On Monday 5th April 2021, State Bank of Pakistan (SBP) has unveiled its third five-year Strategic Plan for the Islamic banking. The plan has set headline targets for Islamic banking to be achieved by 2025. These include: 1) achieving 30% share in both assets and deposits of overall banking, 2) boosting to 35% share in branch network of overall banking, and 3) acquiring 10% and 8% share of SMEs and Agriculture financing respectively, in private sector financing by Islamic banking.
In order to steer the growth of Islamic banking on sound footings, SBP has been providing proactive guidance through issuance of Strategic Plans for the Islamic banking industry; two five-year Strategic Plans have been issued. This third Strategic Plan covering 2021-25 period aims at setting a strategic direction for banking to strengthen the existing growth momentum and lead banking to the next level of growth. The plan has been developed in close coordination and consultation with all the key relevant stakeholders.
The Strategic Plan envisages achieving the aforementioned specified targets by focusing on six strategic pillars namely: 1) strengthening legal landscape, 2) enhancing conduciveness of regulatory framework, 3) reinforcing comprehensive Shariah governance framework, 4) improving liquidity management framework, 5) expanding outreach and market development, and 6) bolstering human capital & raising awareness.
The Islamic banking industry has widened its footprint in banking system of the country. Currently, 22 Islamic banking institutions (5 full-fledged Islamic banks and 17 conventional banks having standalone Islamic banking branches) are offering Shariah compliant products and services through a network of 3,456 branches and 1,638 Islamic banking windows (dedicated counters at conventional branches) spread across 124 districts of the country. In terms of share, the Islamic banking industry has acquired a market share of 17% and 18.3% in assets and deposits of overall banking, respectively by end December 2020.
SBP aims at making Islamic banking one third of the overall banking by 2025. Keeping in view the potential towards ensuring broad based economic growth and development, Islamic banking has remained a top priority area for the SBP. The plan provides a consensus based agenda and strategy to make Islamic banking an efficient and practical solution for consumers. It also contains an extensive focus on improving the public perception of Islamic banking as a distinct and viable system capable of catering to the varied financial services needs of various segments of the society that would significantly contribute to increasing overall financial inclusion in Pakistan.
The plan also emphasizes that Islamic banking institutions must develop innovative products based on distinctive Shariah characteristics to cater to underserved sectors particularly SMEs and Agriculture, which are critical for the growth of the country’s economy.
Islamic banking is expected to fully capitalize on the potential of Islamic finance to attain the shared vision of a vibrant and sustainable Islamic banking sector in Pakistan.
The Strategic Plan is accessible at URL: https://www.sbp.org.pk/departments/pdf/StrategicPlanPDF/Strategic-Plan-2021-25.pdf