Summit Bank President Muhammad Zahir Esmail says the future lies with Islamic banking
The entire Summit Bank operation will be converted into Islamic banking in the next three years as the Bank’s Chairman Nasir Ahmed Lootah, a UAE based businessman, does not want to continue with the traditional banking in his Pakistani bank, said the Bank’s CEO in an interview with Pakistan Today.
A highly experienced banker and President and CEO of the Summit Bank Muhammad Zahir Esmail said that the Bank has so far converted 14 of its branches into Islamic mode of financing while the State Bank of Pakistan (SBP) has allowed them to convert another five branches, which he said the Bank is now working on.
“The SBP permitted us to convert five branches of Summit Bank – in Quetta, Faisalabad, Hyderabad, Islamabad and a branch at Shahrah-e-Faisal PAF Base in Karachi – into Islamic banking branches,” Esmail said and added, “According to the rules of the State Bank, the bank cannot convert any conventional banking branch into an Islamic one overnight. They have given us six months to convert all the accounts of these branches from conventional banking to Islamic banking.”
Esmail who is now 68 year old started working as CEO of Summit Bank after his retirement from Habib Bank AG Zurich, which was merged with Metropolitan Bank in 2006.
Esmail has worked with Habib group in different positions and in various countries for over four decades. He retired from HBL AG Zurich on March 31, 2008.
The very next day he joined Bank Islami and after eight months, Hussain Lawai appointed him Chief Operating Officer (COO) of Arif Habib Bank.
THE MAKING OF SUMMIT BANK:
Nasir Ahmed Lootah, a United Arab Emirates (UAE) national and a well known businessman, started his banking business in Pakistan after acquiring Arif Habib Bank in 2008. At that time most of the small banks were in crises after the crash of the Pakistani stock market in which stock brokers lost billions of rupees. Later, Lootah purchased Atlas Bank from Atlas Honda Pakistan as well as the sick Bolan Bank. He merged all the banks and named it ‘Summit Bank’.
Summit Bank President Muhammad Zahir Esmail said that the bank now has a total capital of Rs 120 billion while its authorised capital is Rs 25 billion and the paid-up capital is Rs 10 billion.
He said the Pakistani banks’ future lies in Islamic banking. He said the future of conventional banking is bleak as every Muslim of the country wants to adopt interest-free banking and avoid interest as it is prohibited in Quran and Shariah. Esmail has done two different courses in Islamic banking to understand this mode of financing properly and is now fully convinced of its utility.
According to the central bank, asset of the Islamic banking industry registered a growth of 6.5 per cent during Oct-Dec quarter of 2015 and reached Rs 1.6 trillion from Rs 1.5 trillion in the previous quarter. This growth in Islamic banking assets was higher compared to growth in overall banking industry assets. The Islamic banking industry increased its market share 11.2 per cent at the end of September 2015 to 11.4 per cent at the end of December 2015.
In total, 292 branches were added to Islamic banking branch network during the quarter.
ISLAMIC VS CONVENTIONAL BANKING:
The Summit Bank CEO said that in Islamic Banking, a bank cannot charge rent of a car until it is in the customer’s possession, but the conventional banks start charging interest from day one. “If your car gets into an accident, an Islamic bank will stop charging rent until it is fixed or until there is a replacement. But a conventional bank will keep charging interest despite the accident,” he said.
He said that through Islamic banking a customer purchases a car from the Islamic bank and not from the company.
“The Islamic bank will not issue you a car loan. Instead, it will sign a deal with the customer that this car, which costs Rs 100 in the market will be provided to you at Rs 125 in three-to-five-year installments. We will not charge a single penny above Rs 125 during that period despite late payments or if the signing period lapses,” he said.
“Similarly, if a customer wants to import machinery from abroad, the Islamic bank will sign a deal with them that the bank will import the machinery on their behalf and they will have to purchase it at a certain rate including insurance and other charges. If the machinery is damaged during import, the bank will be responsible and not the customer. The customer will be charged rent only after the machinery is fixed and in place.”
“We will not go behind on the deal. If the customer does not pay dues on time, the Islamic bank will only charge a small amount under the head of charity. This amount will never be used by the bank. In Islamic banking, the customers are not charged a single penny extra.”
Esmail said Summit Bank is also in negotiations to purchase another bank in Pakistan, but the SBP has not given them permission for due-diligence yet.
“The central bank will give permission in the next few weeks and then the bank will do due-diligence,” Esmail said, without mentioning the name of the bank.
Summit Bank President Muhammad Zahir Esmail said that the future of conventional banking is bleak as every Muslim of the country wants to adopt interest-free banking and avoid interest as it is prohibited in Quran and Shariah.
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The Islamic bank will not issue you a car loan. Instead, it will sign a deal with the customer that this car, which costs Rs 100 in the market will be provided to you at Rs 125 in three-to-five-year installments.
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