Islamic banking in Pakistan overview
Muhammad Arif
(Chairman CAIF)
Everyone in Pakistan is amazed over the fast-track popularity of Islamic banking. Latest reports show the position as provided in table 1.
Financing and related assets (net) of Islamic banking industry increased by Rs. 58 billion (5.9 percent) during the quarter ending Sept 2017 and reached at Rs. 1,035 billion compared to Rs. 977 billion in the previous quarter i.e. June 2017.
The market share of Islamic bank deposits rose to 13.7 per cent from 12.9 per cent a year ago in the overall conventional and Islamic banks of Pakistan.
The diminishing musharaka is the top mode of financing followed by musharkah according to an analysis of Islamic banking business volumes and the number of their transactions.
Pakistan’s industrial sector was the biggest borrower. The other principal borrowers were the electrical sector, which is building transmission lines network, meant to overcome the ongoing energy crisis; and textiles, which is the country’s biggest industry, forming 60 per cent of its industrial sector, employing 40 per cent of its entire industrial labor force and is the biggest exporter and dollar earner for Pakistan.
The popularity of Islamic banking is also confirmed by the fact that “the market share of Islamic banking assets rose to 16.5 per cent as of Sept 2017 compared to 11.4 per cent in 2016.
But there is yet one more good news: the period recorded financing-to-deposits ratio of Islamic banks at 59.8 per cent as at quarter ending Sept 2017, up from 52 per cent in the same period of 2016. Deposits rose to 17.1 per cent year-on-year to total Rs 1.729 trillion up from Rs1.476 trillion in Sept 2016.
Who were the big borrowers? The electricity production and transmission sector received 16.8 against 15.4 per cent of financing in 2016, while textiles went down to 11.5 % from 14.9 % from last year. The corporate sector took 71.3 per cent down from 79.8 % of last year. Consumer financing also came down to 10.8% in 2017 from 11.8% in 2016.. Credit to small and medium businesses and farming was somewhat lower at 3.1% from 3.2% as compared to the same period of 2016.
As Islamic banks get into full gear and their operations and business quality improves, their ratings too are rising. The latest bank to receive this honor is Dubai Islamic Bank Pakistan Limited (DIBPL), whose entity ratings have been upgraded by JCR-VIS Credit Rating Company from ‘A+/A-1’ to ‘AA-/A-1’ with a stable outlook. Meezan Bank carries AA on long term basis and A-1+ on short term basis. BankIslami carries A1 on long term basis and A+ on short term basis.
Hence on can see that Islamic banking in Pakistan is not showing improvement in respect of financing to most needy sectors. For example its financing to agriculture is just 0.5% of its total financing as compared to conventional side with 5.0% of its total financing. For SMEs its financing is just 3.1% of its total financing as compared to 6.0% of conventional side.
So with rising deposits Islamic banking is well behind on its financing side to most needy sectors mainly due to non availability of required products and with Staff having no expertise to deal with such sectors.