mudarabas ( floatation and control ) ordinance etc, efforts for transformation of financial system to shariah compliant met with limited success only. this was primarily due to unavailability of adequate infrastructure and lack of trained human resources. learning from past experience, islamic banking was re - launched in 2002 with a more practical and gradual approach that allowed islamic banks to operate in parallel with conventional banks. this time we also introduced a comprehensive shariah compliance framework to ensure that the operations of islamic banks are in conformity with the shariah principles ; this was necessary to give confidence to the consumers about shariah permissibility of islamic banks ’ business and operations. the approach has proved a mega success as the industry growing from scratch in 2002 now constitutes over 8 percent of the country ’ s banking system with a network of 964 branches and over 500 windows across the country. the future outlook is also positive ; the islamic finance industry with its rapidly growing acceptability both amongst the providers and users of financial services, is likely to increase its share in the banking system to 15 percent during next five years. encouragingly, the sustained growth of islamic banking in the country during the last decade has also started catalyzing growth and development of islamic capital markets, mutual funds and takaful companies etc ; presently we have 5 takaful operators, about 30 islamic mutual bis central bankers ’ speeches funds. we have an effective coordination mechanism with secp – the capital markets and nbfis ’ regulator – and i am sure that the non - banking islamic financial services industry would also be growing in tandem with the islamic banking industry. ladies & gentlemen! the state bank of pakistan fully owns the islamic banking industry and has been taking a number of initiatives to strengthen the legal, regulatory and shariah compliance framework, create awareness amongst the masses and build the industry ’ s hr capacity. i will share a few with this audience today. the development and issuance of sovereign sukuk for the domestic market, which is an important liquidity management instrument was a long outstanding demand of the industry. the sbp in collaboration with the industry and the federal government developed sovereign sukuk and you would be pleased to know that during last two years sovereign sukuk of rs. 369 billion ( usd 4 billion approx ) have been issued that has largely addressed the liquidity management issue of the industry. the regular issuance of the sukuk, almost on quarterly basis, has improved market confidence and tr

shamshad akhtar : monetary policy in pakistan speech by dr shamshad akhtar, governor of the state bank of pakistan, at the federation of pakistan chambers of commerce & industry, karachi, 30 april 2007. * * * mr. tanvir ahmed sheikh, president fpcci, mr. zubair tufail, vice president fpcci and mr. sheikh amjad rasheed, chairman fpcci committee on banking, credit, & finance background monetary policy management and financial sector stability are two primary roles of state bank of pakistan ( sbp ). monetary policy and process of its formulation in pakistan has undergone changes with the evolving economic dynamics within the country and the improved empirical and theoretical understanding of the monetary policy across the world. monetary policy in pakistan, in line with sbp act, has been supportive of the dual objective of promoting economic growth and price stability. it achieves this goal by targeting monetary aggregates ( broad money supply growth as an intermediate target and reserve money as an operational target ) in accordance with real gdp growth and inflation targets set by the government. over the years, while maintaining the broad legal mandate, sbp has improved the quality of monetary formulation and its process quite significantly. this morning, i propose to first outline measures taken by the government and sbp to strengthen the monetary policy management. second, i will discuss the rationale and key elements of sbp current monetary policy stance which i believe is helping bring down inflation without stifling credit or economic growth. finally, i will discuss the impact of sbp ’ s policy actions, and challenges in its implementation. changes in monetary policy management sbp shifted its reliance from an administered monetary policy regime governed by ad hoc changes in reserve ratio ’ s, directed credit and regulated interest rate policies in mid 1990s to a liberal and market oriented monetary policy management. abolishing sector and bank credit limits, central bank adopted “ 3 - day sbp discount rate ” as a major policy instrument to signal easing or tightening of monetary policy which essentially responded to the demand pressures of the economy in line with the growth trends in monetary liabilities and monetary assets – with former capturing the growth in currency and deposit base and latter the growth in domestic credit ( including both government borrowings and private sector credit ). generally monetary module of the economy is the least understood area. this is largely because monetary segment of the economy deals with on one hand the changes in stocks and flows of money supply and on the other hand