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AL-HUDA CENTRE OF ISLAMIC BANKING & ECONOMICS Topic for Presentation Islamic Banking In Pakistan - Review and Progress Presentation by Prof. Dr. Khawaja.

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Presentation on theme: "AL-HUDA CENTRE OF ISLAMIC BANKING & ECONOMICS Topic for Presentation Islamic Banking In Pakistan - Review and Progress Presentation by Prof. Dr. Khawaja."— Presentation transcript:

1 AL-HUDA CENTRE OF ISLAMIC BANKING & ECONOMICS Topic for Presentation Islamic Banking In Pakistan - Review and Progress Presentation by Prof. Dr. Khawaja Amjad Saeed Professor Emeritus & Founder Principal, Hailey College of Banking & Finance, University of the Punjab, Lahore Pakistan ( ), Member Governing Council, International Federation of Accountants (IFAC), New York ( ), President, South Asian Federation of Accountants (SAFA) (1997), President, Institute of Cost and Management Accountants of Pakistan ( ), President, Association of Management Development Institutions of South Asia (AMDISA) ( ), Pro Vice- Chancellor University of the Punjab, Lahore ( ), Founder Director, Institute of Business Administration (IBA), University of the Punjab, Lahore ( ). Date & Venue November 02, 2010, Expo Centre, Lahore. Event The 4 th International Conference & Exhibition on Islamic Banking & Takaful

2 P RESENTATION F RAME A. Islamic Banking-Inretrospect B. Growth of Islamic Banks C. IBIs Financing D. IBIs Investments E. Selected Performance Indicators: IBIs & Banking Industry F. Future Outlook 2

3 A: ISLAMIC BANKING - INRETROSPECT 1.Vision and Mission of Islamic Banking Department of SBP 2.Strategy for Islamic Banking in Pakistan 3.Historical Rundown 3

4 A-1: Vision & Mission of Islamic Banking Department of State Bank of Pakistan (SBP) State Bank of Pakistan, in its role as central bank, has developed the following aspects: 1. Vision To make Islamic Banking the baking 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. It is very important that the stakeholders to revisit the above aspects reflected as vision and mission. Motivated by the enlightened guidance provided by State Bank of Pakistan, all Islamic Banks must follow sunshine vision and driving mission. These aspects need to be indoctrinated in the minds of all stakeholders so that their efforts are reflected in real life situation as achievement motivation. 4

5 A-2: STRATEGY FOR ISLAMIC BANKING IN PAKISTAN THREE PRONGED STRATEGY In Pakistan, State Bank of Pakistan has followed three point strategy relating to development of Islamic Banks. These strategies include the following: 1.Full fledged banks can be established in Pakistan. 2.Islamic Banks can set up their subsidiaries. 3.Stand-alone Islamic Banking branches opened by conventional banks in Pakistan. Therefore, flexibility exists in respect of starting and expanding Islamic Banks in Pakistan. 5

6 A-3: HISTORICAL RUNDOWN 1.Pakistan was created out of Islamic Ideology. Therefore Islamic Banking gets support for its development. 2.Quaide-e-Azam Mohammad Ali Jinnah, father of the Nation, while inaugurating the State Bank of Pakistan 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 Constitution of Pakistan is quoted below: The state shall eliminate riba as early as possible. 6

7 A-3: HISTORICAL RUNDOWN s to 21 st Century a. 1970: efforts, in their initial stages, started to eliminate riba. b.1980s: Bold and comprehensive initiatives were 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. 7

8 B: GROWTH OF ISLAMIC BANKS 1.Important Indicators 2.Growth of Islamic Banks Branches 3.Islamic Banking Branches Network 4.Islamic Banking Branches Network 5.Full Fledged Islamic Banks 6.Islamic Branches of Conventional Books 7.City wise break-up of Islamic Banking Branches 8.Islamic Banks sub-branches 9.Maximum & Minimum braches network at Islamic Banks 8

9 B-1: GROWTH OF ISLAMIC BANKS: Some Important Indicators December 2003-March Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, P.3. YearTotal AssetsDepositsNet financing investment (December)Total Rs.bShare of IBIs Rs.bTotal Rs.bShare of IBIs Rs.bTotal Rs.bShare of IBIs Rs.b (March)

10 B-2: GROWTH OF ISLAMIC BANKS BRANCHES December 2003-March Year (December)NumberBase IndexNumber of Times , , , (March)6543,84738 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, P.3.

