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RIPHAH UNIVERSITY, ISLAMABAD

Event. RIU International Conference: February 8-9, 2011, Islamabad. RIPHAH UNIVERSITY, ISLAMABAD. Topic for Presentation. The Challenges and Prospects of Islamic Banking in Pakistan. Date & Venue. February 09, 2011, NIBAF, Islamabad. Presentation by. Prof. Dr. Khawaja Amjad Saeed.

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RIPHAH UNIVERSITY, ISLAMABAD

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  1. Event RIU International Conference: February 8-9, 2011, Islamabad RIPHAH UNIVERSITY, ISLAMABAD Topic for Presentation The Challenges and Prospects of Islamic Banking in Pakistan Date & Venue February 09, 2011, NIBAF, Islamabad Presentation by Prof. Dr. Khawaja Amjad Saeed Professor Emeritus & Founder Principal, Hailey College of Banking & Finance, University of the Punjab, Lahore Pakistan (2003----), Member Governing Council, International Federation of Accountants (IFAC), New York (1997-2000), President, South Asian Federation of Accountants (SAFA) (1997), President, Institute of Cost and Management Accountants of Pakistan (1997-2000), President, Association of Management Development Institutions of South Asia (AMDISA) (1993-96), Pro Vice-Chancellor University of the Punjab, Lahore (1994-1996), Founder Director, Institute of Business Administration (IBA), University of the Punjab, Lahore (1973-1996).

  2. WELCOME TO OUR PROGRAM • Presentation Frame • A. Islamic Banking-Inretrospect in Pakistan • B. Growth of Islamic Banks in Pakistan • C. IBIs Deposits & Financing • D. IBIs Investments • E. Selected Performance Indicators: IBIs & Banking Industry of Pakistan • F. Future Prospects

  3. A: ISLAMIC BANKING - INRETROSPECT IN PAKISTAN • Vision and Mission of Islamic Banking Department of SBP • Strategy for Islamic Banking in Pakistan • Historical Rundown

  4. A-1: Vision & Mission of Islamic Banking Department of SBP State Bank of Pakistan, in its role as central bank, has developed the following vision and mission: 1. VISION “To make Islamic Banking the banking of first choice for the providers and users of financial services”. 2. MISSION “To promote and develop Islamic Banking industry in line with the best intersectional practices, ensuring Shariah compliance and transparency”.

  5. A-2: STRATEGY FOR ISLAMIC BANKING IN PAKISTAN THREE PRONGED STRATEGY In Pakistan, SBP has developed the following three point strategies relating to development of Islamic Banks: Full fledged banks can be established in Pakistan. Islamic Banks can set up their subsidiaries. Stand-alone Islamic Banking branches can be opened by conventional banks in Pakistan. Therefore, flexibility exists in respect of starting and expanding Islamic Banks in Pakistan.

  6. A-3: HISTORICAL RUNDOWN (Continued) 1. Pakistan was created out of Islamic Ideology. Therefore Islamic Banking gets support for its development. 2. Quaid-e-Azam Mohammad Ali Jinnah, father of the Nation, while inaugurating SBP on July 01, 1948 had guided Research Department of SBP to help develop Islamic Economic System which is based on equality and brotherhood. 3. Constitution of Pakistan Article 38 (f) of the 1973 Constitution of Pakistan is quoted below: “The state shall eliminate riba as early as possible”.

  7. A-3: HISTORICAL RUNDOWN (Concluded) 4. 1970s to 21st Century a. 1970s: efforts, in their initial stages, started to eliminate riba. b. 1980s: Bold and comprehensive initiatives were under-taken. Pakistan joined the race of three countries in the world for interest free banking. Several existing laws were reviewed. New financial instruments were introduced, Twelve Non-Interest Based (NIB) modes were released to replace riba based practices, Profit & Loss Sharing concept was introduced. c.1990s: Court battles were on. Instructions were issued by courts for a time framework for implementation of replacing conventional banks into Islamic Banks. However the system did not positively respond for implementation. d. 2000s: In January 2002 Commission for Transformation of Financial System was constituted in SBP. Task Force was set up to suggest ways to eliminate interest from government financial transactions. However, the end conclusion has been to continue parallel banking ie. Conventional and Islamic Banks. This system is going on in Indonesia and Malaysia also.

  8. B: GROWTH OF ISLAMIC BANKS IN PAKISTAN • Some Growth of Islamic Banks: Important Indicators • Growth of Islamic Banks Branches • Islamic Banking Branches Network-Three Aspects • Islamic Banking Branches Network-Seven Aspects • Full Fledged Islamic Banks • Islamic Branches of Conventional Banks • City wise break-up of Islamic Banking Branches • Islamic Banks sub-branches • Maximum & minimum braches network of Islamic Banks • City wise Islamic Banking Branches network as on September 30, 2010.

