1. AL-HUDA CENTRE OF ISLAMIC BANKING & ECONOMICS
Event
The 4th International Conference & Exhibition on Islamic Banking & Takaful 2010
Topic for Presentation
Islamic Banking In Pakistan
- Review and Progress
Date & Venue
November 02, 2010, Expo Centre, Lahore.
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 ( ).

2. WELCOME TO OUR PROGRAM Presentation Frame
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

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

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.

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:
Full fledged banks can be established in Pakistan.
Islamic Banks can set up their subsidiaries.
Stand-alone Islamic Banking branches opened by conventional banks in Pakistan. Therefore, flexibility exists in respect of starting and expanding Islamic Banks in Pakistan.

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”.

7. A-3: HISTORICAL RUNDOWN
s to 21st Century
a : 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 s: 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.

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

9. B-1: GROWTH OF ISLAMIC BANKS:
Some Important Indicators
December 2003-March 2010
Year
Total Assets
Deposits
Net financing investment
(December)
Total Rs.b
Share of IBIs Rs.b
2003 13 1 8 10
2004 44 2 30
2005 72 50 48
2006
119 3 84 73
2007
206 4
147
138
2008
276 5
202
186
2009
368 6
283
226
2010 (March)
371
289
229
Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, P.3. 9

10. B-2: GROWTH OF ISLAMIC BANKS BRANCHES
December 2003-March 2010
Year (December)
Number
Base Index
Number of Times
2003 17
100 1
2004 48
300 3
2005 70
412 4
2006
150
882 9
2007
289
1,700
2008
515
3,029 30
2009
651
3,829 38
2010 (March)
654
3,847
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
Particulars
Number
Number of
Branches %
A: Full Fledged Islamic Banks 6
400 23
B: Islamic Branches of Conventional Banks 13
168 50
C: Sub-Branches 7 81 27 26
649
100
Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.16.

12. B-4: ISLAMIC BANKING BRANCHES NETWORK
As on December 31, 2009
S. No.
Province
Number % 1.
Punjab
290 45 2.
Sindh
218 34 3.
Khyber Pakhtoonkhwa 70 10 4.
Baluchistan 32 5 5.
Federal Capital 31 6.
Azad Kashmir 07 1 7.
Northern Area -
649
100
Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.18.

13. B-5: FULL FLEDGED ISLAMIC BANKS
As on December 31, 2009
S. No.
Banks
Number of Branches % 1.
Meezan Bank Ltd
166 41 2.
Bankislami Pakistan 70 18 3.
Emirates Global Islamic Bank Ltd 58 15 4.
Dawood Islamic Bank Ltd 42 10 5.
Dubai Islamic Bank Pakistan Ltd 35 9 6.
Al Barka Islamic Bank 29 7
400
100

14. B-6: ISLAMIC BRANCHES OF CONVENTIONAL BANKS
As on December 31, 2009
S. No.
Banks
Number of Branches % 1.
Bank Alfalah Ltd 60 36 2.
Askari Bank Ltd 29 17 3.
The Bank of Khyber 18 10 4.
MCB Bank Ltd 11 6 5.
Standard Chartered Bank
129 6.
National Bank of Pakistan 8 5 7.
Bank Al-Habib Ltd 4 8.
Faysal Bank Ltd 9.
Soneri Bank Ltd
10.
United Bank Ltd 3
11.
Habib Metropoltian Ltd 2
12.
The Royal Bank of Scotland
13.
Habib Bank Ltd 1
168
100
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
S. No.
Province
Number % 1.
Punjab 38 47 2.
Khyber Pakhtoonkhwa 17 21 3.
Sindh 12 15 4.
Baluchistan 10 13 5.
Azad Kashmir 2 6.
Federal Capital 1 7.
Northern Area 81
100
Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.18.

