‘Regular domestic sukuks to ensure level-playing field for Islamic banks’

KARACHI: Dubai Islamic Bank Pakistan Limited Chief Executive Officer Junaid Ahmed says the government needs to issue domestic Sukuk regularly to ensure Islamic banks compete on a level playing field with conventional banks.

Ahmed said this during an interview with The News International. The following are some highlights of the talk:

Q: Is the government moving forward with its plan of issuing Ijara Sukuk and international Islamic bonds? How will these planned issuances boost Islamic banking in Pakistan?

A: The government is making good progress for new Sukuk issuance and it is expected soon. This will provide the necessary impetus for investment to Islamic banks for the suitable application of surplus deposits. It will also assist Islamic banks to attract new deposits and share appropriate profit with the depositors.

Q: Analysts say the lack of Sukuk issuance is forcing the Ministry of Finance to take higher-cost funds from conventional banks. What's your take on it?

A: The government issues the conventional debt instruments such as treasury bills and Pakistan Investment Bonds on a regular basis and as per schedule. We request the government to issue a similar schedule for domestic Sukuk issuance in order to provide a level-playing field with conventional banks.

Q: What role does your bank play in the Roshan Digital Account scheme (RDA) and the government mark-up subsidy scheme for housing finance?

A: DIB Pakistan is amongst the top home finance service provider in the country. We will shortly be launching off-plan financing for residential projects in line with international best practices. DIB Pakistan is an active player offering portal-based RDA products to overseas Pakistani’s in close collaboration with the State Bank of Pakistan. We have a dedicated RDA team providing service on a 24/7 basis and an effective outreach programme is already in place.

Q: What types of important goals have you set out in your bank's strategic plan for the coming years?

A: Our strategic vision is to be a progressive, innovative Islamic bank with stable growth, ensuring a superior and satisfying customer journey through digitalisation. There are few measures being taken by DIB Pakistan. These include: enhanced outreach through branchless banking and alliances with Fintechs, achieve service excellence through reliability and responsiveness, and improve customer experience through digitisation services.

We also want to build data analytics capabilities, upgrade legacy systems and IT infrastructure, and marketing and advertising initiatives for awareness of Islamic banking.

Q: The State Bank of Pakistan (SBP) has introduced SME Asaan Finance Scheme to encourage lending to small and medium enterprises. How will your bank participate in this scheme?

A: The newly introduced Asaan Financing scheme is an excellent initiative of the SBP for the promotion of SME finance segment wherein the main focus is to increase lending to small-scale customers who do not have adequate collateral.

We are hopeful to increase our overall SME portfolio via utilisation of the scheme and focus on marketing new to the bank, SME customers on the basis of risk-sharing of up to 60 percent against disbursed loans and refinancing at subsidised costs.

We plan to utilise the facility to seek out SME customers in untapped commercial hubs across the country, provide necessary support and non-financial advisory services and play a necessary part in the development of the SME finance sector in the country.

Q: What is the level of preparedness of the Islamic banking industry to implement SBP's third five-year strategic plan?

A: The SBP projected share of the Islamic banking industry in assets and deposits is to increase at 30 percent (35 percent in terms of branch network) in five years (2021-2025) from the existing share of around 18 percent. This target was set after discussion with all stakeholders, this shows the willingness of the Islamic banking industry to increase Islamic banking market share. The strong growth momentum witnessed by the Islamic banking industry (IBI) in Pakistan may be attributed, among others, to the key role played by SBP in providing an enabling environment. Besides developing a supportive regulatory and supervisory framework, SBP is actively engaged in the promotion, training and capacity building in this industry.

The expanding breadth and depth of the IBI and new market developments necessitate taking a holistic approach in order to prudently tackle key challenges faced by the Islamic banking industry to realise its full potential.

The SBP is working on further improving regulatory oversight, balancing tax treatment, promoting standardisation, ensuring effective liquidity management and establishing sound risk management practices.

There are six strategic pillars in which the SBP and banks are working on to ensure growth targets are achieved.

The SBP aims at making Islamic banking share one-third of the overall banking industry by 2025. Keeping in view the potential towards ensuring broad-based economic growth and development, Islamic banking has remained a top priority area for the SBP. The plan provides a consensus-based strategy to make Islamic banking an efficient and practical solution to the consumers. It also contains an extensive focus on improving the public perception of Islamic banking as a distinct and viable system capable of catering to the varied financial services needs of various segments of the society that would significantly contribute to increasing overall financial inclusion in Pakistan.

The plan also emphasises that Islamic banking institutions must develop innovative products based on distinctive Shariah characteristics to cater to underserved sectors, particularly SMEs and Agriculture that is critical for the growth of the country’s economy.

The Islamic banking industry is expected to fully capitalise on its potential to develop a vibrant and sustainable Islamic banking sector that shall effectively contribute to the economic progress of Pakistan.