  9. B-1: GROWTH OF ISLAMIC BANKS: Some Important Indicators December 2003 to September 2010 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, September 2010, P.4. 9

  10. B-2: GROWTH OF ISLAMIC BANKS BRANCHES December 2003 to September 2010 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, September 2010, P.4.

  11. B-3: ISLAMIC BANKING BRANCHES NETWORK As on September 30, 2010 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, September 2010, Table 8, P.8.

  12. B-4: ISLAMIC BANKING BRANCHES NETWORK As on September 30, 2010 *As on December 31, 2009 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, September 2010, Table 9, P.8.

  13. B-5: FULL FLEDGED ISLAMIC BANKS As on December 31, 2009 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.16.

  14. B-6: ISLAMIC BRANCHES OF CONVENTIONAL BANKS As on December 31, 2009 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.16.

  15. B-7: CITY-WISE BREAK-UP OF ISLAMIC BANKING BRANCHES As on December 31, 2009 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.18.

  16. B-8: ISLAMIC BANKS SUB BRANCHES As on December 31, 2009 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.16.

  17. B-9: MAXIMUM & MINIMUM BRANCHES NET WORK OF ISLAMIC BANKS AS on December 31, 2009 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.18.

  18. B-10: CITY WISE ISLAMIC BANKING BRANCHES NETOWRK As on September 30, 2010 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, September 2010, Table 9, P. 8.

  19. C: IBIs DEPOSITS & FINANCING • Deposits • Sectoral Composition • Products • NPFs Time Series • Deputy Governor of SBP Suggested Investment Portfolio for IBIs

  20. C-1: IBIs Deposits As on September 30, 2010 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, September 2010, Table 7, P. 7.

  21. C-2: IBIs FINANCING: SECTORAL COMPOSITION September 30, 2010 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, September 2010, Table 5, P. 6.

  22. C-3: IBIs FINANCING PRODUCTS (Total Rs. 162b) September 30, 2010 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, September 2010, Table 4, P. 6.

  23. C-4: IBIs NPFs TIME SERIES Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, September 2010, Table 2, P. 5.

  24. C-5: DEPUTY GOVERNOR OF SBP SUGGESTED INVESTMENT PORTFOLIO MIX FOR IBIS • Large Unserved Agriculture Sector: • - GDP Share 22% • - IBIs have not yet entered in the market • SME Sector: • - Expand their outreach to smaller towns & rural/semi rural areas • - Total SMEs 3.1 million • - Served by IBIs 2,300 clients • - Consequential Deficit: very low coverage • 3. Housing Finance: • - Six million housing units deficit in the country • - untapped markets awaits IBIs to exploit • - Focus: low cost housing Source: Extracted from: Deputy Governor of SBP, Mr. Yasin Anwar, Key note Address on “Opportunities for IBIs” delivered in Al-Huda International Conference on Islamic Banking & Takaful, Lahore, Nov. 02, 2010

  25. D: IBIs INVESTMENTS • Composition • Types

  26. D-1: IBIs INVESTMENTS: COMPOSITION As on September 30, 2010 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, September 2010, Table 6, P. 7.

  27. D-2: IBIs INVESTMENTS TYPES As on September 2010 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, September, 2010, Table 7, P. 6.

  28. E: SELECTED PERFORMANCE INDICATORS IBIs & BANKING INDUSTRY OF PAKISTAN • Capital • Assets Quality • Earnings & Profitability

  29. E-1: SELECTED PERFORMANCE INDICATORS: IBIs & BANKING INDUSTRY (Continued)

  30. E-1: SELECTED PERFORMANCE INDICATORS: IBIs & BANKING INDUSTRY (Concluded) Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, September 2010, Table 2, P. 5.

  31. F: FUTURE PROSPECTS • Forecasts • Challenges

  32. F-1: FORECASTS • By 2012, total of Islamic Banking industry is forecasted as Rs. 1 trillion. • In the next five years, 1200 branches of Islamic Banks are vitalized • The hope is that it will be 12% of total banking industry • Determined effortsneeded by all of us to push forward the process of Islamic Banking in Pakistan

  33. F-2: CHALLENGES • We visualize the following future challenges: • A. 15,000 people are needed in the next five years to equip Islamic Banks. In this respect Universities in Pakistan must respond to this challenge. Curricula must be changed in management education. High Education Commission should provide motivation in this respect for Universities to positively respond. • B. Islamic Banks must demonstrate growth with profitability. The top management must evolve the process to translate the above challenges. • C. The scope of services for user may be extended to such areas as micro finance, agriculture and small & medium enterprises. This will widen the base of socio-economic development in our country and will address to the two vital issues in our country namely, promotion of employment opportunities and alleviation of poverty. • D. Sharia compliant financial services be expanded. Awareness be created in this respect and logistics be developed as cushion to achieve the above objective. • E. Differentiated products be developed. Some Islamic Banks have taken correct initiative in this respect. This areas needs to be logistically well cushioned with demonstrated results.

  34. THANK YOU FOR ATTENTIVE LISTENING. ASK ANY QUESTIONS.

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