KARACHI: Despite being asset-backed, Islamic finance is still not immunised from risks associated with deficiencies in due diligence, inadequate buffers, lack of transparency and weak risk management practices.

While addressing the book launching ceremony of Shariah Standards on Wednesday, SBP Governor Tariq Bajwa talked about the risks the Islamic banking industry needs to tackle.

“Effective liquidity management is the key challenge and has gained more prominence owing to dearth of Shariah-compliant investment opportunities and absence of Shariah-compliant SBP standing facility.”

The Islamic Banking Industry of Pakistan, in collaboration with Accounting and Auditing Organisation for Islamic Financial Institutions and Mufti Mohammad Taqi Usmani, launched the Urdu translation of the book “SharaieMayaarat” which was earlier available in English.

In Pakistan, sovereign Sukuk being issued since 2008 provide the key liquidity management avenue to the domestic industry but demand for such instruments far surpasses the supply, he said.

“Being cognisant of this, SBP, in consultation with industry, is working to develop alternate solutions for liquidity management within Islamic banking,” he said.

Another problem facing the industry is the lack of awareness among masses on the demand side for which a campaign for promoting Islamic banking is necessary.

He suggested Islamic financing be used for underserved agriculture and small and medium enterprises while housing finance could be another attractive avenue.

While appreciating the translation work of the book he said the translation of global standards into our national language is an important milestone, as it would remove language barriers to understand Shariah Standards.

The industry has posted a healthy annual growth of over 20 per cent during the last five years with its market share at 13.6pc in terms of banking assets and 14.7pc in total deposits.

Known scholar Mufti Taqi Usmani talked about the historical development of Islamic banking and said there was a need to develop separate accounting and auditing for interest-free banking which have now been formulated.

Published in Dawn, December 13th, 2018