Human capital development for Islamic finance

Upgrading knowledge, skills of current banking professionals a paramount concern

KARACHI:

The Federal Shariat Court’s (FSC) landmark ruling in April 2022, aiming to eradicate interest from Pakistan’s economy by December 2027, marked a significant turning point in the nation’s financial realm.

This decisive judgement unequivocally prohibited Riba, encompassing all forms of banking interest, and initiated a concerted effort to transition the country towards an interest-free economic system by the designated deadline.

The Pakistani government and the State Bank of Pakistan (SBP) have embraced the FSC ruling, and a highly influential steering committee, headed by the SBP governor, is spearheading the transition of the financial system towards a more equitable and Shariah-compliant framework, following the constitutional mandate of 1973.

This steering committee receives backing from prominent industry professionals, central bank authorities, legal experts, and Shariah scholars. Various working groups and sub-committees within the central bank are currently engaged in addressing different facets of the conversion process.

As the financial sector gears up for the transition to an Islamic financial system, the endeavour to establish a banking and financial framework free from interest faces numerous hurdles. Key among these obstacles is the imperative to enhance the expertise of human resources within the financial sector, ensuring a comprehensive understanding of Islamic finance principles and the requisite depth of knowledge. Additionally, upgrading the knowledge and skills set of the current banking professionals stands out as a paramount concern.

According to the most recent data from the SBP, Islamic banking deposits have surpassed the 22% threshold, totaling over Rs6 trillion, while the asset base has expanded to Rs8.4 trillion.

Shares financing has also seen an increase, reaching Rs3 trillion and constituting 26% of the market size. The number of bank branches and windows has surged to over 6,550.

The Islamic banking sector is predominantly represented by six full-fledged Islamic banks, with Meezan Bank leading the industry. Furthermore, the transition of Faysal Bank to a complete Islamic bank has further propelled the growth momentum.

Additionally, alongside these full-fledged banks, 16 conventional banks currently offer Shariah-compliant services through their dedicated branches and windows. To stimulate further expansion, Bank Makrama and ZTBL have recently declared their shift towards Islamic banking, while The Bank of Punjab and Standard Chartered are in the process of assessing the conversion procedure.

This underscores a significant demand for professionals in Islamic banking. Major entities such as HMB Sirat, HBL, UBL, and NBP are also vigorously transitioning their conventional branches into Islamic operations. Based on information coming from banking insiders, more than 85% of the new branch licences issued for 2024 are designated for Islamic banking branches, signaling a significant transformation in Pakistan’s banking landscape.

Moreover, it is estimated by industry experts that the conversion necessitates the retraining of approximately 150,000 banking professionals, alongside the induction of roughly 7,000 new employees annually. Against this backdrop, the preparation of human resources for the Islamic finance sector demands a coherent strategy comprising four primary components:

a) Comprehensive retraining of the existing banking professionals in Islamic banking and finance, enhancing their knowledge and skill set. b) Training of fresh recruits in Islamic finance principles and products to meet industry demand. c) Incorporation of Islamic finance into the curriculum of business schools and academic institutions, ensuring its integration into educational frameworks. d) Continuous learning and upgradation of skills for the existing staff.

Firstly, the retraining of the existing staff involves a combination of specialised training and unlearning some old concepts while creating space for understanding the principles of Islamic finance. It requires implementing tailoured educational programmes and workshops that cover Shariah-compliant financial practices, ethical considerations, and the specific regulatory frameworks associated with Islamic finance.

Financial institutions need to encourage continuous learning and collaboration with experts to ensure a comprehensive understanding among their staff so they feel motivated and confident in the conversion process.

Secondly, the training of fresh recruits involves offering training and orientation programmes to cover the basic concepts of Islamic finance, knowledge of the products offered by Islamic financial institutions, education on Shariah compliance and regulatory requirements, and developing of ability to differentiate between Islamic banking and conventional banking systems and products.

The use of case studies with practical examples, role-playing activities, simulations, and on-the-job training are important components of this strategy.

Moreover, applying hiring filters to give preference to those graduates who have studied Islamic finance and banking subjects is needed to get the right mindset of people in the sector. The third aspect of the strategy involves incorporating Islamic finance, banking, and economic principles into the educational framework, starting from primary education to the curriculum of business schools, as fundamental subjects.

This ensures that graduates possess skill sets aligned with the current market demand, moving away from the outdated theories of conventional financial systems. Achieving this requires significant reevaluation within academic circles. At the school and college levels, there is a need to develop specific components focusing on Islamic finance literacy, emphasising ethical principles and fundamental concepts of Islamic trade and business rules. Meanwhile, at the university level, specialised courses and advanced tracks in Islamic finance, Islamic banking, and Islamic accounting are essential within business, finance, and accounting programmes.

The Sindh Higher Education Commission (HEC) has taken the initiative in this regard, issuing guidelines to all universities in the province to offer Islamic finance as a core subject while integrating Islamic finance and business components into related courses. Similar initiatives are imperative from the federal HEC and other provinces to ensure a comprehensive integration of Islamic finance education across educational institutions.

The fourth element of this strategy focuses on continual learning and skills enhancement for the staff already engaged in the sector, ensuring they deliver improved services to customers. This entails prioritising professional development programmes, leadership pathways, refresher courses, and active engagement in conferences, webinars, and workshops to remain abreast of industry dynamics. In Pakistan, the Centre of Excellence in Islamic Finance (CEIF) at IBA Karachi has been pivotal in human capital development for Islamic finance, with support from the SBP and the Islamic finance sector.

The writer is the Director IBA Centre for Excellence in Islamic Finance (CEIF)

Published in The Express Tribune, April 15^th, 2024.

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