11 B-3: ISLAMIC BANKING BRANCHES NETWORK As on December 31, 2009 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P ParticularsNumber Number of Branches% A: Full Fledged Islamic Banks B: Islamic Branches of Conventional Banks C: Sub-Branches

12 B-4: ISLAMIC BANKING BRANCHES NETWORK As on December 31, 2009 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P S. No.ProvinceNumber% 1.Punjab Sindh Khyber Pakhtoonkhwa Baluchistan325 5.Federal Capital315 6.Azad Kashmir071 7.Northern Area

13 B-5: FULL FLEDGED ISLAMIC BANKS As on December 31, S. No.BanksNumber of Branches% 1.Meezan Bank Ltd Bankislami Pakistan Emirates Global Islamic Bank Ltd Dawood Islamic Bank Ltd Dubai Islamic Bank Pakistan Ltd359 6.Al Barka Islamic Bank

14 B-6: ISLAMIC BRANCHES OF CONVENTIONAL BANKS As on D ecember 31, S. No.BanksNumber of Branches% 1.Bank Alfalah Ltd Askari Bank Ltd The Bank of Khyber MCB Bank Ltd116 5.Standard Chartered Bank National Bank of Pakistan85 7.Bank Al-Habib Ltd64 8.Faysal Bank Ltd64 9.Soneri Bank Ltd64 10.United Bank Ltd53 11.Habib Metropoltian Ltd42 12.The Royal Bank of Scotland32 13.Habib Bank Ltd 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 S. No.ProvinceNumber% 1.Punjab Khyber Pakhtoonkhwa Sindh Baluchistan Azad Kashmir22 6.Federal Capital11 7.Northern Area

16 B-8: ISLAMIC BANKS SUB BRANCHES As on December 31, S. No.BanksNumber of Branches% 1.Bank Alfalah Ltd Bankislami Pakistan Ltd Dawood Islamic810 4.Askari Bank Ltd22 5.Emirates Global Bank Ltd22 6.Dubai Islamic Bank Ltd11 7.The Bank of Khyber 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 S. No.Province Number MaximumMinimum 1.Sindh/Karachi (Five Cities) Punjab/Lahore (Twelve Cities) Federal Capital/Islamabad31- 4.Khyber/Pakhtoonkhwa (Eight Cities)281 5.Baluchistan/Quetta (Eight Cities211 6.Azad Kashmir/Mirpur AK Muzafarabad43 7.Northern Area/Gilgit1-

18 C: IBIs FINANCING 1.Sectoral Composition 2.Products 18

19 C-1: IBIs FINANCING: SECTORAL COMPOSITION MARCH S. No.Sectors% 1.Textile20 2.Individuals20 3.Chemical & Pharma10 4.Sugar06 5.Energy Products & Transmissions04 6.Cement Other Sectors (Including 31% others) Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 6, P. 5.

20 C-2: IBIs FINANCING PRODUCTS (Total Rs. 162b) MARCH S. No.Products% 1.Murabaha38 2.Diminishing Musharaka32 3.Ijarah Others (Istisna: Salam, Musharaka, Murahaba) Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 5, P. 5.

21 C-3: IBIs NPFs TIME SERVICES 21 PeriodNPFs to Financing Net NPFs to Net Financing Provisions to NPFD %% March December March Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 4, P. 5.

22 D: IBIs INVESTMENT 1.Composition 2.Types 22

23 D-1: IBIs INVESTMENTS: COMPOSITION 23 ParticularsRs. b% 1. Federal Govt Securities TFCs, Debentures, Bonds & PTCs Fully Paid up Ordinary Shares Others Less: Provision01 Net Investment73100 Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 7, P. 6.

24 D-2: IBIs INVESTMENTS TYPES 24 ParticularsRs. b% 1. Available for Sale Held to Maturity Others Less: Provision Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 7, P. 6.

25 E: SELECTED PERFORMANCE INDICATORS IBIs & BANKING INDUSTRY 25 1.Capital 2.Assets quality 3.Earnings & Profitability

26 E-1: SELECTED PERFORMANCE INDICATORS: IBIs & BANKING INDUSTRY 26 S. No.ParticularsMarch, CAPITALIBIsIndustry (Capital to Total Assts) ASSETS QUALITY NPLs to Financing Net NPLs to Net Financing Provisions to NPEs Net NPAs to total to total Capital Real Estate Financing to total Financing EARNINGS & PROFITABILITY Net Income to total Assets ROE Net Income to Gross Income Net Interest Income to Gross income

27 27 S. No.ParticularsMarch, 2010 Trading & Exchange Gains/Losses to Gross Income Operating Expenses to Gross Income Personnel Expenses to Operating Expenses Spread between Financing and Deposit Rates Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 2, P E-1: SELECTED PERFORMANCE INDICATORS: IBIs & BANKING INDUSTRY

28 F: FUTURE OUTLOOK 28 1.Forecasts 2.Challenges

29 F-1: FORECASTS 29 1.By 2012, total of Islamic Banking industry is forecasted as Rs. 1 trillion. 2.In the next five years, 1200 branches of Islamic Banks are vitalized 3.The hope is that it will be 12% of total banking industry

30 F-2: CHALLENGES 30 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.

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