The full-fledged Islamic banks in the country have left behind conventional banks in financing the private sector, surging to Rs. 94.8 billion during the period of July to May of the current financial year 2022-23 (11MFY23), but still down 54.8 percent from Rs. 209.8 billion last year.
According to the State Bank of Pakistan (SBP), Islamic banks have made financing to the private sector of Rs. 94.8 billion, showing a big difference of Rs. 63.8 billion compared to conventional banks with financing values standing at Rs. 30.9 billion in the eleven months of the current financial year.
Meanwhile, overall banking credit to the private sector has fallen by 98 percent this fiscal year to Rs. 27.9 billion from Rs. 1.41 trillion in 11MFY22.
The Islamic division of the conventional banks also reported the retirement of financing amount of Rs. 97.9 billion in the said period.
There are five full-fledged Islamic banks and a subsidiary including Meezan Bank, Faysal Bank, BankIslami, Dubai Islamic Bank, Bank Al Baraka, and MCB Islamic Bank.
Industry experts said that private businesses do prefer Islamic banking for fulfilling the financing requirements of their business due to the faith factor in addition to the facilitation offered by the banks to provide them financing at comparatively lower rates than conventional banks.
Private corporations are increasingly opting for financing from Islamic banks, on the other hand, financing for houses and automobiles is highly preferred from Islamic banks.
Islamic banks have been getting popularity across the country after the verdict of the Federal Shariat Court which ordered the government to end the interest-free economy in the next five years.
The government and SBP are working in the direction of converting the economy to the present Islamic banking and financing system. A number of publicly listed banks including Summit Bank, Bank of Punjab, and Zarai Tarqiat Bank also announced their plan to explore the option for complete conversion of the banking system towards Islamic banking.
During 11MFY22, the financing of full-fledged Islamic banks stood at Rs. 209 billion, which was over four times less than the conventional banks that had a financing amount of Rs. 888 billion and 66 percent less than the financing made by the Islamic windows of the conventional banks i.e, Rs. 315 billion.