yaseen anwar : developments of islamic banking in pakistan keynote address by mr yaseen anwar, governor of the state bank of pakistan, at the islamic finance news pakistan roadshow, karachi, 27 august 2013. * * * thank you for inviting me to speak at today ’ s event. i am honored to have this opportunity of addressing such a distinguished audience. my appreciation to the organizers for once again having assembled a strong list of speakers at this year ’ s islamic finance news road show and a warm welcome to the international delegates. with all of us gathered here at the central bank sends a strong signal about commitment and determination of the state bank of pakistan and the government towards ensuring sustainable growth of the islamic finance industry in the country. as i look around i am optimistic that the collective experience of speakers will lead to rich debates that will not only help us in understanding the key issues but will also enable us to map out the future of the industry. the islamic finance industry has come a long way to be recognized as a viable alternate to conventional finance. islamic financial institutions are currently offering a wide range of services catering to both muslim and non - muslim communities. the unprecedented growth of the islamic finance industry can be associated to efforts of dedicated regulatory, shariah and academic institutions along with the presence of diversified players in the field i. e. islamic banks, investment banks, takaful companies, islamic fund management companies, islamic brokerage companies etc. the introduction of sukkuk and islamic stock market indices have also added the necessary depth and breadth to the islamic financial markets. in particular sukuk ; has proved to be a powerful tool in attracting investors and building their confidence in islamic finance while fulfilling financing needs of the public and private sector in a shariah compliant manner. pakistan is no exception to this ; rather the country has remained at the fore front in promoting islamic finance by being a key member of international islamic finance institutions established to develop necessary legal, regulatory, supervisory and shariah compliance infrastructure for islamic finance institutions. pakistan ’ s active engagement with the islamic financial services board ( ifsb ), the accounting and auditing organization for islamic financial institutions ( aaoifi ) and the international islamic financial market ( iifm ) and collaboration with other central banks has helped the growth of the islamic banking industry both locally and at the global level. islamic banking in pakistan has witnessed significant growth during the last decade and now constitutes over 10 percent of the country ’ s banking system with an asset base of

share to over 15 % of the country ’ s banking system during the next five years. sbp has also played a vital role in raising awareness and building capacity of the industry. to address the awareness and misconception issues, sbp launched an awareness campaign that consists of seminars, conferences, targeted programs and focused discussions for the business community, academia, bankers and policy makers. a recent significant milestone is the launch of a mass media campaign where the whole islamic banking industry joined hands under the ambit of sbp to target the challenge of misconceptions related to the islamic banking business model and practices. similarly a number of initiatives have been taken to build the industry ’ s human resource capacity and enhance its skills mix. in this regard support from international organizations like the islamic research and training institute ( irti ) and islamic financial services board ( ifsb ) is also being leveraged. one key benefit of the promotion of islamic finance is its potential to contribute significantly to financial inclusion by extending the outreach of the financial system to the masses who are out of the system due to faith reasons. islamic microfinance, a confluence of two industries ; islamic finance and microfinance, can not only be an efficient tool for financial inclusion by catering to both voluntary and involuntary financially excluded but also towards poverty reduction due to its inherent characteristic of being prudent and asset based. the islamic finance industry has so far not done much to tap the potential of islamic microfinance due to its perceived high risk and its preoccupation in serving the financing needs of the government and large corporates. i would thus urge the industry to make individual as well as collaborative efforts to develop this sector, which would improve their market perception besides enabling them to diversify their clientele. the ibis may also develop partnerships with islamic microfinance institutions to serve the low income population. similarly, agriculture and smes are areas that have so far been missed out by both conventional and islamic banks due to the perception of high risk despite their paramount importance for the country ’ s economy. financial inclusion is one of the key strategic objectives of sbp and as most are aware, very near to my heart ; i would thus strongly emphasize the industry to come out of these perception myths and develop capacity to tap these strategically important sectors and create value for your shareholders, depositors and the country ’ s economy as a whole. sbp will provide every support and facilitation to the industry in s efforts to build and expand its