AL-HUDA CENTRE OF ISLAMIC BANKING

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AL-HUDA CENTRE OF ISLAMIC BANKING ECONOMICS
Event
The 4th International Conference Exhibition on
Islamic Banking Takaful 2010
Topic for Presentation
Islamic Banking In Pakistan - Review and
Progress
Date Venue
November 02, 2010, Expo Centre, Lahore.
Presentation by
Prof. Dr. Khawaja Amjad Saeed
Professor Emeritus Founder Principal, Hailey
College of Banking Finance, University of the
Punjab, Lahore Pakistan (2003----), Member
Governing Council, International Federation of
Accountants (IFAC), New York (1997-2000),
President, South Asian Federation of Accountants
(SAFA) (1997), President, Institute of Cost and
Management Accountants of Pakistan (1997-2000),
President, Association of Management Development
Institutions of South Asia (AMDISA) (1993-96),
Pro Vice-Chancellor University of the Punjab,
Lahore (1994-1996), Founder Director, Institute
of Business Administration (IBA), University of
the Punjab, Lahore (1973-1996).
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WELCOME TO OUR PROGRAM
Presentation Frame A. Islamic Banking-Inretrospect
B. Growth of Islamic Banks C. IBIs
Financing D. IBIs Investments E. Selected
Performance Indicators IBIs Banking Industry
F. Future Outlook
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A ISLAMIC BANKING - INRETROSPECT

1. Vision and Mission of Islamic Banking Department
   of SBP
2. Strategy for Islamic Banking in Pakistan
3. Historical Rundown

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A-1 Vision Mission of Islamic Banking
Department of State Bank of Pakistan (SBP)
State Bank of Pakistan, in its role as central
bank, has developed the following aspects 1.
Vision To make Islamic Banking the baking of
first choice for the providers and users of
financial services. 2. Mission To promote and
develop Islamic Banking industry in line with the
best intersectional practices, ensuring Shariah
compliance and transparency. It is very
important that the stakeholders to revisit the
above aspects reflected as vision and mission.
Motivated by the enlightened guidance provided by
State Bank of Pakistan, all Islamic Banks must
follow sunshine vision and driving mission. These
aspects need to be indoctrinated in the minds of
all stakeholders so that their efforts are
reflected in real life situation as achievement
motivation.
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A-2 STRATEGY FOR ISLAMIC BANKING IN PAKISTAN

• THREE PRONGED STRATEGY
• In Pakistan, State Bank of Pakistan has followed
  three point strategy relating to development of
  Islamic Banks. These strategies include the
  following
• Full fledged banks can be established in
  Pakistan.
• Islamic Banks can set up their subsidiaries.
• Stand-alone Islamic Banking branches opened by
  conventional banks in Pakistan. Therefore,
  flexibility exists in respect of starting and
  expanding Islamic Banks in Pakistan.

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A-3 HISTORICAL RUNDOWN
1. Pakistan was created out of Islamic Ideology.
Therefore Islamic Banking gets support for its
development. 2. Quaide-e-Azam Mohammad Ali
Jinnah, father of the Nation, while inaugurating
the State Bank of Pakistan on July 01, 1948 had
guided Research Department of SBP to help develop
Islamic Economic System which is based on
equality and brotherhood. 3. Constitution of
Pakistan Article 38 (f) of the Constitution of
Pakistan is quoted below The state shall
eliminate riba as early as possible.
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A-3 HISTORICAL RUNDOWN
4. 1970s to 21st Century a. 1970 efforts, in
their initial stages, started to eliminate
riba. b. 1980s Bold and comprehensive
initiatives were taken. Pakistan joined the race
of three countries in the world for interest free
banking several existing laws were reviewed. New
financial instruments were introduced, Twelve
Non-Interest Based (NIB) modes were released to
replace riba based practices, Profit Loss
Sharing concept was introduced. c. 1990s
Court battles were on instructions were issued by
courts for a time framework for implementation
of replacing conventional banks into Islamic
Banks. However the system did not positively
respond for implementation. d. 2000s In
January 2002 Commission for Transformation of
Financial System was constituted in SBP. Task
Force was set up to suggest ways to eliminate
interest from government financial
transactions. However, the end conclusion has
been to continue parallel banking ie.
Conventional and Islamic Banks. This system is
going on in Indonesia and Malaysia also.
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B GROWTH OF ISLAMIC BANKS

1. Important Indicators
2. Growth of Islamic Banks Branches
3. Islamic Banking Branches Network
4. Islamic Banking Branches Network
5. Full Fledged Islamic Banks
6. Islamic Branches of Conventional Books
7. City wise break-up of Islamic Banking Branches
8. Islamic Banks sub-branches
9. Maximum Minimum braches network at Islamic Banks