16. B-8: ISLAMIC BANKS SUB BRANCHES
As on December 31, 2009
S. No.
Banks
Number of Branches % 1.
Bank Alfalah Ltd 35 44 2.
Bankislami Pakistan Ltd 32 40 67 3.
Dawood Islamic 8 10 4.
Askari Bank Ltd 2 5.
Emirates Global Bank Ltd 6.
Dubai Islamic Bank Ltd 1 7.
The Bank of Khyber 81
100
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
S. No.
Province
Number
Maximum
Minimum 1.
Sindh/Karachi (Five Cities)
180 1 2.
Punjab/Lahore (Twelve Cities)
109 3.
Federal Capital/Islamabad 31 - 4.
Khyber/Pakhtoonkhwa (Eight Cities) 28 5.
Baluchistan/Quetta (Eight Cities 21 6.
Azad Kashmir/Mirpur AK Muzafarabad 4 3 7.
Northern Area/Gilgit
Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.18.

18. C: IBIs FINANCING
Sectoral Composition
Products

19. C-1: IBIs FINANCING: SECTORAL COMPOSITION MARCH 2010
S. No.
Sectors % 1.
Textile 20 2.
Individuals 3.
Chemical & Pharma 10 4.
Sugar 06 5.
Energy Products & Transmissions 04 6.
Cement 03 63 7.
Other Sectors (Including 31% others) 37
100
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 2010
S. No.
Products % 1.
Murabaha 38 2.
Diminishing Musharaka 32 3.
Ijarah 14 84 4.
Others (Istisna: Salam, Musharaka, Murahaba) 04
100
Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 5, P. 5.

21. C-3: IBIs NPFs TIME SERVICES Net NPFs to Net Financing
Period
NPFs to Financing
Net NPFs to Net Financing
Provisions to NPFD %
March 2009
4.5
2.3 51
December 2009
6.3
3.1 52
March 2010
7.3
3.8 50
Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 4, P. 5.

22. D: IBIs INVESTMENT
Composition
Types

23. D-1: IBIs INVESTMENTS: COMPOSITION
Particulars
Rs. b %
1. Federal Govt Securities 27 37
2. TFCs, Debentures, Bonds & PTCs 25 34
3. Fully Paid up Ordinary Shares 02 03 54 74
4. Others 20
101
Less: Provision 01
Net Investment 73
100
Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 7, P. 6.

24. D-2: IBIs INVESTMENTS TYPES
Particulars
Rs. b %
1. Available for Sale 59 81
2. Held to Maturity 12 16 71 97
3. Others 03 04 74
101
Less: Provision 01 73
100
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
Capital
Assets quality
Earnings & Profitability

26. E-1: SELECTED PERFORMANCE INDICATORS: IBIs & BANKING INDUSTRY
S. No.
Particulars
March, 2010 1.
CAPITAL
IBIs
Industry
(Capital to Total Assts)
11.4
10.3 2.
ASSETS QUALITY
NPLs to Financing
7.3
13.1
Net NPLs to Net Financing
3.8
4.2
Provisions to NPEs
50.0
70.9
Net NPAs to total to total Capital
Real Estate Financing to total Financing
11.3
2.4 3.
EARNINGS & PROFITABILITY
Net Income to total Assets
0.8
1.1
ROE
7.0
10.9
Net Income to Gross Income
81.1
74.0
Net Interest Income to Gross income
18.9
26.0

27. E-1: SELECTED PERFORMANCE INDICATORS: IBIs & BANKING INDUSTRY
S. No.
Particulars
March, 2010
Trading & Exchange Gains/Losses to Gross Income
7.0
9.0
Operating Expenses to Gross Income
70.2
51.8
Personnel Expenses to Operating Expenses
32.2
37.4
Spread between Financing and Deposit Rates
7.7
6.6
Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 2, P. 3-4.

28. F: FUTURE OUTLOOK
Forecasts
Challenges

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

30. F-2: CHALLENGES We visualize the following future challenges:
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.
Islamic Banks must demonstrate growth with profitability. The top management must evolve the process to translate the above challenges.
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.
Sharia compliant financial services be expanded. Awareness be created in this respect and logistics be developed as cushion to achieve the above objective.
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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