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Islamic Banking Source:
GlobalIslamicFinanceMagazine.com
It has been reported that State Bank of Pakistan (SBP) Governor Yaseen Anwar an- nounced that Islamic banks need to offer agriculture financing in order to tap into the huge potential of the sector. Speaking as chief guest at the inaugural session of the two-day 2nd International Conference on Islamic Business (ICIB 2012), organised by Riphah International University at National Institute of Banking & Finance (Nibaf), Anwar voiced his regrets that Islamic banks have not been able to come out of the shadow of conventional banks, as well as lacking better risk management and due diligence.
With Islamic banks having been working in the shadow of conventional banks, both in the international and domestic markets, he stated that the agriculture sector and SMEs (small and medium sized enterprises) are of paramount importance for achieving growth, but that these opportunities have been largely ignored. He went on to urge Islamic banks to tap into the huge opportunities available in the agriculture sector.
Within Pakistan the agriculture sector con- tributes 21 percent to the Gross Domestic Produce (GDP), and provides 40 per cent of the country’s employment, as well as placing Pakistan as the fifth-largest milk producer in the world. He pointed out that Nestlé and other international companies have already realised the opportunities available, and ac- cordingly have invested in the dairy sector. He further stated that huge opportunities ex- ist for Islamic banks in the agriculture sector, and they must make efforts to tap into these through agriculture financing. He argued that inclusive growth is wholly beneficial for society, and that Islamic banks should be more aggressive in increasing their outreach beyond major cities, deploring the fact that 70 percent of their branch networks are con- fined to the 12 major cities of the country.
He also said the SBP is working to provide Islamic interbank market to Islamic banks and a regulator has been taking measures to help Islamic banking in Pakistan. He pos- ited the notion that the Islamic banking sys- tem has to come out of the shadow of con- ventional banks and overcome the lack of understanding about risk management, ca- pacity obstacles and training. Yaseen said that Islamic banking has been growing at a very robust rate of around 30 percent for the last six years, currently constitut- ing 8.5 percent of the total deposits of banking sector. Furthermore, he stated that over 886 branches of Islamic banks have been work- ing in the country but the industry is still fac- ing challenges that require addressing. He affirmed that the debate has now started on how the Islamic banking system should move towards stability.
He said Islamic finance is a profitable eco- nomic opportunity, and that Pakistan should pay heed to the lessons taught by the global financial crisis. Yaseen said that despite this financial crisis, the fundamental concepts of the economics of Western countries are very deep, and it would be a misconception to assume that their system has collapsed. He said financial institutions have to be cau- tious and prepare themselves in order to be resilient against any sort of crisis. Yaseen also said Islamic financing has been lacking in the areas of risk management and due diligence, and a key challenge lay in working in international and domestic markets with conventional banking currently dominating both. He said despite all the positive devel- opments during the last decade, there exist
many critical issues, which needs to be ad- dressed to sustain the growth momentum on long-term basis. Despite all of the afore- mentioned issues, he stated that he was op- timistic about the global and domestic role of Islamic banking, considering it to be the most dynamic area of financial services.
Continued use of an expansionary fis- cal policy, coupled with low-interest rates, should maintain healthy econom-
ic growth and boost domestic liquidity’
The financial and economic devastation caused by the recent financial crisis has provided further impetus to the healthy rate of growth, as the Islamic financial system is increasingly being looked at as a prudent, stable and viable alternative against the conventional system. The governor of the State Bank said that it was very encourag- ing to see that Riphah International Univer- sity had arranged the second International Conference to discuss the important issues currently pertaining in the areas of Islamic financial products, monetary policy in an Islamic economic system and liquidity man- agement, and congratulated the institution for organising such an important event at an international level on a regular basis.
He said the State Bank, being the regulator as well as the promoter and facilitator of the industry, will look into the recommendations of the Conference for possible adoption and implementation of the ideas brought up throughout the event.
gif 2012 April Global Islamic Finance 59
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