THE State Bank of Pakistan, the lead regulator for the financial system, is supposed to be a neutral party to the various claims to superiority that various banking products often try and project for themselves through their marketing campaigns. It is not supposed to endorse one product as superior to another, least of all in the very area it is supposed to be regulating. Yet recently we have seen a number of ads appearing in the press, put in by the SBP, urging people to opt for Islamic banking as the place to keep their deposits in order to avail religiously sanctioned returns. What’s more, the ads imply that other banking products are against Islamic principles and the only way to obtain “peace of mind” with returns on savings and deposits is to opt for Islamic banking products. The ads clearly show that the regulator has taken sides in granting religious legitimacy to one set of products, and has implicitly declared rival products to be against Islamic principles and thereby injurious to religious sentiment. If this were a marketing campaign being run by a private bank in order to promote its product offerings, that would be a different matter. But coming from the regulator, it is a problematic message to be sending out.
The State Bank should be meticulous in its neutrality when dealing with the wide array of financial products offered by the banking industry. It should avoid promoting one set of products over another. This is particularly the case since unlike the early 1980s, there is no policy decision in place at this time to phase out all banking products not specifically registered as Islamic. Since 2001, the policy decision has been to run two parallel systems of banking in Pakistan and leave it up to the consumer to choose between them. Yet for almost a year now the SBP has been going quite the distance in portraying Islamic banks as being more resilient to financial storms and superior in capital adequacy ratios, amongst other things. Now we’re seeing the regulator raising the stakes further, by adding its voice to marketing campaigns that seek to delegitimise all other product offerings by conventional banks. There is nothing wrong with seeking to encourage Islamic banking, but the regulator should restrict itself to strengthening the regulatory framework rather than becoming a party to the marketing messages put out by the industry.
Published in Dawn, January 4th, 2015