One of Pakistan’s greatest strengths is its ability to sustain a vibrant economy; one of its greatest weaknesses is its inability to foster cohesion among its diverse ethnicities. The attendant rumblings tend to create a poor image of a country often considered to be the “evil twin” to India. It most certainly is not. Pakistan’s financial services sector is overshadowed in breadth by the major Gulf institutions and withheld from expanding in the Iranian and Central Asian hinterland because of the peculiar nature of international relations in this corner of the world. The net effect is an inward-looking industry, focused heavily on the local market, albeit with success among some institutions. The range of foreign institutions that have aimed to build viable businesses in the country is a testimony to the opportunity it offers. We do not necessary accept the view that there are too many banks in Pakistan. Rather, we would rather see the government do a better job of helping to mobilize savings through more prudent economic management. Any such efforts are admittedly a medium- to long-term scenario. The answer to the industry’s woes is likely to be found in a growing real economy, not a burgeoning nominal one.
DOUGLAS CLARK JOHNSON
Despite the most prominent scholars of Islamic finance being from Pakistan, Islamic asset growth has been very disappointing. Shariah compliant assets in Pakistan are worth a mere US$6.2 billion, far behind those of its neighbor Iran where Islamic assets within the banking system are worth US$315 billion. Pakistan is ranked only 14th in the world for Shariah compliant assets, behind Bangladesh and even the UK. There have been some promising developments recently, notably the expansion by Dubai Islamic Bank in Pakistan. Given its population size, there is much scope for Islamic retail banking. Pakistan has suffered from many problems in recent years, including devastating floods, a major earthquake and self-inflicted political uncertainties. Its potential to be an Islamic financial hub is limited because of a lack of confidence, despite the admirable efforts of the State Bank of Pakistan to facilitate Islamic banking and finance. There is an adequate regulatory framework in place already, and this is not the major constraint. Rather the future growth of Islamic finance, like everything else in Pakistan, will depend on how the economic and political situation evolves. PROFESSOR RODNEY WILSON Director of postgraduate studies, Durham University
Despite early attempts to convert the banking system in Pakistan to a fully Shariah compliant system, this has to date not materialized, and Pakistan currently operates a dual regulation system. A number of reasons can be identified for the relative lack of progress including the political and economic instability as well as the still relatively low GDP per capita. A significant part of the population lives below the poverty line which makes them generally unattractive for any part of the financial industry. The financial infrastructure is largely underdeveloped and fragmented. These elements are not necessarily all disadvantageous. As for the wider financial industry in the country, Pakistan is in a prime position to evaluate the different models applied in other countries and develop their Islamic financial infrastructure based on the lessons learned elsewhere. DR NATALIE SCHOON Head of product research, Bank of London and the Middle East
Iam not sure that we should be looking for hubs everywhere. A hub should be a centre that guides capital flows. Pakistan is naturally a long-term destination for capital. With its large low income population, difficult neighbors, and domestic political challenges, I do not see Pakistan as a service center. Nonetheless, the State Bank of Pakistan and the new Capital Markets Authority are building a solid framework for an orderly domestic Islamic financial services industry. These steps should help Pakistan to become a successful destination for capital that wishes to comply with Shariah and serve an important emerging market. ABDULKADER THOMAS CEO and President, SHAPE ─ Financial Corp
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