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 (2003----), Member Governing Council, International Federation of
Accountants (IFAC), New York (1997-2000), President, South Asian Federation of Accountants (SAFA)
(1997), President, Institute of Cost and Management Accountants of Pakistan (1997-2000), President,
Association of Management Development Institutions of South Asia (AMDISA) (1993-96), Pro ViceChancellor University of the Punjab, Lahore (1994-1996), Founder Director, Institute of Business
Administration (IBA), University of the Punjab, Lahore (1973-1996).
1

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

A: ISLAMIC BANKING - INRETROSPECT

1. Vision and Mission of Islamic Banking Department of SBP
2. Strategy for Islamic Banking in Pakistan
3. Historical Rundown

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

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.

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

A-3: HISTORICAL RUNDOWN

4. 1970s to 21st 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
7
system is going on in Indonesia
and Malaysia also.

B: GROWTH OF ISLAMIC BANKS

1.
2.
3.
4.
5.
6.
7.
8.
9.

Important Indicators
Growth of Islamic Banks Branches
Islamic Banking Branches Network
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

B-1: GROWTH OF ISLAMIC BANKS:

Some Important Indicators
December 2003-March 2010

Year
(Decembe
r)

Total Assets
Total
Rs.b

Share of IBIs
Rs.b

Deposits
Total
Rs.b

Share of IBIs
Rs.b

Net financing
investment
Total
Rs.b

Share of IBIs
Rs.b

2003

13

10

2004

44

30

30

2005

72

50

48

2006

119

84

73

2007

206

147

138

2008

276

202

186

2009

368

283

226

2010
371
6
289
6
229
5
(March)
Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of
Pakistan, March 2010, P.3.
9

B-2: GROWTH OF ISLAMIC BANKS BRANCHES

December 2003-March 2010
Year
(December)

Number

Base Index

Number of
Times

2003

17

100

2004

48

300

2005

70

412

2006

150

882

2007

289

1,700

17

2008

515

3,029

30

2009

651

3,829

38

2010 (March)

654

3,847

38

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of

Pakistan, March 2010, P.3.
10

B-3: ISLAMIC BANKING BRANCHES NETWORK

As on December 31, 2009

Particulars
A: Full Fledged Islamic Banks
B: Islamic Branches of
Conventional Banks
C: Sub-Branches

Number of

Numb
er

Branches

400

23

13

168

50

81

27

26

649

100

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of

Pakistan, December 2009, P.16.
11

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.

Federal Capital

31

6.

Azad Kashmir

07

7.

Northern Area

649

100

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of

Pakistan, December 2009, P.18.
12

B-5: FULL FLEDGED ISLAMIC BANKS

As on December 31, 2009
S.
No.

Banks

Number of
Branches

166

41

1.

Meezan Bank Ltd

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

6.

Al Barka Islamic Bank

29

400

100

13

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

5.

Standard Chartered Bank

11

129
6.

National Bank of Pakistan

7.

Bank Al-Habib Ltd

8.

Faysal Bank Ltd

9.

Soneri Bank Ltd

10.

United Bank Ltd

11.

Habib Metropoltian Ltd

12.

The Royal Bank of Scotland

13.

Habib Bank Ltd

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of168
Pakistan, December 2009, P.16.
100

14

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

6.

Federal Capital

7.

Northern Area

81

100

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of

Pakistan, December 2009, P.18.
15

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

10

4.

Askari Bank Ltd

5.

Emirates Global Bank Ltd

6.

Dubai Islamic Bank Ltd

7.

The Bank of Khyber

81

100

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of

Pakistan, December 2009, P.16
16

B-9: MAXIMUM & MINIMUM BRANCHES NET WORK

OF ISLAMIC BANKS
AS on December 31, 2009
S.
No.

Number
Province

Maximum

Minimum

1.

Sindh/Karachi (Five Cities)

180

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

7.
Northern Area/Gilgit
1
Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of
Pakistan, December 2009, P.18.
17

C: IBIs FINANCING
1. Sectoral Composition
2. Products

18

C-1: IBIs FINANCING: SECTORAL COMPOSITION

MARCH 2010
S.
No.

Sectors

1.

Textile

20

2.

Individuals

20

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.
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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.
20

C-3: IBIs NPFs TIME SERVICES

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.
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D: IBIs INVESTMENT
1. Composition
2. Types

22

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

20

27

74

101

Less: Provision

01

01

Net Investment

73

100

4. Others

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of

Pakistan, March 2010, Table 7, P. 6.
23

D-2: IBIs INVESTMENTS TYPES

Particulars

Rs. b

1. Available for Sale

59

81

2. Held to Maturity

12

16

71

97

03

04

74

101

01

01

73

100

3. Others
Less: Provision

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of

Pakistan, March 2010, Table 7, P. 6.
24

E: SELECTED PERFORMANCE INDICATORS IBIs &

BANKING INDUSTRY

1. Capital

2. Assets quality
3. Earnings & Profitability

25

E-1: SELECTED PERFORMANCE INDICATORS: IBIs

& BANKING INDUSTRY
S.
No.
1.

2.

3.

Particulars

March, 2010

CAPITAL

IBIs

Industr
y

(Capital to Total Assts)

11.4

10.3

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

50.0

70.9

Real Estate Financing to total Financing

11.3

2.4

Net Income to total Assets

0.8

1.1

ROE

7.0

10.9

81.1

74.026

ASSETS QUALITY

EARNINGS & PROFITABILITY

Net Income to Gross Income

E-1: SELECTED PERFORMANCE INDICATORS: IBIs

& BANKING INDUSTRY
S.
No.

Particulars
Trading & Exchange Gains/Losses to Gross
Income

March, 2010
7.0

9.0

Operating Expenses to Gross Income

70.2

51.8

Personnel Expenses to Operating Expenses

32.2

37.4

7.7

6.6

Spread between Financing and Deposit

Rates

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of

Pakistan, March 2010, Table 2, P. 3-4.
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F: FUTURE OUTLOOK
1. Forecasts
2. Challenges

28

F-1: FORECASTS
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

29

We visualize the following

future challenges:
F-2: 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
30
have taken correct initiative in this respect. This areas needs

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