ISLAMABAD: Experts laud the positive growth of Islamic banking as it experiences a surge in deposits and a notable increase in investments. This surge comes amid an economic headwind where conventional banking continues to dominate, showcasing the potential of Islamic finance to carve out a substantial foothold in the country’s economy.
The Islamic banking sector in Pakistan has long been considered a nascent player compared to its conventional counterpart. However, the recent trends indicate a notable shift in momentum, with the Islamic banks witnessing a surge in deposits over the past few years.
According to the data from the State Bank of Pakistan (SBP), the Islamic banks raised a staggering Rs500.5 billion, surpassing the Rs360 billion target, reflecting a robust investor appetite for the Shariah-compliant financial instruments.
Talking to Media, Islamic Banking professional at the Meezan Bank, Muhammad Ibrahim said, “One of the driving factors behind this surge in deposits is the strategic shift by the Islamic banks towards offering competitive returns while adhering to the Shariah principles.
“Unlike the conventional banks, the Islamic banks enjoy the advantage of flexibility in setting deposit rates, allowing them to attract funds with potentially lower remuneration to the customers. This advantage has not only bolstered their deposit base but also positioned them as formidable players in the financial landscape.”
“Furthermore, the surge in deposits has been accompanied by a significant uptick in investments by the Islamic banks. Data reveals that investments have tripled over the last five years, signalling a proactive approach towards capital deployment. This increase in investments is particularly noteworthy as it outpaces the growth in financing activities, underscoring the sector’s commitment to diversification and expansion,” said Ibrahim.
“The growing prominence of Islamic banking is further highlighted by the expansion of branch networks across the country. Between 2019 and 2023, the Islamic banks accounted for the majority of new branches opened, indicating a strategic focus on extending their reach and accessibility. This expansion not only facilitates greater financial inclusion but also reinforces the sector’s position as a viable alternative to the conventional banking,” said Moeez Bhatti, Fund Manager at the Askari Bank.
Moeez said while the surge in deposits and investments was undoubtedly a positive sign for the Islamic banking in Pakistan, there was a dire need for prudent management and continued innovation to sustain this growth momentum.
With the government’s plans to transition towards a fully Shariah-compliant financial system by 2027, the Islamic banks are poised to play an even more significant role in the country’s economic landscape.
In light of these developments, Moeez anticipates continued upward trends for the Islamic banking, driven by factors such as favorable regulatory environment, growing consumer awareness, and increasing demand for Shariah-compliant financial products. As the sector continues to evolve and expand its footprint, it presents promising opportunities for investors, businesses, and the broader economy alike, he added. –INP
