The Rationale Behind Growth Of Islamic Banking
The State Bank of Pakistan and the Ministry of Finance have done a lot to promote Islamic banking in the country but must make more efforts to promote this prudent financial industry in the country. “Holding the relatively mature industry of conventional banking to the same rules as those applied on the Islamic banks, does not constitute a level playing field”. The efficacy of Islamic banking should not be measured by the same yardstick as conventional banking because by virtue of their asset holdings.
Competing With Conventional Banks
Islamic Banking Industry’s market share has grown at a relatively rapid pace of close to 7 percent in seven years, when compared to other countries such as Bahrain where the market share stands at around 8 percent in 30 years and Malaysia where the market share is around 12 percent after 25 years of existence of Islamic banks there. The government must give market-based incentives to this industry, lowering the rate of tax on transactions with Islamic financial institutions, in order to encourage it.
Future Growth & Industry Trends
The Islamic banking industry will continue to post impressive growth. Over the past two years; BOK established 5 new Islamic banking branches, 2 Islamic banking sub sub-branches and which are fully functional and 5 will be opened by the end year 2011 making a total dedicated Islamic Banking branches to 26. In addition, all conventional banking branches have Islamic Banking Counters. The recent economic crises have increased the general public’s trust in Islamic banking as robust institutions and believe that the future is bright for this industry.
Public Acceptance & Popularity
A significant proportion of the general public is either unaware or unconvinced about the differences between conventional and Islamic banking. There will be five percent who say that there is no concept of banking in Islam while an equal proportion will insist that there is no difference between conventional and Islamic banking”. The overwhelming majority of the public are inclined towards the Islamic banking and that the Islamic banking industry itself is in a constant state of progression and improvement.
The Islamic Financial Services Board which constitutes fourteen central banks has made significant headway in forming the regulatory infrastructure for the industry. The institute of Chartered Accountants of Pakistan is also working to strengthen accounting standards for the industry.
The conventional banking is primarily focused on money lending and that the real risk of their transactions becomes evident at “times of crises”. The spirit of Islamic banking industry must be providing fair and beneficial services to clientele on ethical basis which is the core of every religion including Islam.