Islamic Banking is a fast growing industry

Published: May 16, 2012
Legal and HR issues and liquidity crisis are the emerging challenges with its growth. PHOTO: FILE

Legal and HR issues and liquidity crisis are the emerging challenges with its growth. PHOTO: FILE

1. How much the concept of Islamic Banking has penetrated in Pakistani society over the   last decade?

Islamic banking is a fast growing industry world over. Worldwide growth rate is more than 15 per cent while it is about 40 per cent in Pakistan. With every passing day, its penetration in every society is increasing, covering more and more areas. The developments during the last ten years in the field have drawn attention of the people on individual level and in business and corporate sectors. But our ratio is low. Therefore, when we show it in figures it is fewer. However, our growth rate is very high. Trends are changing and people are coming to Islamic Banking. People wish to join Islamic banking and they try and if they are satisfied, they decide to adopt it completely. We need to spread awareness. Islamic banks are doing well in this respect, however, this needs continued efforts.

2. You mentioned that the Islamic banking is spreading into more and more areas, then, are there any obstacles which the sector facing in its way?

According to the principle of economics, the expansion invites obstacles. When you introduce a new product in the market, the problems also surface because the product is in the evolutionary phase. So, new problems are emerging as the Islamic banking is expanding. For example, we face an increasing problem of HR with the opening of the new branches. The need of human resources is growing. Actually, the HR is not growing as fast as the new branches are opening. A person cannot become an Islamic banker just by studying a few books. To become an Islamic banker one needs to spend life in the field and gain experience. We do not have enough trained people, although, they are coming from traditional banking but again it is an issue of experience. The major issue faced by the Islamic banking is of insufficient human resources. We need suitable people, and it will take time to the problem to be solved.

The second problem is that with the rapid increase of our deposits and opening of new accounts, we are facing liquidity crisis. People are depositing money, but unfortunately, we have less opportunities of investment due to country situations. We are having difficulty in lending loans, as factories are being closed. Therefore, the problem of surplus liquidity is standing in front and we have fewer opportunities to utilize it. The capital market of Islamic banking has not gained the maturity and stability level that the money market of the conventional banking has gained.

Thirdly, some legal issues are also surfacing. For example, when cases are referred to courts, they dealt with under the same laws that are functional for conventional banking. If the products are Islamic then the laws should be made accordingly. So we are in desperate need of legal framework. In addition to all this, there is an issue of taxation. This does not mean that these problems will last forever. The efforts for solving these problems are started as soon as they come forth. And these efforts are producing results.

3. How many of those who opt for Islamic banking feel satisfied and how many other way round?

People in very large numbers are resorting to Islamic banking. Some of them think that the conventional banking is haram and, therefore, just want to avoid it and get rid of it. They come to Islamic banking and feel satisfied.  Some others have some reservations about the Islamic banking, they come and we satisfy their queries and they accept the system. There are still some people who will not get satisfied at any cost.

I want to say that we cannot blame customers for not getting satisfied. Our banker should be held responsible. There are bankers who simple do not know to satisfy the customers, how to reply to their queries and how to explain Islamic banking. If a banker explains properly, he should be able to satisfy almost everybody. The customers belong to all these three kinds of people; however, we have a general impression that a large number of people is coming towards this system.

4. What is difference between Islamic banking and conventional banking?


There is no basic difference in these two. Only, in Islamic banking we follow Shariah laws while conventional banking does not care for them. Actually, we have removed the element of interest from the banking. We have the same products but the agreements behind them are in compliance with the shariah laws. It is not only the interest, but we have also taken care of other conditions. These are according to the shariah. There is just this difference, rest of the things have resemblance. A good example will help to understand the nature of the difference; a couple living together after nikah is justified and according to shariah while without nikah it is not.

5. Ulema have said that mere opening of an Islamic window in the banks running on interest system is nothing more than a deception. What do you say?

This is a common notion about the “Islamic window” but this is wrong. This is not the case that the same service is being provided by opening up another window in the conventional bank. State Bank had given three options and two of them became very popular. One option was that a new Islamic Bank be set up with all its system separate. The second option was that the conventional bank establishes its separate division. That Islamic banking division will run this bank independently. This was a concept of a bank within a bank. The conventional banks started the Islamic banking under this concept.

On another note, since Islamic banks could not open up a branch everywhere, they opened their windows in the existing branches of the conventional banks but these windows have completely separate system from that of the branches. The business of the Islamic window is run under the Islamic system. This arrangement facilitates customers do business with an Islamic bank having window within the branch of a conventional bank. This is not non-shariah. Earlier these two were mixed with each other, but it is not so now. Now the law says that to do Islamic banking a conventional bank has to have a license for Islamic banking. State bank barred those banks from doing so that were doing Islamic banking without license.

6. What is difference between the concept of Islamic banking of UBL Ameen and one window concept?

In 1985, some conventional banks might have done Islamic banking under one window with permission from State bank which means that they did banking in mode of Islamic transaction, however, later that was abolished. Now a completely separate bank has been established with the title UBL Ameen. We have a separate head office. We have separate books. We have told the conventional banks that if our client visits them, our man should deal him. Therefore, this is not window of conventional bank; it is window of UBL Ameen.

