Govt's borrowing from banks tops Rs400b

Islamic banks face scrutiny over high rates, lower profits

ISLAMABAD:

The State Bank of Pakistan (SBP) informed the Senate Standing Committee on Finance on Thursday that the government borrowed Rs400 billion from commercial banks on high interest rates to meet its financial requirements.

The committee, which met here with chairman Saleem Mandviwala in the chair, was informed that conventional banks charge 22.7% interest on loans, while Islamic banks charge 18.8%. Meanwhile, Islamic banks offer a 14.1% profit rate to customers on deposits.

During the meeting, SBP officials briefed the committee, stating that Islamic banking is growing rapidly in Pakistan, which now ranks 11th in global Islamic banking.

Committee members raised concerns about the high rates on loans from Islamic banks.

Anusha Rehman questioned whether customers share in the losses under Islamic banking.

Officials responded that if an Islamic bank incurs a loss, it reduces its profit to protect customers. Mandviwala noted that Islamic banks offer 4% less profit compared to conventional banks.

"These banks are not working for Islam but to maximize returns and they should be regulated like conventional banks."

The State Bank replied that the government had acquired loans of Rs400 billion from commercial banks.