The Islamic finance industry in Pakistan is well below its true potential and Islamic banks must tap into the unbanked markets through their asset-based and risk-sharing products for catalysing growth in the real economy, said Pakistani Finance Minister Ishaq Dar. “Only 20 per cent of farmers have access to the formal financial system while just 5 to 6pc of SMEs have access to bank financing. The Islamic finance industry now constitutes over 10pc of the country’s financial system and maintains strong growth momentum,” Dar said at the launch of the third round of ‘Financial Innovation Challenge Fund’ on promoting excellence in Islamic finance by the State Bank.
The finance minister emphasised the linkages between Islamic banks and micro-finance institutions in channelling the surplus liquidity of Islamic banks towards meeting financial services needs of low-income population of the country, he noted.
The Islamic finance industry in Pakistan needs trained human resource in order to realise the true market potential and emerge as a strong player in the global finance arena, Dar said.
In this regard, he requested the Islamic Development Bank’s Islamic Research and Training Institute for its academic support.
The objective of the third financial innovation challenge fund is to promote Islamic financial services to meet the latent demand for Shariah compliant financial services in Pakistan.
In his welcome address, SBP Governor Ashraf Mahmood Wathra said that the establishment of Centre of Excellence for Islamic Finance would contribute significantly towards developing a more inclusive Islamic financial system leading to financial products with a closer link between finance and real economic activity.
He added the centre would provide Shariah-based solutions for financing needs of all segments including the government and monetary policy instruments for the central bank.
He said that since financial exclusion was quite pronounced in Pakistan. “The government and the SBP are making efforts to address the challenge using innovative approaches and actions,” he added.
According to a SBP document, the Islamic banking industry is beset with a number challenges such as convergence and compliance with global standards, strengthening of liquidity management, development of lender of last resort facilities on a Shariah compliant basis, absence of reliable database on supply and demand of Islamic finance instruments and shortage of qualified Islamic finance professionals that can lead the industry into the next phase.
Published in Dawn, January 10th, 2015