The State Bank of Pakistan (SBP) reaffirmed its commitment to keeping Islamic banking as a key agenda with the launch of its third five-year strategic plan focused on growing and strengthening the sector. NESSREEN TAMANO writes.
Under the new Strategic Plan for Islamic Banking Industry 2021–25, a new target share of 30% in terms of assets and deposits (out of the total overall banking industry) has been set for Islamic banking, as well as a 35% share in the branch network of the overall industry. The regulator previously set a target to double the outreach of Islamic banking institutions over the 2014–18 period, increasing the market share to 15% of the banking system.
Reza Baqir, the governor of the central bank, added: “Acknowledging the dire need of developing multiple liquidity management solutions, the plan identifies improving liquidity management by inspiring the industry to develop innovative products to cater to unserved/underserved sectors and regions. This will also enable the industry to achieve the target of 10% and 8% share of its private sector financing to SMEs and agriculture respectively by 2025.”
The new strategy was prepared after consultation with all stakeholders of the Shariah banking sector, including Islamic banking institutions and the Pakistan Banks’ Association Sub-Committee for Islamic Banking.
The six strategic pillars of the plan include a focus on the legal landscape and taxation framework, particularly in resolving tax-related issues to provide a level playing field for Shariah banking; reviewing the regulatory framework of the sector; strengthening the Shariah Governance Framework; improving liquidity management through the development of Sukuk structures for the issuance of a regular Sukuk program, among others; expanding outreach and market development; and capacity-building and raising awareness.
The apex bank had previously issued two five-year strategic plans for the Pakistani Islamic banking sector, and the third and most recent one was first announced in January 2020, covering the years between 2019 and 2025.
As at the end of December 2020, Islamic banking in the country accounts for a 17% share in assets and 18.3% share in deposits of the overall banking industry — an increase from 14.4% and 16.9% respectively recorded in 2019. The sector has five fully-fledged Islamic banks and 17 conventional banks operating Shariah windows.