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B-1 GROWTH OF ISLAMIC BANKS Some Important
Indicators December 2003-March 2010
Year Total Assets Total Assets Deposits Deposits Net financing investment Net financing investment
(December) Total Rs.b Share of IBIs Rs.b Total Rs.b Share of IBIs Rs.b Total Rs.b Share of IBIs Rs.b
2003 13 1 8 1 10 1
2004 44 2 30 1 30 1
2005 72 2 50 2 48 2
2006 119 3 84 3 73 2
2007 206 4 147 4 138 4
2008 276 5 202 5 186 4
2009 368 6 283 6 226 5
2010 (March) 371 6 289 6 229 5
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, March 2010, P.3.
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B-2 GROWTH OF ISLAMIC BANKS BRANCHES December
2003-March 2010
Year (December) Number Base Index Number of Times
2003 17 100 1
2004 48 300 3
2005 70 412 4
2006 150 882 9
2007 289 1,700 17
2008 515 3,029 30
2009 651 3,829 38
2010 (March) 654 3,847 38
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, March 2010, P.3.
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B-3 ISLAMIC BANKING BRANCHES NETWORK As on
December 31, 2009
Particulars Number Number of Number of
Particulars Number Branches
A Full Fledged Islamic Banks 6 400 23
B Islamic Branches of Conventional Banks 13 168 50
C Sub-Branches 7 81 27
26 649 100
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, December 2009,
P.16.
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B-4 ISLAMIC BANKING BRANCHES NETWORK As on
December 31, 2009
S. No. Province Number
1. Punjab 290 45
2. Sindh 218 34
3. Khyber Pakhtoonkhwa 70 10
4. Baluchistan 32 5
5. Federal Capital 31 5
6. Azad Kashmir 07 1
7. Northern Area 1 -
649 100
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, December 2009,
P.18.
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B-5 FULL FLEDGED ISLAMIC BANKS As on December
31, 2009
S. No. Banks Number of Branches
1. Meezan Bank Ltd 166 41
2. Bankislami Pakistan 70 18
3. Emirates Global Islamic Bank Ltd 58 15
4. Dawood Islamic Bank Ltd 42 10
5. Dubai Islamic Bank Pakistan Ltd 35 9
6. Al Barka Islamic Bank 29 7
400 100
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B-6 ISLAMIC BRANCHES OF CONVENTIONAL BANKS As
on December 31, 2009
S. No. Banks Number of Branches
1. Bank Alfalah Ltd 60 36
2. Askari Bank Ltd 29 17
3. The Bank of Khyber 18 10
4. MCB Bank Ltd 11 6
5. Standard Chartered Bank 11 6
129
6. National Bank of Pakistan 8 5
7. Bank Al-Habib Ltd 6 4
8. Faysal Bank Ltd 6 4
9. Soneri Bank Ltd 6 4
10. United Bank Ltd 5 3
11. Habib Metropoltian Ltd 4 2
12. The Royal Bank of Scotland 3 2
13. Habib Bank Ltd 1 1
168 100
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, December 2009,
P.16.
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B-7 CITY-WISE BREAK-UP OF ISLAMIC BANKING
BRANCHES As on December 31, 2009
S. No. Province Number
1. Punjab 38 47
2. Khyber Pakhtoonkhwa 17 21
3. Sindh 12 15
4. Baluchistan 10 13
5. Azad Kashmir 2 2
6. Federal Capital 1 1
7. Northern Area 1 1
81 100
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, December 2009,
P.18.
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B-8 ISLAMIC BANKS SUB BRANCHES As on December
31, 2009
S. No. Banks Number of Branches
1. Bank Alfalah Ltd 35 44
2. Bankislami Pakistan Ltd 32 40
67
3. Dawood Islamic 8 10
4. Askari Bank Ltd 2 2
5. Emirates Global Bank Ltd 2 2
6. Dubai Islamic Bank Ltd 1 1
7. The Bank of Khyber 1 1
81 100
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, December 2009,
P.16
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B-9 MAXIMUM MINIMUM BRANCHES NET WORK OF
ISLAMIC BANKS AS on December 31, 2009
S. No. Province Number Number
S. No. Province Maximum Minimum
1. Sindh/Karachi (Five Cities) 180 1
2. Punjab/Lahore (Twelve Cities) 109 1
3. Federal Capital/Islamabad 31 -
4. Khyber/Pakhtoonkhwa (Eight Cities) 28 1
5. Baluchistan/Quetta (Eight Cities 21 1
6. Azad Kashmir/Mirpur AK Muzafarabad 4 3
7. Northern Area/Gilgit 1 -
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, December 2009,
P.18.
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C IBIs FINANCING

