Governor : Mr. Tariq Bajwa
Title : Governor SBP's Address to the Launching Ceremony of AAOIFI Shariah Standards - Urdu Version
Date : December 12, 2018
Event : Launching Ceremony of AAOIFI Shariah Standards - Urdu Version
Venue : Marriott Hotel Karachi.
- Shaikh Ebrahim Bin Khalifa Al Khalifa, Chairman, Accounting and Auditing Organization for
Islamic Financial Institutions (AAOIFI)
- Mufti Taqi Usmani, Chairman Shariah Board, AAOIFI
- Distinguished speakers, ladies and gentlemen
Assalam-o-Alaikum and Good Morning!
 launch of Urdu version of AAOIFI's
I feel honored to be here on this important occasion of
Shariah Standards. We are all aware that national language is an important ingredient of
any culture and most effective mode of communication in a country. With this in perspective,
translation of global standards into our national language is an important milestone, as it
would remove language barriers to understand Shariah Standards. I believe this Urdu
version of the Shariah Standards will be instrumental in improving awareness about Islamic
finance especially amongst the Shariah scholars, academia and practitioners of Islamic
finance. The scholars and all other experts involved in this project deserve great
appreciation for their commendable role.
As we are all aware, Islamic Finance Industry is relatively new to the Global Financial
Landscape. Events like these are important not only for dissemination and awareness but
also reinforce the emerging significance of fast growing Islamic Finance.
Ladies & Gentlemen!

Islamic banking started initially as a niche market for the faith sensitive clientele and
is now increasingly becoming an integral component of global financial system.
Islamic finance industry has grown at a fast pace. The development of Islamic
banking industry especially beyond Muslim jurisdictions is a recognition of its viability
as a competitive alternate to the conventional banking. According to Financial
Stability Report 2018 issued by Islamic Financial Services Board (IFSB), its asset
base has grown by 8.3 percent to surpass US$ 2 trillion mark. With expanding scope
and size of Islamic finance, and emerging global challenges, it is gaining importance
from financial stability perspective. Inherent strengths of being asset backed and
prohibition on speculative activities in Islamic finance lead to better resilience of
Islamic banking institutions against excessive risks. However, these strengths alone
may not be sufficient to immunize the Islamic finance from risks associated with
deficiencies in due diligence, inadequate buffers, lack of transparency and weak risk
management practices. The well thought out international standards issued by the
global standard setting bodies like AAOIFI and IFSB facilitate in managing the
challenges facing the Islamic finance and harmonizing the industry practices.

Against the backdrop of growth of Islamic banking globally, our domestic industry is also
demonstrating quite impressive headway. The industry has posted a healthy annual growth
of over 20 percent during the last five years. The market share of Islamic banking industry
stands at 13.6 percent in terms of banking assets and 14.7 percent in total deposits. Islamic
banking industry has expanded its network to over 2700 branches in 111 districts across the
country.

Given the potential of Islamic finance to support broad based economic growth and our
constitutional obligation to make available Islamic financial services in the country, Islamic
banking has remained a priority area for State Bank of Pakistan (SBP).

I feel pride in sharing that the sound foundations of legal and regulatory environment laid
down by the State Bank of Pakistan has played a key role in sustained high growth of
Islamic banking in the country. Our Shariah compliance environment is considered amongst
the best in the world. It encompasses a comprehensive Shariah Governance framework
consisting of establishment of Shariah Board, Shariah compliance department and Shariah
internal audit in Islamic banking institutions supported with Shariah external audits and SBP
regular inspections. Let me also apprise you that SBP regularly reviews the regulatory
framework to make sure that it is aligned with international standards and best practices and
at the same time caters to the evolving needs of the industry.

State Bank of Pakistan also believes that growth and development of other elements of
Islamic finance ecosystem i.e. capital markets, mutual funds and takaful, is essential not
only for Islamic banking industry but also for the overall growth and development of the
country. In this regard, SBP regularly collaborates with Securities and Exchange
Commission of Pakistan (SECP), the capital market's regulator, to promote Islamic finance.
We appreciate and acknowledge key steps taken by SECP in last few years including
establishment of Islamic Finance Department, introduction of all share Islamic Index,
issuance of Takaful rules and Sukuk guidelines. We believe that these measures shall
facilitate the diversity and outreach of the Islamic finance.
Ladies & Gentlemen!

At this stage, let me highlight few potential risks and challenges that Islamic banking
industry need to address for its sustainability and stability. Effective liquidity management
has been the key challenge of Islamic banking industry. This issue has gained more
prominence owing to factors like dearth of Shariah compliant investment opportunities,
limited availability of Shariah compliant money market instruments and absence of Shariah
compliant SBP standing facility. In Pakistan, sovereign sukuk being issued since 2008
provide the key liquidity management avenue to the domestic industry, however, demand for
such instruments far surpasses their supply. Being cognizant of this challenge, SBP, in
consultation with industry is working to develop alternate solutions for liquidity management
for Islamic banking industry.

