Transition towards Islamic banking

The conventional banks in Pakistan are switching towards ever-flourishing Islamic banking which, most of the industry managers agree, has a bright future in this predominantly Muslim country. Given a remarkable growth of Islamic banking in terms of profitability and expansion, over a dozen conventional banks have so far launched their separate divisions offering Shariah-compliant banking with many others rolling their sleeves up to do the same. Currently, there are six licensed full-fledged Islamic banks and at least 15 conventional banks with standalone Islamic banking branches with a total branch network of over 336 are operating in more than 50 cities of Pakistan.
Islamic banking, the State Bank believes, is one of the emerging fields in global financial market, having tremendous potential of growth. Sensing perhaps the growth potential of Islamic banking, the State Bank of Pakistan (SBP), in September 2003, set up a full-fledged Islamic Banking Department (IBD) to promote and develop the Shariah-compliant banking as a parallel and compatible banking system in the country. The vision statement of IBD is: “To make Islamic banking, the banking of first choice for the providers and users of financial services”
Declaring Islamic banking as a “high priority area” for itself, the State Bank has been taking every possible measure to make the Shariah-compliant banking industry in the country robust enough to offer a viable alternative to the conventional banking. “Should the market decide that Pakistan should have an exclusively Islamic banking system in the country,” the regulator says in a mission statement for the IBD. If seen in the backdrop of its rapid expansion one aptly claim that Islamic banking has every potential to reach the level envisioned by the SBP some eight years ago in 2003.
Silkbank is the latest example of a conventional bank seeking SBP’s permission to operate dedicated Islamic banking branches in the country. “With the approval of our board we have applied for SBP license to launch an Islamic banking division,” said by Silkbank Executive Director M.A Mannan. The launching of the division would take three to four months after licensing from the regulator that is routinely processed in 45 days. “We tend to go for the launching in the first quarter of 2012”he added.
SBP chief spokesman Syed Wasimuddin confirmed that a request for a branch licensing from the Silkbank is pending at the central bank.
Given the current booming nature of Shariah-compliant banking industry his bank might be planning to acquire a full-fledged Islamic bank sometimes in prospect. “Saying that two or more banks have been short-listed (for acquisition) would be premature,” Mannan told Pakistan Today. Mannan, an experienced banker, believes that profitability and other ratios in the Islamic banking were better than that of the conventional one. “Islamic banking industry has reported a profit of Rs5 billion that shows its great scope,” he said. “Islamic banking in Pakistan has grown to Rs4.5 trillion constituting 7.5 per cent of the total banking industry with the participants pursuing a growth target of 12 per cent,” he added.
The industry sources, however, claimed that Silkbank was planning to launch a full-fledged Islamic bank, “Emaan Islamic Bank” (EIB), to work as a separate entity. In addition a huge number of staff including CEO of Dubai Islamic Bank Mannan, have been hired by Silkbank to run the EIB. The sources said the problem for not opening EIB as separate entity is “State Bank does not allow a single bank to keep two licenses (for carrying out Islamic and conventional banking) even though Silkbank had fulfilled the Rs10 billion minimum capital requirement of State Bank”.
About future plans of his side, Mannan said the experience of an accomplished banker like Shaukat Tarin, the president of Silkbank and former federal finance minister, would certainly bring more innovation and growth to the Islamic banking industry.