The assets of Islamic banking have crossed the mark of Rs. 5 trillion by the end of 2021. In 2021 alone, the industry assets value registered the highest ever growth of Rs. 1.3 trillion.
The market share of Islamic banking assets in the overall banking industry jumped to 18.6 percent, with a gradual increase in penetration in the banking market in the past two decades from zero to double-digit.
According to the State Bank of Pakistan (SBP), the assets of Islamic banks surged by over Rs. 5.577 trillion by the end of December 2021. The increase in assets of IBI was driven by both financing to the private and public sectors and investments in Shariah-compliant securities.
The market share of Islamic banking assets in the overall banking industry jumped to 18.6 percent, with a gradual increase in penetration in the banking market in the past two decades from zero to double-digit.
Islamic banking was re-launched in Pakistan in 2000. The industry achieved Rs. 1 trillion in assets for the first time in March 2014, with their share in the overall banking industry clocking in at 9.4 percent.
IBI assets value attained its next milestone of Rs. 2 trillion in the next two years and one quarter in June 2017, and its asset share in the overall industry surged to 11.6 percent. It reached Rs. 3 trillion asset values in the next two and a half years in December 2019, with a market share standing at 14.9 percent in the overall banking sector.
The industry attained the benchmark of Rs. 4 trillion in assets values merely in one year, which is a record for the industry itself. It maintained a share of 17 percent in the overall assets of the banking industry.
Deposits of Islamic Banks
The deposits of the Islamic Banking Industry attained another benchmark of Rs. 4 trillion by the end of 2021. The share of the Islamic banking industry in deposits of the overall banking industry stood at 19.4 percent by the end of December 2021.
The growth in deposits is also owed to the fact that, during CY21, the availability of Islamic banking services increased in the country with the addition of 500 new Islamic banking branches.
The deposits of the industry attained a mark of Rs. 1 trillion in December 2014, with a share of deposits in the overall banking industry standing at 11.6 percent. The industry attained the market of Rs. 2 trillion in 2018 with a market surge to 15.5 percent in the overall deposits of the banking industry.
The deposits of the industry surged to Rs. 3 trillion by the end of September 2020, with a market share standing at 17.3 percent.
Islamic Banking Network
The composition of the industry remained unchanged, with 22 Islamic Banking Institutions (IBIs), consisting of 5 full-fledged Islamic Banks (IBs) and 17 conventional banks having Islamic banking branches (IBBs).
The total number of branches now stands at 3,956 across 125 districts, which is around 25 percent of the total number of commercial banks branches in the country. The number of Islamic banking windows (dedicated counters at conventional branches) operated by IBBs stood at 1,442 by the end of December 2021.
SBP’s Role In Promoting Islamic Banking
It would be pertinent to mention here that IBI has been playing a significant role in the implementation of various measures taken in the wake of the COVID-19 pandemic and several other key initiatives to promote financing for low-cost housing and SMEs and digitization. During the Covid19 pandemic, SBP introduced Temporary Economic Refinance Facility (TERF) – a concessionary refinances facility aimed at promoting investment in both new and expansion and/or Balancing, Modernization, and Replacement (BMR) that has been highly appreciated by the business community.
In the disbursement of financing under TERF, the IBI also contributed significantly with a sizable share of 38 percent of the total amount disbursed. Similarly, under the flagship initiative of Mera Pakistan Mera Ghar, a financing facility to promote affordable housing, the share of IBI has been 49 percent in total disbursements and 58 percent in the total approved amount of financing. In the case of Roshan Digital Account, Islamic Banks have been able to attract sizable investments in Islamic Naya Pakistan Certificates (INPCs) with a share of 46 percent of total inflows under NPCs.
Islamic banking has been witnessing robust growth over the years on the back of SBP’s leading role in creating a conducive environment for the expansion of the Islamic banking industry.
The banking regulator introduced various measures to promote the Islamic banking industry in the country including:
- issuance of the 3rd five-year strategic plan 2021-25 for the Islamic banking Industry providing a roadmap and headline targets;
- introduction of Shariah-compliant standing ceiling facility & open market operations,
- development of transaction structure of GoP domestic Ijarah Sukuk for fresh issuance(s) & its re-opening thereafter with multiple assets;
- issuance of Shariah-compliant regulations for the lender of the last resort facility,
- issuance of instructions on Shariah non-compliance risk management instructions;
- strengthening of Shariah governance mechanism; and
- numerous initiatives for awareness creation for the general public and capacity building of relevant stakeholders.
Global Recognition for Pakistan’s Islamic Banking
State Bank has been playing an active and leading role in the promotion of Islamic banking globally at various international forums. Currently, the Governor SBP, Dr. Reza Baqir is the Chairperson of the Council and the General Assembly of the prestigious Islamic Financial Services Board (IFSB) for the year 2022. SBP will host the next Islamic Financial Services Board (IFSB) Council meeting in May 2022. IFSB is an international standard-setting organization that promotes and enhances the soundness and stability of the Islamic financial services industry.
The State Bank has also been recognized as the best Central Bank of 2021 across the world in promoting Islamic finance by the Islamic Finance News (IFN), an arm of RED money Group, Malaysia. Previously, SBP was bestowed with this coveted award for the years 2015, 2017, 2018, and 2020.
