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 page 3 of 6 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

improve its risk management and control framework depending on nature, location, size, sophistication, complexity of business operations and approved risk appetite. bis central bankers ’ speeches in order to have comprehensive and current information on operational risk, sbp will expand its existing reporting mechanism. sbp is working on a two prong strategy ; one is to update the existing instructions on frauds & forgeries with the purpose to further strengthen the fraud risk management and monitoring in banks. on the second front, guidelines on operational risk data collection will be issued to enhance the scope of loss data gathering in line with basel ii requirements and to provide the industry a minimum set of instructions for consistent recognition of losses and their reporting to a centralized data consortium. these projects are at an advanced stage of consultation with the industry. these guidelines / instructions will help banks improve their operational risk management processes. information security and business continuity are becoming the top supervisory concerns. banks need to monitor it security risks and respond to security breaches in a timely manner. banks need to devise and test their business continuity plans to ensure they are able to operate on an ongoing basis in the event of severe business disruption. the plans must be based on different types of worst case scenarios like inaccessibility of bank ’ s facilities, it infrastructure or a pandemic event. let me sum up the key message of this address. for sound management of operational risk, we need to inculcate a risk culture within the organization with open communication channels between business lines and control functions. there is a need for close cooperation between banks and sbp. we are all on the learning curve ; therefore exchange of ideas is very important in capacity building for operational risk management. i hope this conference will provide a good opportunity to exchange our thoughts on the subject and learn from each other ’ s experiences. thank you very much for your attention. bis central bankers ’ speeches