Recent survey published in United States stated that the growing rate of universe Muslim population is higher than the universe non Muslim population and it is believed and projected that it will be the one-fourth of the universe population near 2030.
Pakistan, which has seen a rise in extremist Islam in current months, will trail Indonesia as the universe ‘s most thickly settled Muslim state. Majority of the people seeking to put into the Hala manner of funding and people fad up with the traditional fiscal system where establishments based on involvement.
Furthermore, Islamic fiscal system based on the principal of Sharia, which mean they believe and follow the Islamic school of ideas “prohibition on the payment and receiver of interest” this is the basic ground that make difference between the Islamic fiscal establishments and their Western opposite numbers.
Pakistan was among the three states in the universe that had been seeking to implement involvement free banking at national degree. Islamic Banking is one of the lifting field in planetary fiscal market and holding the possible all around the universe. The Islamic Banking is one of the lifting field in planetary fiscal market and first full flag Islamic Banking Department was established under the supervising of State Bank of Pakistan ( SBP ) in 2003 and holding undertaking to advance or established fiscal aid harmonizing to the Sharia Complaint.
SBP ‘s Islamic banking constabularies allow the people to set up their fiscal relationship with Islamic Bankss harmonizing with their Islamic beliefs. SBP feels the duty for the publicity of Islamic Banking and they work on three schemes.
- Allow the conventional Bankss to set up their Islamic banking subdivisions throughout the state.
- Support the private sector to set up Islamic Bankss.
- Enforce the bing conventional Bankss to unfastened stand entirely Islamic banking subdivisions.
- Before beginning of concern a reputed Islamic law adviser has to be appointed harmonizing to the given SBP policy.
- Banks guarantee all their papers “services” authorised by their Islamic law advisers.
- Banks are required to set about comprehensive internal audit at least one time in a twelvemonth.
- Islamic and commercial Bankss both shell have a separate agenda of charges authorised by their Islamic law advisers.
SBP enforce the Islamic Banking Institutions to follow the guiding rules of hazard direction established by the Islamic Financial Services Board ( IFSB ) that helpful to minimise the fiscal hazard and these principals are applied over the six classs of hazard they are.
- Market Hazard
- Recognition Hazard
- Operational Hazard
- Liquid Hazard
- Rate of Return Risk
- Equity Investment Hazard
Sharia Compliance Framework:
Shariah conformity is the most of import characteristic of Islamic finance. SBP established a comprehensive Islamic law conformity construction for the credibleness of the Islamic Banking Institutions and the construction consists of.
- Sharia Board at SBP
- Sharia Advisor Forum
- Sharia Advisor
- Model understanding of Islamic manner of funding
- Guidelines for Islamic law conformity in IBI ‘s
- Sharia conformity review
Industry Progress and Market portion:
Muslim Bankss in Pakistan bring forthing astonishing consequences during the clip when conventional fiscal system to the full griped even all around the universe and holding more fiscal tools than Islamic sector. Under the current policy foremost Islamic banking license was granted on in twelvemonth, 2002.
In twelvemonth 2010 the entire conventional banking sedimentations was $ 78bn and the jutting growing rate was 13 % p.a. while the portion of Islamic banking sedimentation in Pakistan fiscal market was $ 12bn and projected growing rate was 81 % p.a. with 440 Islamic operational subdivisions.
It is besides of import to compare the Pakistani Islamic fiscal sector with the advancement in other states. Malaysia first Islamic bank was established in 1983 and till 2007 its base on 13 % , Bahrain Islamic Bank stands on 8 % during 30 old ages and Indonesia Islamic Bankss started their service scientific discipline 1990 ‘s and still it has progress around 1.67 % all the above figures shows that the public presentation of Islamic banking sector in Pakistan relatively better or satisfactory than other planetary states particularly east Asiatic states.
Banking and Finance Shariah Mode of Finance:
Islamic finance sector in Pakistan offer a broad scope of shariah base service to the investors. Following are the shariah ailment manners of banking and finance.
Debt Based Mode
zIjarah or Ijarah wa Iqtina
Assignment of Debt
Equity engagement in the signifier of portions in a corporate entity
SBP, policy for the income generated by the non-Sharia based resources or the income incurred by the bases of any punishments either it ‘s a late payment charges received by the client in default or delinquent instances etc are transportation to the charity fund that income utilize for the charitable or societal public assistance intents.
Banks Offer Servicess:
Following are the twelvemonth wise entry of Islamic Bankss in Pakistan economic system.
Market Share 2003-2007:
To analyze the market portion it ‘s of import to look into both sides of the balance sheet to deter the unethical information dramas by the history directors and some clip hearers play function to assist them merely for bring forthing accounting net income and acquire good response from the market.SBP, maintain focussing over the accounting public presentations on both Islamic and Conventional services sector and eventually announced annual bases comparing of the both sectors for encourage the investors. The tabular array below shows the market portion public presentation comparing from 2003-2007.
In the Pakistan economic system Islamic banking sector executing surprisingly and by offering riba free services Muslim Bankss in overall subdivision web of the industry has increased over period of clip and acquiring higher gait.
All are the major Bankss in Pakistan now offering Islamic bank services. By 30th June 2008 entire plus of Islamic banking industry in Pakistan was over Rs. 225 bn which was the 4.5 % of the entire banking industry assets.
