Category Archives: Pakistan

New regulations require Shariah Advisors in Pakistan to attend board meetings

New regulations require Shariah Advisors in Pakistan to attend board meetings

The State Bank of Pakistan (SBP) published new regulations that require Shariah Advisors to attend the meeting of the Board of Directors of their bank in which the Shariah Advisor’s report on the bank’s annual financial statements is discussed.

A press release by SBP states:

“In order to provide the opportunity to the Shariah Advisor to present the report so prepared to the Board of Directors (BoD) and apprise the BoD about his assessment on the overall Shariah compliance levels and environment in the Institution, the IBIs are advised to invite their respective Shariah Advisor for discussion on the Shariah Compliance Report in the BOD meetings in which annual audited accounts and Shariah Advisor’s report are discussed and approved.”

Pakistan Islamic banking industry registers 12% growth:SBP IB Bulletin for Q2 2009

Pakistan Islamic banking industry registers 12% growth:SBP IB Bulletin for Q2 2009


Despite slow economic activities and global financial crisis, growth rate of Islamic banking industry remained higher than the conventional banking industry, culminating in continuously rising share of Islamic finance in the local and global financial markets.

The State Bank of Pakistan on Tuesday revealed that the Islamic banking industry has posted a growth of 12.4 percent during the quarter ended June 2009 and total assets of Islamic banking in Pakistan reached Rs 313 billion in June 2009 compared with Rs 278 billion in March 2009.

The data for quarter ended June 2009, shows that asset financing activities of Islamic banks have revived besides substantially higher assets and deposits growth. The profitability indicators have also shown marked improvement as compared to the preceding quarter. The financing and investment portfolio of Islamic banks reached Rs 195.0 billion in June 2009 compared with Rs 185 billion in March 2009, depicting an increase of 5.1 percent during the last quarter.

In terms of market share, total assets, financing & investment and deposits reached 5.1 percent and 4.2 percent and 5.2 percent, respectively, at end June 2009. The branch network of 6 full-fledged Islamic banks and 12 conventional banks (with dedicated Islamic banking branches-IBBs) increased to 528 branches in June 2009.

The State Bank of Pakistan issuing "Islamic Banking Bulletin" for the second quarter ended on June 30, 3009 said that current growth rate of Islamic banking industry has envisioned to achieve a share of 12 percent by 2012 as per Islamic banking strategy plan.

The growing depositors’ confidence is well reflected in last quarter, which shows an increase of 15.5 percent in the deposits. The deposit base of Islamic banks stood at Rs 238 billion at end-June 2009 compared to Rs 206 billion in the previous quarter-end.

Total liabilities of Islamic banks have increased by 13.3 percent to Rs 274 billion from Rs 242 billion during the quarter. While the net assets and equity increased by around 7 percent each. There is an increase of 6 percent in the reserves to one billion rupees and then appropriated profits increased by 79 percent to Rs 900 million in last quarter.

The highlight of quarter June 2009 was that most of the indicators of the Islamic banking in Pakistan showed reversion towards the usual high growth trend. It may be recalled that the Islamic banks also witnessed some slowdown as a result of the financial stress of recent times.

The financing portfolio has increased by 3 percent quarter on quarter basis (QoQ). This is encouraging, as during the last quarter (January-March 2009) the financing had actually declined by Rs 10 billion. The resurgence in financing is accompanied by a QoQ 9.3 percent increase in investment. The increased financing may be reflecting the improving economic outlook of the country.

While, the investment has largely increased due to 3rd issuance of GoP Ijara Sukuk. Nonetheless, there is a welcome increase of Rs 2.4 billion in Musharika financing, though Modaraba financing declined by almost 50 percent. Nonetheless, the net mark-up income increased from Rs 7.8 billion to Rs 15.4 billion-a healthy 94.0 percent growth. Non-mark up income increased by a hefty 213.2 percent from Rs 0.5 billion in March 2009 to Rs 1.6 billion in June 2009.

The bulletin can be downloaded HERE


Islamic banks’ assets grow by 66% in 2008

Islamic banks’ assets grow by 66% in 2008


Despite the global financial crisis, assets held by the 100 largest Islamic banks in the world raised by 66 percent in 2008 compared with previous year.

