The State Bank of Pakistan (SBP) has introduced the third 5-year plan (2021-25) to support Islamic banks in expanding their outreach across the country, while advising them to increase online banking and “capitalise on fintech to sustain the growth momentum.”

The central bank’s plan has allocated headline targets for the Islamic Banking industry to be achieved by 2025. The targets include, to increase share in both assets and deposits to 30 per cent of the overall banking industry, 35 per cent share in branch network of the overall banking industry, 10 per cent and 8 per cent share in SME (small and medium-sized enterprise) financing and agriculture financing respectively in private sector financing of the Islamic banking industry.

In a press release, SBP highlighted that the bank aimed to make Islamic banking one-third of the overall banking industry by 2025. “For more penetration in the market and minimising services delivery costs, IBIs (Islamic banking institutions) need to increase the use of alternative delivery channels,” it said.

The central bank also noted that Shariah-compliant banking had gradually become an important part of the domestic economy with its market share increasing close to one-fifth of the overall banking industry in terms of deposits and assets over the past two decades.

However, the industry can achieve much growth considering that the Muslim community dominates the population landscape in the country, said the statement, adding that increased awareness of Islamic banking may help it achieve the next level of growth.

“Given the significant contribution of branchless banking towards improving financial inclusion, there is a need for the Islamic banking industry to capitalise on fintech to sustain its growth momentum.”

SBP said that the latest five-year plan would help this sector grow in Pakistan and that the bank, under this plan, would extensively work in six areas, which include strengthening legal landscape, enhancing conduciveness of regulatory framework, reinforcing comprehensive Shariah governance framework, improving liquidity management framework, expanding outreach and market development, and bolstering human capital and raising awareness.

The plan suggests that the central bank will amend several laws in these six areas.

The statement added, the Islamic banking industry has acquired a market share of 17 per cent and 18.3 per cent in assets and deposits respectively of the overall banking industry by the end of December 2020.

From : pk.mashable.com

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