1. Sectoral Composition
2. Products

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C-1 IBIs FINANCING SECTORAL COMPOSITION MARCH
2010
S. No. Sectors
1. Textile 20
2. Individuals 20
3. Chemical Pharma 10
4. Sugar 06
5. Energy Products Transmissions 04
6. Cement 03
63
7. Other Sectors (Including 31 others) 37
100
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, March 2010,
Table 6, P. 5.
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C-2 IBIs FINANCING PRODUCTS (Total Rs. 162b)
MARCH 2010
S. No. Products
1. Murabaha 38
2. Diminishing Musharaka 32
3. Ijarah 14
84
4. Others (Istisna Salam, Musharaka, Murahaba) 04
100
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, March 2010,
Table 5, P. 5.
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C-3 IBIs NPFs TIME SERVICES
Period NPFs to Financing Net NPFs to Net Financing Provisions to NPFD

March 2009 4.5 2.3 51
December 2009 6.3 3.1 52
March 2010 7.3 3.8 50
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, March 2010,
Table 4, P. 5.
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D IBIs INVESTMENT

1. Composition
2. Types

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D-1 IBIs INVESTMENTS COMPOSITION
Particulars Rs. b
1. Federal Govt Securities 27 37
2. TFCs, Debentures, Bonds PTCs 25 34
3. Fully Paid up Ordinary Shares 02 03
54 74
4. Others 20 27
74 101
Less Provision 01 01
Net Investment 73 100
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, March 2010,
Table 7, P. 6.
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D-2 IBIs INVESTMENTS TYPES
Particulars Rs. b
1. Available for Sale 59 81
2. Held to Maturity 12 16
71 97
3. Others 03 04
74 101
Less Provision 01 01
73 100
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, March 2010,
Table 7, P. 6.
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E SELECTED PERFORMANCE INDICATORS IBIs BANKING
INDUSTRY

1. Capital
2. Assets quality
3. Earnings Profitability

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E-1 SELECTED PERFORMANCE INDICATORS IBIs
BANKING INDUSTRY
S. No. Particulars March, 2010 March, 2010
1. CAPITAL IBIs Industry
(Capital to Total Assts) 11.4 10.3
2. ASSETS QUALITY
NPLs to Financing 7.3 13.1
Net NPLs to Net Financing 3.8 4.2
Provisions to NPEs 50.0 70.9
Net NPAs to total to total Capital 50.0 70.9
Real Estate Financing to total Financing 11.3 2.4
3. EARNINGS PROFITABILITY
Net Income to total Assets 0.8 1.1
ROE 7.0 10.9
Net Income to Gross Income 81.1 74.0
Net Interest Income to Gross income 18.9 26.0
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E-1 SELECTED PERFORMANCE INDICATORS IBIs
BANKING INDUSTRY
S. No. Particulars March, 2010 March, 2010
Trading Exchange Gains/Losses to Gross Income 7.0 9.0
Operating Expenses to Gross Income 70.2 51.8
Personnel Expenses to Operating Expenses 32.2 37.4
Spread between Financing and Deposit Rates 7.7 6.6
Source Extracted from Islamic Banking Bulletin,
Karachi State Bank of Pakistan, March 2010,
Table 2, P. 3-4.
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F FUTURE OUTLOOK

1. Forecasts
2. Challenges

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F-1 FORECASTS

1. By 2012, total of Islamic Banking industry is
   forecasted as Rs. 1 trillion.
2. In the next five years, 1200 branches of Islamic
   Banks are vitalized
3. The hope is that it will be 12 of total banking
   industry

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F-2 CHALLENGES

• We visualize the following future challenges
• 15,000 people are needed in the next five years
  to equip Islamic Banks. In this respect
  Universities in Pakistan must respond to this
  challenge. Curricula must be changed in
  management education. High Education Commission
  should provide motivation in this respect for
  Universities to positively respond.
• Islamic Banks must demonstrate growth with
  profitability. The top management must evolve the
  process to translate the above challenges.
• The scope of services for user may be extended to
  such areas as micro finance, agriculture and
  small medium enterprises. This will widen the
  base of socio-economic development in our country
  and will address to the two vital issues in our
  country namely, promotion of employment
  opportunities and alleviation of poverty.
• Sharia compliant financial services be expanded.
  Awareness be created in this respect and
  logistics be developed as cushion to achieve the
  above objective.
• Differentiated products be developed. Some
  Islamic Banks have taken correct initiative in
  this respect. This areas needs to be logistically
  well cushioned.

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