- Slides: 11
PROSPECTS OF ISLAMIC BANKING AND FINANCE INTERNATIONALLY Presented by: Mohammad Aslam Head, Islamic Banking Habib Bank Limited Slide 1
Presentation Flow § § § Slide 2 Challenges Way Forward Global Perspective Islamic Finance and Dubai Debt Crisis Way Forward
Challenges: Lack of Awareness Slide 3 § Despite believing in riba free financing, public in general is not clear about the concepts and products offered by Islamic Banking § There is lesser acceptance as it is generally considered as “Same thing with different packing” § There are myths in the market, like “Islamic Banking is expensive for financing and gives less return on deposits products”
Challenges: Liquidity Management Slide 4 § There are limited Shariah Compliant Instruments available to Islamic banks to manage their liquidity, unlike its conventional counterpart, which has PIBs, Treasury bills etc. § Limited availability to access to lender- of- last resort (LOLR) facilities by central banks. The lack of Shari’ah -compatible LOLR facilities is associated to the prohibition of interest and thus discount rate. § The secondary market is not well developed for investment instruments. § Interbank market for Islamic banking institutions is not well developed.
Challenges: Skilled HR Slide 5 § There is a general scarcity of resources, who have knowledge of both conventional banking and Islamic banking § Although , a number of institutions, imparting Islamic banking training, have cropped up but there is still demand/supply gap of quality resource. § Institutions like Al-Huda, Publicitas, Islamic Universities are playing a key role in providing Islamic banking industry with trained resources. Islamic Banks should support these institutes.
Challenges: Limited Outreach Slide 6 § The branch network of Islamic banks and Islamic divisions has limited reach, particularly in the rural areas. § Micro finance and Agri-finance markets are still untapped. § Limited Islamic banking products as compared to Conventional Banking
Global Perspective Slide 7 § Currently more than 1100 institutions are offering Islamic Financial Services across the Globe § Assets of the top 500 banks worldwide expanded 28. 6% to $822 B at the end of 2009 compared to $639 B in 2008. § Standard & Poor’s estimates the Shariah Compliant assets currently total about 1 trillion worldwide § Dubai, Singapore , London and Kuala Lumpur are trying to become centers of global Islamic finance. § The above facts reflects that Islamic finance has become a recognized and a specific segment of finance on its own with bright growth prospects.
Global Perspective § According to CIMB Group Holdings, Islamic finance is the fastest-growing segment of the global financial system and sales of Islamic bonds may rise by 24 percent to $25 billion in 2010. [1 § The Vatican has put forward the idea that "the principles of Islamic finance may represent a possible cure for ailing markets. ” Slide 8
Dubai Debt Crisis Most of the Islamic banking industry was not impacted by the global financial crisis , but the rescheduling of Dubai World’s Sukuk led to speculation about the viability of Islamic banking solutions. According to Reuters: “Dubai's debt crisis has stifled sukuk issuance and unfairly put a damper on the Islamic finance industry, experts said, noting but an unstable credit environment and poor due diligence was to blame for the debacle”. Hence, Islamic finance still provides better financial solutions as compared to conventional finance. Slide 9
Way Forward Slide 10 § Although, the number and operations of Islamic banks are fast expanding (667 branches in June 2010), this segment of the market is still small relative to the appetite for Islamic finance. § In this connection, large banks like HBL are aggressively entering the market to tap the potential. § SBP is supporting the industry but SBP & Islamic financial institutions need to work closely on multiple fronts to promote the industry. § Islamic Banking institution need to focus more on Musharaka and Mudaraba based product to further support the growth of Pakistan’s Economy.
THANK YOU Slide 11