A study published by Asian Banker Research magazine says the assets of the Islamic banks increased to a total of $580 billion in 2008 — up from $350 billion in 2007.

This is while, the assets held by Asia’s 300 largest banks lifted by just 13.4 percent, the report says.

“Islamic finance has seen an incredible surge in popularity, based on stronger regulatory regimens and a better international understanding of its dynamics,” said Emmanuel Daniel, the magazine’s chief.

Islamic banking refers to a system of banking that is consistent with the principles of Islamic law. Islamic law or Sharia prohibits the payment of fees for the renting of money (Riba) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haraam).
Islamic banks are not authorized to invest in companies associated with tobacco, alcohol or gambling.

The report concludes that despite the current economic meltdown in the world “Islamic banks have continued to grow in prominence and size”.

The report said Saudi Arabian lenders were more profitable among other banks with Al-Rajhi Bank netting the highest earnings of $1.74 billion, according to the report, and Iranian banks were the biggest players in the global Islamic banking system.

Iran holds seven out of the top 10 rankings and 12 out of the 100 top Islamic banks, the magazine said.

More than 40 percent of the total assets of the top 100 banks belong to Iranian banks, according to the report.


Islamic banks weather global financial turmoil: Country Head, Al Baraka Islamic Bank Pakistan

Islamic banks weather global financial turmoil: Country Head, Al Baraka Islamic Bank Pakistan

boat in lake

Islamic banks have withstood the recent turmoil in the global banking industry triggered by the subprime mortgage crisis because their rules do not allow dealings in products like derivatives, options or papers that caused the meltdown.

While financial institutions in the developed world lined up for huge state assistance, the few Islamic banking institutions in these countries like the European Islamic Bank in the United Kingdom emerged unscathed from the crisis.

“The recent financial crisis exposed the flaws in the western banking system and proved that Islamic banks are safe which do not offer any risky product in line with the injunctions of Islam,” said Al-baraka Islamic Bank Country Head Shafqat Ahmad. He said the French president had appreciated the modes of financing offered by Islamic banks and expressed willingness to allow the setting up of these banks in France.

Shafqat said Shariah experts ensured that Islamic banks operated strictly according to the Islamic financial laws. “These banks do give profit to their depositors but it is based on the true principle of profit and loss. This is the reason that profits on savings in Islamic banks are not pre-determined.” However, “Islamic banks generally distribute more profit to their depositors than conventional banks.”

An Islamic Shariah expert said majority of the credit provided by Islamic banks was under the Morahaba mode (sale-purchase agreement). Explaining, he said “an Islamic bank purchases an item, for instance cotton, on behalf of the client (in fact the client selects the quality and quantity of cotton and the bank makes the payment) and the client agrees to the date when the amount will be returned. The Islamic bank charges certain profit on the purchased cotton that the client has to pay along with the principal amount.”

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Interview with Pervaiz Ahmed, CEO Pak-Qatar Family Takaful Limited

Interview with Pervaiz Ahmed, CEO Pak-Qatar Family Takaful Limited

pak qatar

Shahzaib Khanzada interviewed Pervaiz Ahmed, the director and chief executive officer of the Pak-Qatar family Takaful Limited.
Pak-Qatar Family Takaful Limited is the pioneer of the Takaful family in Pakistan. The company is regarded as a technology-driven shariah-compliant company providing need-based and cost-effective Takaful solutions in Pakistan.

SK: Ten months ago, your company was new and your plans were aggressive, and I had spoken to you back then about how realistic those plans were, keeping the situation of the country in view. What difference have you observed over the last 10 months?

PA: When I first spoke to you 10 months back, we had only just received a license and our company was in its launching phase. We had divided our expansion plans into two parts. Firstly, we thought of developing a company with a complete product range and one that is strong operationally, which means making your own house and order.

The second stage was to go into the market in front of the people, and to present an image that was consistent with the Takaful. The operational phase was very challenging, and we were supposed to do some expansion in the second phase. It was critical at that point in time that we should go out in the market and we did not know what kind of response we were going to receive. Generally when we made plans, we thought we were going to have 4,000 to 5,000 consultants over a short period of time, say three to four years. It generally looked optimistic because no other company had been able to achieve that mark.

