining a signi cant and developmentgap, hensive training and development processes and procedures that lie behindprocesses and procedures that lie behindrange of specialists working for us whoserange ofrather specialists than workingsaying ‘sorry, for us the whose accreditation rather thanprogrammes saying ‘sorry, and the to accreditation have professional programmes and to have professional them. is is done via the Institute’sthem. is is done via the Institute’sexpertise we can draw on.” expertiseis we ‘unsuccessful’, can draw on.” we will try to work withis ‘unsuccessful’, quali cations. e we will try bar to workhas beenwith raised.quali cations. e bar has been raised. accreditation process. accreditation process. them to meet that need.” them to is meet will that become need.” more of a business-as is will become more of a business-as e Institute’s accreditation is the e Institute’s accreditation is the usual activity for the banks.” usual activity for the banks.” e Institute is able to accredit courses e Institute is able to accredit coursesmost sought-after banking and nancialmost sought-after e standard, banking however, and nancial remains high, e standard, however, remains high, designed for everyone from those justdesigned for everyone from those servicesjust accreditation benchmark. As servicesthe explainsaccreditation Mallon. benchmark. “Accreditation As the is notexplains Mallon. “Accreditation is not entering the profession right throughentering to the profession right throughonly to organization able to conferonly organizationsomething they able buy fromto us.confer ere is somethingno they buy from us. ere is no
38 Journal of The Institute of Bankers Pakistan38 Journal of The Institute of Bankers Pakistan MBA level, explains Jennifer Mallon, MBAthe level, explains Jennifer Mallon, the guarantee a programme will be accredited.guarantee a programme will be accredited. Chartered Banker Institute’s Head Charteredof Banker Institute’s Head of If the quality is not there, if we do notIf the quality is not there, if we do not Accreditation and Professional DevelopAccreditation- and Professional Develop- think it’s a good programme, we willthink it’s a good programme, we will ment. ment. decline to accredit it.” decline to accredit it.”
“ e Institute’s accreditation activity “ e Institute’s accreditation activity High standards give those running and High standards give those running and has been expanding considerably in hasthe been expanding considerably in the managing the courses con rmation of managingthe the courses con rmation of the last ve years, and we’re now workinglast ve years, and we’re now working value of the value the full accreditationvalue of the value the full accreditation with more banks over a wider spreadwith of more banks over a wider spread of process. It gives them the satisfactionprocess. of It gives them the satisfaction of business areas. We also accreditbusiness areas. We also accredit knowing they are doing a good job knowingby they are doing a good job by programmes from UK universityprogrammes from UK university being held to a high standard. ey valuebeing held to a high standard. ey value quali cations and a growing range quali cationsof and a growing range of the feedback process we give them and itthe is feedback process we give them and it is international programmes too. It’s internationalthe programmes too. It’s the a validation of all the hard work they havea validation of all the hard work they have whole breadth. Our accreditation servicewhole breadth.Chartered Our Banker accreditation status, the service Institute Charteredhas been Banker doing status, and theof theirInstitute and hasthe bank’sbeen doing and of their and the bank’s caters for programmes covering everyonecaters forexperts programmes with banking covering backgrounds everyone as wellexperts withcommitment banking backgroundsto improving astheir well people.” commitment to improving their people.” from new entrants to chief executives.”from newas entrantssubject matter to chief and executives.” educational experts.as subject matter and educational experts. Banks, sta and ultimately their Banks, sta and ultimately their Part of the advantage of accrediting a Part of the is advantage breadth ofof experienceaccrediting anda wide is customersbreadth of all experience bene t from and widethis process,customers all bene t from this process, training programme through trainingthe industry programme exposure through gives thethe Institute industry says exposure Mallon. gives e banksthe Institute gain assurance says Mallon. e banks gain assurance Institute is that as well as ensuring itInstitute is valuable is that asinsights well as into ensuring the most it is e ective valuable that insights the intoquality the most of e ectivetheir internalthat the quality of their internal aligned and suited to the internalaligned courseand suited content, to the structuring internal