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