Page 40 - CMA Journal (Mar-Apr 2025)

Focus Section

Drivers of Growth of Islamic Banking in
Pakistan
Several factors contribute to the expansion of Islamic
banking in the country:
1) Public Demand for Shariah-Compliant Finance: A
significant portion of Pakistan’s population prefers
interest-free banking aligned with Islamic principles.
This demand has driven conventional banks to
introduce dedicated Islamic banking windows
alongside fully-fledged Islamic banks.
2) Government and Regulatory Support: The SBP has
taken significant steps to strengthen Islamic
banking, including revised Shariah governance
frameworks, tax incentives, and awareness programs.
The government’s vision to transition towards an
Islamic financial system further supports this sector.

3) Strong Performance and Profitability: Islamic
banks have consistently reported higher growth in
deposits and profitability compared to conventional
banks. This indicates strong consumer trust and
market potential for expansion.
4) Innovation in Islamic Financial Products: Islamic
banks offer a wide range of products, including
Murabaha (cost-plus financing), Ijarah (leasing), • The SBP’s roadmap to enhance Islamic banking
Mudarabah (profit-sharing), and Sukuk (Islamic through policy reforms and financial inclusion
bonds). These innovations have helped attract more initiatives.
customers and businesses.
• Expansion of Islamic microfinance and fintech
5) International Collaboration and Investments: solutions to reach underserved communities.
Pakistan is strengthening ties with global Islamic • Increased foreign investment in Pakistan’s Islamic
financial institutions, attracting foreign investments banking sector, strengthening its global standing.
in Islamic banking and Sukuk markets.
Challenges to Islamic Banking in Pakistan • Greater adoption of digital banking services to
improve accessibility and efficiency.
Despite its rapid growth, Islamic banking in Pakistan faces
certain challenges: Islamic banking in Pakistan has established itself as a
robust alternative to conventional banking, driven by
• Limited Awareness and Education: Many people strong demand, government support, and continuous
remain unfamiliar with Islamic banking principles innovation. While challenges remain, the sector's growth
and benefits.
potential is immense. By addressing regulatory hurdles,
• Regulatory and Compliance Hurdles: Ensuring increasing awareness, and embracing technological
consistent Shariah compliance across all banking advancements, Pakistan can further strengthen its
activities remains a challenge. position as a leading Islamic banking hub in the region.
• Competition from Conventional Banking: About the Author: The author is a Fellow Member of ICMA Pakistan,
Although Islamic banking is growing, it still competes Associate Member of the Institute of Corporate Secretaries of
with a well-established conventional banking system. Pakistan (ACIS), and a Diploma Associate Member of the Institute of
Bankers in Pakistan. He is also a Certified Internal Auditor (CIA-USA)
• Product Standardization Issues: The lack of and Certified Director from ICMA-Pakistan, as well as a certified
standardization in Islamic financial products can Aalam-e-Deen from Jamia Ashrafia, Lahore. With over 36 years of
experience in the financial sector, he has worked in credit appraisal,
create confusion and inefficiencies.
marketing, recovery, internal audit, corporate governance, and
The future of Islamic banking in Pakistan appears secretarial services with IDBP, LSE, MCB, and Bankers Equity Ltd. His
last role was Company Secretary at The Bank of Punjab. Currently, he
promising, with several key developments expected to
runs Raza Saeed & Associates consultancy firm.
boost the sector:

38 ICMA’s Chartered Management Accountant, Mar-Apr 2025