andcourse programmes content, is structuring as high as it can and be, that programmes is as high as it can be, that working processes and culture of workingthe assessment processes methodologies,and culture of says the Mallon. assessment they methodologies, o er consistency says and Mallon. that they theyare o er consistency and that they are bank, the Institute will also work to helpbank, the“We Institute see a lot will of also programmes work to help and we “Wesee seegetting a lot of programmes a good returnand we see on theirgetting a good return on their ensure students also gain a grasp of ensurethe studentsbest practices, also gain which a grasp means of the we canbest practices,investment which in their means people. we Itcan also helpsinvestment in their people. It also helps wider context of their jobs. wider contextexplain of to their others jobs. how they can enhanceexplain retainto others good how quality they canpeople: enhance “People feelretain good quality people: “People feel and improve their programmes.” and improvevalued their and programmes.” it also adds an importantvalued and it also adds an important As Mallon points out: “Some As Mallon points out: “Some external validation to the work they do.”external validation to the work they do.” quali cations and jobs in banks can quali cationsbe and jobs in banks can be quite specialist and we can give individualsquite specialist and we can give individuals a broader picture of what goes on. a broader picture of what goes on. High standards give those running the courses con rmation of the value of the training.” “It sets the context of what banks are “It sets the context of what banks are all about, covering ethics and professionall -about, covering ethics and profession- alism, what the economic issues are thatalism, what Gainingthe economic accreditation issues are is that a rigorous Gaining It accreditation can also help isindividuals a rigorous get closer It can also help individuals get closer they need to be aware of around creditthey needprocess, to be saysaware Mallon. of around “We credit review process,the tosays achieving Mallon. Chartered “We review Banker the status,to achieving Chartered Banker status, and risk, for example. It aims to promoteand risk,content, for example. processes It aims and to promote procedures content,of she processes adds. “While and proceduresaccreditation of is notshe a adds. “While accreditation is not a broad banking knowledge so sta canbroad bankingeach course knowledge looking so atsta their can quality,each coursequali cation, looking itat can their provide quality, credit intoquali cation, it can provide credit into relate the theory to their day-to-day job.”relate theconsistency theory to theirand day-to-dayrobustness. job.” We alsoconsistency our quali cationand robustness. framework, We also meaning our quali cation framework, meaning review the assessment methodologyreview as theindividuals assessment who methodology have completed as individualsan who have completed an Raising standards in the profession is Raisingwe standardsneed to inbe theable profession to measure is thatwe needaccredited to be able programme to measure may that nd theiraccredited programme may nd their something the Institute has an unrivalledsomething someone the Institute has learned has an and unrivalled improved. someoneroute has learned to and a professionalimproved. bankingroute to a professional banking key part of the long road to key part of the long roadexperience to of, adds Mallon. “We are experiencethe of, adds Mallon. “We are the quali cation can be slightly shorter thanquali cation can be slightly shorter than restore public belief and restore public belief oldestand banking Institute in the world,oldest banking We putInstitute together in athe report world, and make We someoneput together who a isreport doing and it makewithout thissomeone who is doing it without this trust in the banking indus- trust in the banking induswith- nearly 140 years of experiencewith nearlyrecommendations 140 years ofand/or experience identify areasrecommendations bene t.” and/or identify areas bene t.” try is the greater focus by try is the greater focusraising by the quality of bankers and raisingthe thethat needquality to beof ful lledbankers before and wethe grant thatthe need to be ful lled before we grant the nancial institutions and regulators nancialon institutions and regulatorsreputation on and standing of reputation the accreditation. and standing is is all subject of theto our own accreditation. Ultimately, is is all subjectaccreditation to our own is good for Ultimately, accreditation is good for and investment in internal sta trainingand investment in internal sta trainingprofession. profession.internal quality and sign-o measures.”internal businessquality and as sign-o the end measures.” customer will businessget as the end customer will get to give sta the required skills and