Sharia-compliant banks in Pakistan are rising at a sooner price than conventional counterparts as a robust choice for “markup-free banking” has emerged among the many folks and businessmen of Pakistan.
Data compiled by Arif Habib Ltd (AHL) on Saturday confirmed, “Deposit of Islamic banks grew at a 10-year CAGR (compound common progress price) from 23% progress price in conventional deposits (10 12 months CAGR: 12%) Is.” ,
Islamic banks’ deposits elevated to Rs 4.21 trillion by the tip of December 2021. This determine additionally contains the quantity obtained by Islamic banking branches or home windows operated by conventional banks within the nation.
Apart from these transferring to Islamic banking, the whole conventional banking community is now opting to maneuver to Sharia compliant banking within the nation. A number one financial institution within the nation has achieved 90% transition in the direction of Sharia-compliant mode. Only 10 of its branches are but to be transformed to Islamic banking within the subsequent six months.
In addition, there’s a rumor within the home monetary markets that two different banks are additionally contemplating turning to Islamic banking.
Speaking to The Express Tribune, Ahmed Ali Siddiqui, Meezan Bank Head of Product Development and Sharia Compliance, mentioned, “In Pakistan, traditional banks are losing more and more of their market share to Islamic banks with every passing year.”
In phrases of deposits, the market share of Sharia compliant banks has grown from 12-13% in 2015 to over 19% presently.
According to him, the expansion in deposits has primarily come from two segments. The first contains those that have opened financial institution accounts for the primary time of their lives as a part of the continuing monetary inclusion technique of the State Bank of Pakistan. The second classification contains these changing from conventional to Islamic banking, he mentioned.
“On average, 1% of banking customers (deposits) are shifting to Islamic banking every year,” he mentioned.
He mentioned the introduction of recent avenues of funding (loans for presidency and public sector tasks) by the federal government for Islamic banks allowed Sharia-compliant banks to renew their journey in the direction of attracting new deposits Is. “Non-availability of investment avenues (sukuk) prevented Islamic banks from collecting fresh deposits from customers a few years back,” he mentioned.
In the final two years, Islamic banks have invested round Rs 1.5 trillion in sukuk (Islamic bonds) within the final two years.
Presenting the breakdown, he mentioned banks had invested round Rs 250 billion in Sukuk within the first two months (January-February) of 2022. In addition, he had invested round Rs 700 billion final 12 months and Rs 525 billion in 2020.
There was a big inflow of deposits into Islamic banks, nevertheless, establishments had slowed collections two years in the past as a result of an absence of funding alternatives.
He added that there’s a big demand for Islamic banking, which is why round 17 conventional banks are providing Sharia compliant merchandise within the nation.
Currently round 60% market share of home financing is loved by Islamic banks. Similarly, the market share of Islamic banks in automobile financing has elevated to 30%. “The growth in advances (lending to the private sector) of Islamic banks is higher as compared to its deposit base which is over 19%,” Siddiqui mentioned.
In addition, the share of Sharia-compliant mutual funds has elevated to round 40% and that of pension funds to over 60%, he mentioned.
A serious chunk of banking clients keep present accounts (providing 0% return on deposits) in conventional banks as they wish to hold their deposits freed from curiosity quantity, he mentioned.
The central financial institution launched a Sharia-compliant exemption window for Islamic banks in December. This scheme enabled them to borrow from the State Bank of Pakistan (SBP) after they wanted financing. “This has created a level playing field for Islamic banks as this facility was earlier available only to traditional banks,” he mentioned.
SBP has set a goal to extend the Islamic banking market share to 30% by 2025. Also, it goals to cut back the market share of conventional banks to 10-11% by 2025. “Goals are achievable,” he mentioned.
He added that Islamic banks additionally present cheaper financing than conventional banks. “Our funding to the government is about 1% cheaper than traditional banks.”
“Accordingly, the government is saving a rigorously Rs 15 billion per annum in interest payments after receiving financing of about Rs 1.5 trillion (through Sukuk) in the last two years.”
Published in The Express Tribune, 6 Marchth2022.