KARACHI, Jan 24: Islamic banks should capture a 10 to 15 per cent share of the total banking assets of Pakistan in the next five years by exploiting a huge untapped customer base, the central bank governor said on Wednesday.

Islamic banks, with assets of around Rs100 billion, currently have a nearly 3 per cent share in the country's total banking industry.

“Islamic banks can easily grow in size by spreading in under-served areas and targeting new customers through product innovation,” said Shamshad Akhtar, Governor of the State Bank of Pakistan.

“There are customers who have shied away because of faith, or due to inaccessibility,” she told a conference on Islamic financial markets.

Islamic banking has gained popularity in Pakistan because Islamic law forbids fixed-interest returns on investments, and the account holders of Islamic banks reap profit from approved investments only.

Akhtar said at the end of 2006, there were only 171 deposit accounts per 1,000 people, while loan accounts for a similar number were only 30.

“Only 30 per cent of adults in Pakistan have bank accounts, and hence the potential to attract new customers is huge,” she said.

“We would like to see a very systematic and sustainable growth in the Islamic financial sector.”

At present, Pakistan has six fully fledged Islamic banks, out of which four are fully operational. In addition, 13 conventional banks are also operating Islamic banking branches.

There are about half a dozen Islamic mutual funds, while licences have been issued to two companies for Takaful business – the Islamic alternative to insurance.

Islamic banking experts said that the lack of liquidity management tools and Islamic money market products was the most important challenge being faced by the industry in Pakistan.

The State Bank of Pakistan has set up a task force to develop such instruments, and Shamshad Akhtar said work in this regard was already under way.

—Reuters