The inherent advantage of Islamic financial industry to fund projects on equity participation
and profit sharing basis enables it to cater to the huge, unmet demands of underserved
sectors such as agriculture and SMEs. However, like conventional industry, Islamic banks
are also not effectively serving these sectors. KAP (Knowledge, Attitude and Practices of
Islamic Banking in Pakistan) survey based study of SBP, also indicates these areas as
potential growth avenues for Islamic banking industry. SBP is persuading the industry to
capitalize on its innate strengths to cater to the needs of these underserved sectors.

Housing finance is another attractive avenue for Islamic banks. Increased focus of
incumbent government on this sector provides Islamic Banks an opportunity to diversify their
asset portfolio. I am confident that present conducive environment provides opportunity to
Islamic banking industry to tap potential in low income housing through Diminishing
Musharaka instruments. This would also pave the way towards the ultimate objective of
Islamic finance. i.e. Maqasid-e- Shariah.

Another major issue restraining Islamic banking from realizing its true potential is lack of
qualified and trained Islamic bankers. To tackle this issue, SBP is not only offering training
courses on its own and through its training subsidiary-National Institute of Banking and
Finance (NIBAF), but is also supporting industry in such initiatives. We have also
collaborated and sponsored three Centers of Excellence in Islamic Finance Education
(CEIFEs) at well renowned educational institutions- IBA Karachi, LUMS Lahore, and IM
Sciences Peshawar. These institutions are fully operational and they are providing regular
supply of trained human resource as well as conducting training programs for enhancing
capacity of the existing human resource of the industry.

Another important challenge for the Islamic finance industry, as identified in the KAP study,
is lack of awareness among masses on demand side. As such a robust awareness
campaign about Islamic banking is necessary for promoting Islamic banking. SBP is
focusing on addressing this challenge through multipronged strategy; it is conducting
various mass awareness programs and focused group discussions all over the country and
supporting the industry and other related stakeholders for such initiatives. However, this is
one area in which Islamic banks have also to play a far more proactive role.
Ladies & Gentlemen!

As I mentioned earlier, standardization in Islamic finance is essential for addressing various
issues facing the Islamic finance in addition to promote disclosure, transparency and
integration into global financial system. I think the rapid growth of Islamic banking and
finance requires further strengthening of its financial infrastructure. This will augment the
ongoing efforts to bring the infrastructure of Islamic financial industry up to the international
standards. The alignment of Islamic finance industry with the global best practices would not
only help supervisors in their tasks but will also foster the integration of Islamic financial
institutions into the international financial community.

I would like to highlight here the commendable role AAOIFI has played in development and
promotion of Shariah, accounting and governance standards to facilitate the growth of
Islamic financial services industry. AAOIFI has also been instrumental in enhancing
awareness of Islamic banking and finance globally through knowledge sharing and
organizing capacity building programs, workshops, conferences, and seminars. Considering
the constant changing dynamics in financial sphere, AAOIFI also reviews and updates its
relevant. AAOIFI's enhanced coordination with
standards to keep them relevant
stakeholders and increased collaborative efforts help Islamic financial services industry to
grow on sound footings.

The AAOIFI role in capacity building through offering Shariah based certifications in the area
of Auditing, Accounting and advisory services is laudable. Such certifications provide the
much needed qualified resources for effective implementation of the Shariah standards.
 the AAOIFI's Board of
SBP has long standing association with AAOIFI. As a member of
Trustee, State Bank contributes in the overall oversight and supervision of its operations.
Our officials participate as both speakers and participants in different knowledge sharing
6 of the AAOIFI's standards while
and capacity building initiatives. So far SBP has adopted
another 8 to 10 standards are in the final stages of implementation. Besides, SBP has
standards for guidance in different areas of Islamic
advised the banks to refer the AAOIFI's
finance.

Given the commitment and concerted efforts of all stakeholders, I am optimistic that Islamic
banking and finance is likely to maintain its positive growth trajectory. The growth of Islamic
finance on its distinct strengths would bring more stability to the financial system, improve
equitable distribution of economic gains, and support overall economic development. I
believe events and steps like these are vital steps towards achieving this goal; hence, we
should not stop here and but continue to work towards establishing an ethical financial
system.

At the end, I would like to reiterate that State Bank of Pakistan will continue to extend its full
cooperation and play due role for achieving our shared vision of a vibrant and sustainable
Islamic banking sector in Pakistan.

Thank you!
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