Alhamdolillah over this short period of time, we have managed to launch a range of products, both for corporate customers and for individuals and now, we are present in all the major cities of Pakistan. We have opened up our offices in 13 cities so far and we are expanding very rapidly; we even have an office in Azad Jammu and Kashmir (AJK). Almost 800 consultants are working for us, we have trained and developed almost 12,000 to 13,000 people, and on the business side, a significant number of corporate clients have come onboard and are doing business with us and similarly a good number of customers have come onboard too.

By the end of the partial year on the 31st of December 2008, we had done business worth Rs 31 million, which is a very good number for a new company like ours. So now we have a full range of products in place, we consider ourselves one of the major players in the market, comparing our product line with any other established player that has been in the market for 12 years or more.

SK: When the country’s situation is such that, there is an inflationary scenario, an economic slowdown, the disposable income of the people has been hurt badly and they have to think twice even before purchasing the basic necessities; there can be two strategies of doing business. One is to carry out test marketing and taking things slowly. Your company on the other hand penetrated very rapidly and the numbers are all very surprising. What was the reason behind that? How is company so aggressive even during these hard times that Pakistan is going through?

PA: Generally, it happens that when you are strategising, there are always two parts to it. Firstly, the situation at the macro level, then there is the sector that you are focusing upon. Usually a lot of companies make the mistake of moving very cautiously in the desired sector just by considering the situation at the macro level. When we were launching this company, we analysed the market closely and found that the market has a lot of potential. The insurance penetration is very low and Islamic finance is needed in the market, so we should go out in the market regardless of the macro level situation.

Because there are a lot of gaps in the market, during this period the whole world including Pakistan was going through a financial and economic crunch. But some of the companies entered the telecommunications industry and they ended up doing pretty well, so basically we were focused on that sector. The nature of our business is actually long term. For example, when we sign a contract with someone; we always sign it for 15 to 20 years. Secondly, expansion in downtime is always easy because you can get quality human resource from the market, and you get the resources at good prices. Then, expansion does not take much.

I think it was a very focused approach, and we are still focused because of the response that we have received in a short period of time. There is only 0.3 percent penetration of the life insurance sector in Pakistan, which can go up to three to four percent. I believe that even if 10 to 15 more companies come, and work here, they will still have opportunities to make inroads.

SK: What you said happens to be a blessing in disguise because we keep saying that Pakistan’s economic boom started in 2002. If the Takaful had entered the market at that time, it would have progressed a lot better. But you think it is the other way around? If there is an economic slowdown, does it offer benefits of its own too?

PA: Yes of course, it has its own benefits. Pakistan did have an economic boom starting from 2002, but the situation of economic uncertainty in Pakistan has continued since the bomb blast in 1998, and the foreign ministers did not consider this a certain situation. I have been working with some foreign investment companies, and I know that we have now learnt how to live and survive in an environment that is uncertain. So if you are living in an uncertain environment, you learn to live and adapt with that, and it is true that this has some of its own advantages. If you are planning any expansion during a slowdown, and if you are doing it wisely, you can make a fortune out of it.

SK: I was going through your company profile and found it very interesting because all the people related to insurance, whether conventional or Takaful, have started talking a lot about the technologies that the bigger companies are investing in this field.

Others say that when they carry out cost benefit analysis, they don’t think that they is any need to invest in technology. You have actually mentioned in the first line of your company’s description that you want to be a technology-driven, Shariah-compliant company. Why is it so important that you have mentioned it in the first line?

PA: Technology is the heart of all the strategies that we are implementing. We are working in the service industry and generally in the service industry, customers’ satisfaction is considered to be the top most priority. Unfortunately, Pakistan is not a service-oriented country, as compared to the Western countries. So there are two elements to providing satisfactory services to the customers.

Firstly, it is the attitude of the people who are working, and number two is basically the tools. Both of these things are very important. For example, if you have the attitude but you lack the tools, you will not be able to survive in the industry. Similarly, if you have the tools but you lack the attitude, you would not be successful then either.

We have invested millions in our business technology, we brought up our business system from Malaysia, which gave us an edge to offer products and services that even the established insurance companies could not offer in the market. We believe that operation efficiency can only be achieved through technology. We wish to work at a low cost to pass on more benefit to the customers. Customer benefit is directly related to our cost, and without technology this is not possible.

SK: Your strategy seems to work well. Best of luck for your plans and thank you for your time.

PA: You are welcome.

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