Zafar Masud, Chairman Pakistan Banks Association & President/CEO BOP speaks on shift from Conventional to Islamic Banking.
He emphasised the importance of transitioning to a system rooted in Shariah Principles, highlighting its potential to offer ethical financial solutions. Mr. Masud outlined conversion strategy focused on gradual adoption, regulatory adjustments, and public awareness.
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Assalam Alaikum
I extend my warmest greetings to all the distinguished guests speakers and participants attending this pivotal conference on conversion to Islamic banking challenges and opportunity.
I’m afraid that I’m unable to be with you in person but I’m extremely thankful to the sponsors for having given me the opportunity to share a few thoughts on a topic that is critical not only for the future of the Pakistan banking industry but also for our broader economic landscape.
I would like to commend Yasmin Haither and the new world concepts for organizing this timely conference.
Your commitment Yasmin, in advancing professional knowledge and fostering Dialogue on key issues is invaluable as always; Especially at a time when our industry is navigating significant changes.
As many of you are aware, the State Bank of Pakistan has set an ambitious target for the complete transition of the banking sector to Sharia compliant operations by 2027.
This initiative, to me, is more than just a regulatory requirement. It represents a fundamental shift in how you perceive and practice banking in Pakistan. The growing market share of Islamic banking is now accounting for 20% % of the banking assets and 22% of the deposits demonstrates both the demand and the potential for metamorphosis.
Islamic banking is the fastest growing business segment in the financial sector. However with opportunity comes challenges. Converting to Islamic banking requires a comprehensive reevaluation of governance structures, operational frameworks and risk management practices. More importantly there are some fundamental questions such as the government’s ability to convert its existing debt which now stands at 98% of the total bank deposits and the requirement of underlying assets to continue to borrow, sovereign being the dominant borrower, from the local banking industry. This is the most pronounced challenge to my mind.
Central bank’s ability to do open market operations or in other words quantitative easing or tightening as the case may be and the government’s dependence and dealings with multilaterals for funding their external account deficit budgetary needs and requirement of project loans in the space of infrastructure and social sector spendings, still needs to be answered before we achieve full conversion.
Conventional banks face the complex task of aligning their well established systems with the principles of sharia while maintaining of course efficiency, customer trust and comparative advantage. This is something which the local banking industry is well prepared and competent to handle, let me assure you!
I must emphasize that conversion is not merely a technical exercise. It is a shift in mindset that requires commitment from the highest levels of leadership down to the front lines. Governance in this context, is not just about compliance, it’s about setting the tone for a banking culture that prioritizes ethical practices, transparency and customer centricity. On this front too, I can tell you with a hand on my heart that our banks are very well geared up and committed to guaranteeing it in parallel. And perhaps, most importantly, capacity building and Innovation which will play a crucial role in this journey.
The need for specialized knowledge, robust training, programs and the integration of Technology cannot be overstated. We must invest in our people to ensure that they are equipped to navigate the intricacies of Islamic finance and must leverage Innovation to enhance our offerings and operational efficiency.
As we embark on this path collaboration will be key. The collective efforts of all stakeholders, governments Regulators, financial institutions, scholars and customers will determine the success of this transformation.
I’m confident that through forums like this, we can share insights, learn from one another and build a more inclusive ethical and resilient banking sector and overall a business environment. I’m looking forward to seeing the outcomes of today’s discussions and to working together to achieve our shared vision for a Sharia compliant future.
Thank you and I wish you all a productive and insightful conference
Zafar Masud