bestto give sta the required skills and best more value from skilled professionalsmore value from skilled professionals practice in industry knowledge. epractice in industry knowledge. e“Because the Chartered Banker brand “Because Mallon the Chartered adds: Banker“ e brandaccreditation Mallonwhom adds: they trust,“ e saysaccreditation Mallon. “It is whomno they trust, says Mallon. “It is no Chartered Banker Institute has beenChartered Banker Institute has beenis powerful in the UK and internationally,is powerful process in the also UK involves and internationally, ongoing conversations process alsolonger involves su cient ongoing to simplyconversations do a good longerjob su cient to simply do a good job playing a growing role in helping banksplaying a growing role in helping banksit adds credence to what the banks itare adds oncredence a more to informal what the level banks to keepare thoseon a moreany informalmore. Bank level customers to keep those are lookingany more. Bank customers are looking raise the bar in their internal courses raiseby the bar in their internal coursesdoing by internally. We also work with moredoing internally.managing We the also programmes work with upmore to datemanaging on for the people programmes to have upcompleted to date on compre for- people to have completed compre- reviewing the programmes and reviewingthe the programmes and thanthe 100 banks worldwide and we havethan a 100progress. banks worldwide If we identify and wea signi cant have a gap,progress. hensive If we identifytraining a signi cant and developmentgap, hensive training and development processes and procedures that lie behindprocesses and procedures that lie behindrange of specialists working for us whoserange ofrather specialists than workingsaying ‘sorry, for us the whose accreditation rather thanprogrammes saying ‘sorry, and the to accreditation have professional programmes and to have professional them. is is done via the Institute’sthem. is is done via the Institute’sexpertise we can draw on.” expertiseis we ‘unsuccessful’, can draw on.” we will try to work withis ‘unsuccessful’, quali cations. e we will try bar to workhas beenwith raised.quali cations. e bar has been raised. accreditation process. accreditation process. them to meet that need.” them to is meet will that become need.” more of a business-as is will become more of a business-as e Institute’s accreditation is the e Institute’s accreditation is the usual activity for the banks.” usual activity for the banks.” e Institute is able to accredit courses e Institute is able to accredit coursesmost sought-after banking and nancialmost sought-after e standard, banking however, and nancial remains high, e standard, however, remains high, designed for everyone from those justdesigned for everyone from those servicesjust accreditation benchmark. As servicesthe explainsaccreditation Mallon. benchmark. “Accreditation As the is notexplains Mallon. “Accreditation is not This article was first published in Chartered Banker, entering the profession right throughentering to the profession right throughonly to organization able to conferonly organizationsomething they able buy fromto us.confer ere is somethingno they buy from us. ere is no the magazine of the Chartered Banker Institute
Journal of The Institute of Bankers Pakistan Journal39 of The Institute of Bankers Pakistan 39 Humor and Quotes
We Are As THE FLUTE
We are as the ute, and the music in us is from thee; we are as the mountain and the echo in us is from thee. We are as pieces of chess engaged in victory and defeat: our victory and defeat is from thee, O thou whose qualities are comely! Who are we, O Thou soul of our souls, that we should remain in being beside thee? We and our existences are really non-existence; thou art the absolute Being which manifests the perishable. We all are lions, but lions on a banner: because of the wind they are rushing onward from moment to moment. Their onward rush is visible, and the wind is unseen: may that which is unseen not fail from us! Our wind whereby we are moved and our being are of thy gift; our whole existence is from thy bringing into being.
interesting quotes
View on Banker We are shaped by our thoughts; we become what we think. When the mind is pure, joy “Bankers are driving us to hell in a vehicle, follows like a shadow that never leaves. we are paying the installments on” Buddha Anonymous Give me six hours to chop down a tree and I will “You could carve out the inside of a brick and spend the first four sharpening the axe. hide your money in it for safe keeping. It’s Abraham Lincoln certainly safer than keeping it in the bank!” Nicole McKay It is better to lead from behind and to put others in front, especially when you celebrate victory when nice things occur. You take the front line when there is danger. Then people will appreci- ate your leadership. Nelson Mandela
40 Journal of The Institute of Bankers Pakistan