In the four states of Pakistan and AJK, more than 330 subdivisions offering Islamic service. SBP, enforce all the conventional and non conventional to open their Islamic subdivisions in all major metropoliss and towns covering all the four states of the state and AJK.
The tabular array below shows growing in the subdivisions web of Islamic banking industry scientific discipline 2003-2007.
Bank wise Share and Total Assetss:
Islamic banking system see the option of the bing conventional system and the per centum value of Islamic banking assets growing in Pakistan bit by bit acquiring gait during the old ages 2003-2007 that was 85.2 % , 241.8 % , 62 % , 66.9 % and 72.6 % severally. Both IBs “Islamic Banks” and IBDs “Islamic Banking Divisions” basking growing, but rapid growing seems from twelvemonth 2004 due to the big web of full fledged Muslim Bankss over more than 50 metropoliss with the support of conventional bank IBs.The tabular array below shows the assets of Islamic banking industry in Pakistan during the twelvemonth 2003-2007.
The bank wise portion of Islamic banking industry Assets is as on 31st December, 2007
It is interesting and noticeable the highest growing that is 32.62 % gaining by the to the full fledge Pakistan most prima Islamic bank Mezzna Bank Limited ( MBL ) while the three large commercial bank have non demoing the mark of market portion they are UBL, NBP and HBL that predict the assurance of people over Muslim Bankss in Pakistan.
Deposit and Bank wise portion:
Deposits are the key of success for any fiscal institutes chiefly it is of import for Islamic banking that aim different people from different background during the clip when conventional banking holding the big portion of market but the public presentation during the old ages 2003-2007 predict the range of Islamic banking and its success against the conventional system. Muslim banking divisions and Islamic Bankss deriving singular growing in sedimentations during the old ages 2003-2007 that is 65.3 % , 259.5 % , 65.4 % , 67.7 % & A ; 76.0 % severally.
Furthermore, rapid advancement shown in twelvemonth 2004 because aggressive banking start from Bank Alfalah Limited and the new entry of Al Barqa bank and after the twosome of twelvemonth Dubai Islamic bank, Emirates Global bank, Bank Islami and Duawood Islamic bank get down their full fledge concern and contribute to take the sedimentation place up to tag during the twelvemonth 2006 and 2007. Bank portion deposits public presentation during the twelvemonth 2003-2007 is as under.
Financing and Banks Share:
Liquidity direction drama a critical function for the being of any fiscal institute. SBP provides a complete scope of instructions to all Islamic Bankss to maintain follow them for acquiring the good consequences from the market non merely supply the policy besides provide the a complete Islamic law conformity cell and Islamic law advisers for hazard direction.
During the period from 2002-2007 Islamic Bankss fiscal public presentation was astonishing that was 97.8 % while the several twelvemonth growing was 135.1 % , 218.4 % , 66.4 % , 43.4 % & A ; 63.5 % . figures show that Meezan bank capturing about one tierce of funding while Bank Alfalh once more leads the class of conventional Bankss holding Islamic banking subdivisions with the add-on of BankIslami, Emirates Global, Dubai Islamic and Dawood Islamic annually financing growing rate acquiring good gait every twelvemonth.
Composition of different manner of Islamic funding that shows salvaging sedimentation ab initio grew at high gait but latterly fixed sedimentation public presentation comparatively better turning rate. By offering the believable sharia law conformity, aid to develop the involvement of the clients.
For the Islamic Banking Institutions ideal manners of funding belong to the low hazard portion category i.e. those which normally generate a fixed return. Among these
- Murabaha ( cost plus reciprocally in agreement net income border ) .
- Ijara ( renting ) are the most attractive and popular manners of funding.
However, recently the portion of Decreasing Musharaka has besides grown at a rapid gait taking towards variegation of the Islamic Bankss financing portfolio
Islamic Mode of Financing:
Ijarah is a term of Islamic Fiqh Literally, it means “To give something on rent” The term “Ijarah” is used in two state of affairss:
- It means ‘To employ the services of a individual on rewards ‘ e.g. “A” hires a porter at the airdrome to transport his baggage
- Another type of Ijarah relates to paying rent for usage of an plus or belongings defined as “LAND” in Islamic Economicss
- Ijarah is an Muslim option of Leasing.
- Renting backed by an acceptable contract is an acceptable dealing under Shariah.
- The inquiry of whether or non the dealing of leasing is Shariah compliant depends on the footings and conditions of the contract.
- Several features of conventional understandings may non conform to Shariah therefore doing the dealing un-Islamic and thereby raising a prohibition.
- Hazard and wagess of ownership lies with the proprietor i.e. any loss to the plus beyond the control of the leaseholder should be borne by the Lessor.
- Late payment punishment can non be charged to the income of the Lessor.
- Lease and Sale understanding should be separate and non contingent.
Bank Ijarah Process:
- The client approaches the Bank with the petition for funding and enters into a promise to rent understanding.
- The Bank purchases the point required for leasing and receives rubric of ownership from the seller
- The Bank makes payment to the seller
- The Bank leases the plus to the client after executing of lease understanding.
- The client makes periodic rental payments as per the contract
- At the terminal of the term of office client can buy the plus from the bank with the aid of separate Sale understanding.
- In instance of sale, rubric of belongings is transferred to Buyer
- In instance of Ijarah, rubric remain with the Lessor
- Merely the usage of the belongings is transferred to Lessee