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Tag: Islamic banking

  • SBP introduces Shariah compliant OMO injections

    SBP introduces Shariah compliant OMO injections

    KARACHI: The State Bank of Pakistan (SBP) on Wednesday introduced Shariah Compliant Standing Ceiling facility and Open Market Operations (OMO) injections for Islamic banking Institutions (IBIs).

    As the size of the Islamic banking industry is increasing, SBP recognizes the need to introduce Shariah compliant liquidity facilities for IBIs. With a view to bring IBIs at par vis-à-vis their conventional counterparts in terms of liquidity management avenues, and to enhance SBP’s tools for managing market’s liquidity as part of its monetary policy objective, SBP has introduced the aforementioned facilities.

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    The structure and broad features of these facilities are as under:

    Shariah Compliant Standing Ceiling Facility is a Mudarabah based Financing Facility (MFF) whereby SBP will provide financing to IBIs on an overnight basis against Shariah compliant collateral. IBIs shall place the funds received from SBP in a special pool consisting of high quality assets. The MFF will be offered at an ‘Expected Rate’ – equivalent to conventional overnight reverse repo rate – based on a Profit Sharing Ratio agreed between the SBP and IBI at the onset of the transaction.

    For Shariah Compliant Open Market Operations (Injections), Mudarabah mode of financing will be used. It would be pertinent to mention here that this open market operations (OMO) facility will currently be available for ‘injection’ i.e. provision of liquidity purposes only.

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    Similar to conventional OMOs, SBP will be conducting Shariah Compliant OMOs (Injections) based on market liquidity conditions through a multiple price competitive bidding process for tenors as announced by SBP from time to time, against collateral. Once the expected rate of return is finalized through a competitive bidding process, the funds provided by SBP shall be invested in a pool of high quality assets by the respective IBI. SBP and IBI shall agree a Profit Sharing ratio at the onset of the transaction.

    Islamic banking industry in Pakistan has become systemically an important component of the banking industry registering remarkable growth over the last two decades. Currently there are five (5) full-fledged Islamic banks and seventeen (17) conventional banks operating with standalone Islamic banking branches offering a wide array of Shariah compliant financial solutions.

    READ MORE: Meezan Bank starts Islamic financing scheme for SMEs

    At the end of June 2021, the market share of the Islamic banking industry assets and deposits in the overall banking sector stood at 17 per cent and 18.7 per cent respectively and the branch network of Islamic banking institutions comprised over 3,583 branches and 1,562 windows.

    Introduction of aforesaid liquidity facilities will bring Islamic Banking industry at par with their conventional counterparts and enable them to effectively manage their short-term liquidity.

    This would strengthen financial intermediation by IBIs and enable them to offer better returns and rates to their customers on deposits and loans. Further, introduction of proposed facilities will also strengthen monetary policy transmission mechanism & enhance the effectiveness of monetary policy implementation by SBP to achieve the ultimate objective of price stability.

  • President Alvi asks banks to support research students

    President Alvi asks banks to support research students

    KARACHI: The President of Pakistan, Dr. Arif Alvi Monday asked the banks to guide students in their conducting research studies.

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  • SBP issues five-year strategic plan for growth of Islamic banking

    SBP issues five-year strategic plan for growth of Islamic banking

    KARACHI: State Bank of Pakistan (SBP) on Monday issued third five-year Strategic Plan for the Islamic Banking Industry.

    The strategic plan has set headline targets for Islamic banking industry to be achieved by 2025. These include: (i) 30 percent share in both assets and deposits of overall banking industry, (ii) 35 percent share in branch network of overall banking industry, and (iii) 10 percent and 8 percent share of SMEs and Agriculture financing respectively, in private sector financing of Islamic banking industry.

    In order to steer the growth of Islamic banking on sound footings, SBP has been providing proactive guidance through issuance of Strategic Plans for the Islamic banking industry; so far, two five-year Strategic Plans have been issued.

    This third Strategic Plan for Islamic banking industry (2021-25) aims to set a strategic direction for the industry to strengthen the existing progressive momentum and lead the industry to the next level of growth. The plan has been developed in close coordination and consultation with all key relevant stakeholders.

    The strategic plan envisages achieving the aforementioned specified targets by focusing on six strategic pillars namely: (i) strengthening legal landscape, (ii) enhancing conduciveness of regulatory framework, (iii) reinforcing comprehensive Shariah governance framework, (iv) improving liquidity management framework, (v) expanding outreach & market development, and (vi) bolstering human capital & raising awareness.

    The Islamic banking industry has widened its footprint in banking system of the country. Currently, 22 Islamic banking institutions (5 full-fledged Islamic banks and 17 conventional banks having standalone Islamic banking branches) are offering Shariah compliant products and services through a network of 3,456 branches and 1,638 Islamic banking windows (dedicated counters at conventional branches) spread across 124 districts of the country. In terms of share, the Islamic banking industry has acquired a market share of 17 percent and 18.3 percent in assets and deposits of overall banking industry, respectively by end December 2020.

    State Bank aims at making Islamic banking one third of the overall banking industry by 2025. Keeping in view the potential towards ensuring broad based economic growth and development, Islamic banking has remained a top priority area for the SBP. The plan provides a consensus based agenda and strategy to make Islamic banking an efficient and practical solution for consumers. It also contains an extensive focus on improving the public perception of Islamic banking as a distinct and viable system capable of catering to the varied financial services needs of various segments of the society that would significantly contribute to increasing overall financial inclusion in Pakistan.

    The plan also emphasizes that Islamic banking institutions must develop  innovative products based on distinctive Shariah characteristics to cater to underserved sectors particularly SMEs and Agriculture, which are critical for growth of the country’s economy.

    The Islamic banking industry is expected to fully capitalize on the potential of Islamic finance to attain the shared vision of a vibrant and sustainable Islamic banking sector in Pakistan.