Key Note Address by Ashraf Mahmood Wathra
Governor, State Bank of Pakistan
World Islamic Finance Forum (WIFF)
September 05, 2016
Respectable Senator Muhammad Ishaq Dar, Federal Minister for
Finance, Revenue, Economic Affairs, Statistics, & Privatization,
Justice (R.) Muhammad Taqi Usmani, Dr. Ishrat Hussain,
Chairman, Dr. Azmi Omar, Director General, Islamic Research &
Training Institute, Professor Dr. Abbas Mirakhor, Dr. Farrukh
Iqbal, Dean and Director, Center of Excellence in Islamic Finance
Education-IBA, Distinguished Guests, Ladies & Gentlemen
Assalam-o-alaikum
It gives me immense pleasure to see global strategic players like
International Centre for Education in Islamic Finance, The Islamic
Research and Training Institute, International Shari'ah Research
Academy for Islamic Finance (ISRA) joining hands with the Centre of
Excellence in Islamic Finance Education, IBA for organizing World
Islamic Finance Forum in the largest city of Pakistan. This is a clear
reflection of Pakistan being a significant contributor towards the growth
and development of Islamic finance industry. I want to appreciate the
organizers for providing this forum bringing together global thinkers and
practitioners who can synthesize the work so far done and build on the
core competencies of Islamic finance for its sustainable growth. I wish
all the best for the success of this global event and a very pleasant stay to
the distinguished foreign delegates.
Ladies & Gentlemen
The ability of Islamic finance to introduce greater discipline into the
financial system owing to its inherent strengths indicates this system is
relatively more stable and resilient. Islamic banking is a growing reality
which is expanding outside the traditional borders of Muslim countries
into western economies; at present global Islamic financial assets have
reached US $1.8 trillion in 2015 from US $150 billion in the 1990s and
are expected to exceed US $6.5 trillion by 2020. Asia is expected to be
the key driver in advancing the growth of the Islamic finance industry;
according to Islamic Financial Services Board's (IFSB) Report, 2015,
Pakistan is among potential leaders of Islamic finance.
Despite its impressive growth, Islamic finance Industry cannot be
complacent as there still prevails huge untapped market. There are some
challenges that the industry is facing in order to sustain its growth
momentum. I would like to touch upon some of these challenges with
respect to the theme of this event.
Enabling supervisory, regulatory and legal environment, a suitable
accounting and auditing framework and supportive financial market
infrastructure are all pre-requisites for successful development of the
industry. It is agreed that prudential supervision on banks is just as
necessary in an Islamic system as in conventional systems, however, the
supervisory framework needs to recognize special characteristics of
Islamic banks in order to be more effective. State Bank of Pakistan
(SBP) being the regulator of banking sector is aware of the significance
of prudent and effective supervisory framework and remains committed
to this end. Improving market development and regulatory regimes are
continuous processes in the context of changing industry needs and
overall macroeconomic environment; therefore, we regularly review and
update our regulatory framework. In this regard one significant example
of recent past is the issuance of Shariah Governance Framework for
Islamic banking institutions which has enhanced the earlier issued
Shariah compliance regulations for the industry.
Moreover, we are working on improving regulatory and legal
infrastructure by providing a balanced tax regime, enhanced disclosure
requirements, strengthening of insolvency framework and standardizing
practices. By taking the advantage of having global audience here, I
would suggest for a dialogue at global level for harmonization and
standardization of practices all across Islamic finance industry.
Ladies & Gentlemen
Many researches including the Knowledge, Attitude and Practices of
Islamic banking in Pakistan (KAP) Study issued by the State Bank of
Pakistan indicated the concentration of demand for Islamic financial
industry in the category of clients who are not only faith sensitive but are
also responsive to efficient operations and high quality services. This
signifies that the strategy of Islamic banking industry should be
customer centric in its proposition, delivery and service. This demands
for widening product range, improvement in operational efficiency and
service quality. I would take this opportunity to urge industry to take full
advantage of these Centres of Excellence with particular respect to
product innovation and for conducting research on contemporary issues.
As a system, Islamic Finance facilitates in stimulating economic activity
and entrepreneurship towards promoting comprehensive human
development and addressing poverty and inequality. Under this system,
not only the prevalence of re-distributive instruments such as zakat,
waqf (endowment) and sadqaat (charity) can play vital role towards
broad based development and poverty alleviation but characteristics like
equity financing can also lead to the same objective. Equity financing
enables Islamic finance to cater to needs of unconventional but strategic
sectors like small and medium enterprises (SMEs), agriculture and low
income housing. However, like many other jurisdictions, the penetration
of banking industry and especially of Islamic banks to these sectors is
very low in the country. Lack of skilled professionals and relatively
young age of the industry is quoted as one among major reasons in this
regard. Centers for Excellence for Islamic Finance Education have been
established with the main objective of providing human resource for the
industry with desired skills and knowledge. Closer interaction between
industry and these centres is critical in making Islamic Finance &
Banking successful in Pakistan. I would also like to encourage industry
to make use of technology especially to cater to these sectors to
minimize cost. By expanding the range and reach of financial products,
Islamic finance can help in improving financial access and foster the
inclusion of those deprived of financial services whether voluntary or
involuntary.
Ladies & Gentlemen
While growth is likely to continue at reasonably fast pace, issues and
challenges confronting the industry need attention and ownership on part
of all stakeholders. The huge untapped potential market of Islamic
Finance can be harnessed by capitalizing on its distinct characteristics. I
would encourage all Islamic financial institutions to actively engage
themselves and be recognized as value embedded, efficient financial
players committed towards contributing to the real economic growth. I
am optimistic about the future outlook of the industry and events like
today's are helpful in mapping out a strategy for sustainable growth of
the industry. I assure the full support and cooperation from the central
bank.
I wish you successful deliberations during the conference and the best of
luck for all future endeavors.
Thank You.
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