Islamic Banking: Rising over Cynicism

Thriving with a staggering pace of over 20 percent year on year, the global Islamic finance industry now touts a vibrant size of 1.35 trillion dollars. 

Islamic banking industry (IBI), having a network of 430 banks and financial institutions and around 191 conventional banks conducting Islamic banking window operations, records its footprints in more than 75 countries across the globe. 

With its concentration in GCC countries, followed by non-GCC, MENA, Asia and Sub-Saharan Africa, S&P anticipates global IBI to grow by 20 percent YoY between CY13-CY15, consequently surpassing of two trillion dollars by CY15. 

Following the global trail, IBI in Pakistan, having faced initial failures, has now gained its momentum; accounting for over eight percent of the countrys banking system with a network of 964 branches and more than 500 windows across the country. 

At the outset of its operations in Pakistan, Islamic banking met little success due to the non-availability of appropriate infrastructure and human resources required for its sustenance. Moreover, in the early days, milestone changes were taking place in Pakistan banking industry including modifications in the Banking Companies Ordinance, enactment of Mudaraba Companies and Mudarabas (Floatation and Control) Ordinance, which hampered its activities. 

However, learning from the mistakes made in the past, IBI found its feet. After its relaunch in Pakistan in CY02, it has been rebounding strikingly, reporting an asset base of above Rs711 billion during 2QCY12, which represents 8.2 percent share of overall banking industrys assets. 

Deposits also witnessed a sturdy growth of 13 percent YoY to stand at Rs603 billion at the end of 2QCY12, accounting for nine percent of the overall industry deposits. 

Not only this, IBI in Pakistan has also won the laurel of improved liquidity, as LA/TA increased from around 38 percent in 2QCY11 to 45 percent in 2QCY12, whereas the indicator assumed a negative trend for the banking industry, as a whole. 

The success of Islamic banking doesn end here. Reportedly, bankers, economists and investors are moving towards an Islamic economic system because they have realised that this emerging system can be an alternative after capitalism system has dissatisfied masses. 

Moreover, S&P highlights a dazzling growth potential for Islamic banking keeping in view the young, fast-growing Muslim populations, robust macroeconomic environments, large infrastructure projects that require financing, formation of Shariah-compliant indices for companies listed in stock markets and recent political developments in several Muslim-majority countries.

(Business Recorder / 23 Nov 2012)


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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com