Ishrat Husain laments complacency of Islamic banks

Published November 4, 2021
A photo of former  central bank governor Dr Ishrat Husain. — White Star/File
A photo of former central bank governor Dr Ishrat Husain. — White Star/File

KARACHI: Former central bank governor Dr Ishrat Husain said on Wednesday the Islamic banking industry has become complacent over the years.

Speaking at the fifth International Conference on Islamic Banking and Finance at the Institute of Business Management, Dr Husain said the Shariah-compliant industry has fallen short of expectations that he had while granting the country’s first Islamic banking licence as central bank governor 20 years ago.

“My expectation was that by 2021 we’d have at least a 25 per cent market share. You have not achieved what the objective and the goal was,” Dr Husain told an auditorium full of students following self-congratulatory speeches by two CEOs and one deputy CEO of different fully fledged Islamic banks.

“About 69pc of Islamic banking assets go to the corporate sector. What’s the difference between you and conventional bankers? They also do the same,” he said, noting that deposits are taken from Balochistan and Khyber Pakhtunkhwa but are spent (in the form of financing) in big cities. “Islamic banking has to change its mindset and attitude,” he said.

According to the State Bank of Pakistan (SBP), the year-on-year increase in the assets and deposits of the Islamic banking industry in 2020-21 was 32pc and 29.7pc, respectively. The market share of Islamic banking assets and deposits in the overall banking industry was 17pc and 18.7pc, respectively.

“Please look at your portfolios. Is it really desirable for you to have only 2.6pc of your portfolios allocated to SMEs, which constitute the bulk of businesses in this country?” said Dr Husain who also serves as chairman of the Centre for Excellence in Islamic Finance at the Institute of Business Administration, Karachi.

He highlighted the fact that only 1.2pc of Islamic banking financing book was reserved for agriculture — a business segment that drives the livelihoods of 60pc of the country’s population. “These ratios (of Islamic banking) are lower than (those of) conventional banking. Is that what Islamic banks want to do? Are you serving the purpose for which Islamic banking has been created? I’m afraid my answer is no,” he said.

Dr Husain also accused the Islamic banking industry of coming up with products that are similar to conventional banking products.

He called for blending the “many instruments under Islamic precepts” with Shariah-compliant banking and finance. Referring to waqf, zakat, qarz-e-hasna and takaful, he said Islamic lenders should blend these concepts with banking and finance to offer innovative products to targeted groups.

“We haven’t taken into account the power of blending of finance. Unless we do that, we’re not going to make any significant difference in the lives of ordinary people,” he said.

He acknowledged that Pakistani society isn’t geared towards risk-sharing, which is the main tenet of Islamic finance. “I do realise that Musharaka (partnership with a bank on profit-and-loss sharing) and other risk-sharing products will not be successful. That’s a tragedy. We spend a lot of time on Hajj, zakat and Umra but we sell adulterated food and spurious drugs.”

Published in Dawn, November 4th, 2021

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

A bloody year
Updated 07 Oct, 2024

A bloody year

Using the Oct 7 attacks as an excuse to wage endless aggression on Middle East, Israel has crossed all red lines.
Bleak cotton outlook
07 Oct, 2024

Bleak cotton outlook

THE extremely slow arrival of phutti at the ginning factories of Punjab and Sindh so far indicate a huge drop in the...
Killjoy neighbours
07 Oct, 2024

Killjoy neighbours

AT the worst of times in their bilateral relations, India and Pakistan have not shied away from carrying out direct...
Peak of success
06 Oct, 2024

Peak of success

IT started with the ascent of Nanga Parbat in 2017 and ended with the summit of Tibet’s Shishapangma on Thursday....
Indian visitor
06 Oct, 2024

Indian visitor

AMONGST the host of foreign dignitaries expected to fly into Islamabad for the SCO Council of Heads of Government...
Violence once again
Updated 06 Oct, 2024

Violence once again

The warring sides must rein in their worst impulses and prioritise the nation’s well-being over short-term gains.