KARACHI: The State Bank of Pakistan (SBP) believes that Islamic finance is a better alternative to the conventional banking and is one of the fastest growing segments of the global as well as domestic financial sector.

Speaking in an event to mark 10 successful years of ‘Raast Islamic Banking’ programme of Bank of Khyber on Saturday, Deputy Governor SBP Saeed Ahmad said, “Given its global outreach, growing recognition as a prudent and stable system and ability to provide financial solutions for all business needs, Islamic finance is all set to establish itself as a better alternative to the conventional financial system having capacity to ensure financial stability and inclusive economic growth,” he said.

He said that global financial crisis in 2008-09 made western financial experts to look for an alternative under which the international financial system could overcome the weaknesses of the conventional system based on fixed predetermined return in the form of interest.

The search was for a system which leads to equitable treatment of all stakeholders under all circumstances. A lot of attention was focused on solutions which are not far from the Islamic financing where system allows fairness of return, sharing of risk and reducing income inequalities, he said.

Pakistan, he said, was amongst the first few countries that undertook the ambitious aim of Islamising the banking system. Significant efforts towards this end were made during the 1980s.

However, it went through a rough ride until some 12 years ago when the SBP allowed three types of Islamic banking institutions i.e. full-fledged Islamic banks; Islamic banking subsidiaries of conventional banks; and Islamic banking branches (IBBs) of conventional banks. Moreover, conventional banks having Islamic banking branches were also allowed to have Islamic banking windows in their conventional branches.

“Islamic banking industry, starting from almost a scratch in 2001, has acquired over 10 per cent share in the country’s banks branch system with over 1,300 branches across the country. Based on deposits, IBI’s share has increased to 12pc,” Mr Ahmad said.

He said the industry is growing at an impressive rate of over 30pc annually for last five years and the prospects of further strengthening this growth momentum in the near future are very bright.

He told the audience that last year the SBP allowed 3 more conventional banks to initiate Islamic banking operations, whereas two conventional banks had recently announced conversion into full-fledged Islamic banks over the next two to three. “These highly positive market sentiments give me optimism that the industry would easily surpass the strategic plan target of 20pc by 2020,” he added.

“We are also exploring the possibility and feasibility of establishing a Centre of Excellence for Islamic Banking and Finance in Karachi, and I will be discussing this proposal in my meeting with the heads of business and economics schools.”