7. What were the issues that were in the way of provision of Islamic banking that UBL decided that a separate and dedicated Islamic bank was necessary to be set up?

Following the instructions by the State Bank, UBL started Islamic banking, like other banks. State bank set all the parameters for Islamic banking when UBL started Islamic banking. The rules included that the Islamic bank should be separate, there should be now interference of the conventional banking and there should be no segregated fund.

8. How was the UBL Ameen experience? And what products is it providing to cater the needs of the customers? 


Our experiment was successful. And it is expanding fast. Our network is getting large and the number of our books and clients is increasing. UBL is providing the products exactly in accordance with the shariah structures permitted by the State Bank. We have to get permission from the Shariah Board for any new product before introducing it. At present we are providing all the products, for deposits and for financing, that are approved by the State Bank.

Published in The Express Tribune, May 8th, 2012.

Facebook Conversations

Reader Comments (18)

  • Batman
    May 16, 2012 - 6:08PM

    oh noes!!!! more islamization!


  • Zamir Malik
    May 16, 2012 - 6:28PM

    If you will study the current Islamic banking then it is another way of duping the public and nothing else and it is at times more expensive than Contemporary banking. Murabaha and Musharaka are alternate names of Interest based banking and they say it increment of cost only to make it Islamic. Only names have been changed but in actual there is no such banking where there is no interest. Using religion for commercial purposes is the most dangerous thing in my view and that is what Islamic banking is all about.


  • non nuclear
    May 16, 2012 - 7:04PM

    one or the other day even these banks will eventually collapse or will go bankrupt……this is not about religion,it’s just about economics and growth..the world cannot be governed by religion instead it is governed by a universal truth which goes like this ‘change is eternal and everything else is mortal’….these banks cannot go on growing for eternity or until we undergo next evolutionary process…Recommend

  • ukmuslim
    May 16, 2012 - 7:58PM

    it is same old fashioned conventional banking… only names are islamic.

    i am sure, they have islamic insurance, islamic assurance, islamic hedge funding as well.


  • John B
    May 16, 2012 - 8:13PM

    Islamic banking is a concept to fool an illiterate and uninformed poor fellows to deposit their money and make them borrow at inflated prices upfront.

    It is scaling system for bankers and bank stock holders in the name of religion with an aura of sharia-period.


  • Mujtaba
    May 16, 2012 - 10:22PM

    Its interesting how ppl here say that its just another name given to the same old products….well Id like to use the analogy of a a big mac….one sold in New York and the other sold in Lahore….yes both r the same thing in every sense but the way they were made i.e. the procedures are what make the big mac in Lahore Halal and the one in New York Haram….hope u guys understand the difference…

    BTW its something like the saying Hate the player dont hate the game some banks and financial institutes dont follow the proper Islamic procedures and give the other players in the market a bad name.


  • Abdullah
    May 16, 2012 - 10:40PM

    Positive step taken by financial industry in terms Islamic banking…. though not proper on Islamic terms but something is better than nothing … Banks may further enhance their step to pure Islamic banking but people should encourage instead of criticizing


  • Adil Mulki
    May 16, 2012 - 11:57PM

    Well… First of all we have to realise that “Islamic Banking” is an Islamic thing :) which means that in order to understand it, one has to apply logic within a religious framework.
    This means that if you do not apply the religious framework, its logics will not be “logical”.
    Let me explain with the help of an example one of my ex-bosses and teacher used to explain it with:

    “Suppose that there is an unmarried couple which indulges into acts necessary for the propagation of the human specie : ) Viewed from a religious angle this will be adultery. On the other hand, if only the couple has their nikah (Islamic marriage contract in the proper manner) performed before such indulgences, their relationship becomes Halal. Infact, their “nikah” is counted as a good deed.”

    The illustration above will not be valid if you do not apply the Islamic framework and belief in the institution of “Nikah”, similarly, Islamic Banking can not be understood with logic devoid of Islamic/religious framework


  • May 17, 2012 - 3:21AM

    There is nothing like Islamic Banking. Banking is simply banking which has evolved out of necessity. Labeling this institution with any religion is not going to improve this system any more. Greed is part of human nature, the philosophers and thinkers have always proposed measures to curb this inbuilt tendency especially when it comes to financial dealings. It is mainly the role of Banks that has paved the way for large scale industrialization. This institution is like a train if we want to benefit from this system we have to board it. Delaying in boarding it will further delay our progress.Recommend

  • curious
    May 17, 2012 - 3:40AM

    Just using an in vogue term and religion to make money. Everything in this life revolves around money.


  • Shyam
    May 17, 2012 - 9:03AM

    the procedures are what make the big mac in Lahore Halal and the one in New York Haram….hope u guys understand the difference…

    If the New York Big Mac is just packaged in Islamic packaging, and sold in Lahore will that make it Halal?


  • narayana murthy
    May 17, 2012 - 9:11AM

    The guy is a genius. Just look at how he explains the difference between Islamic banking and conventional banking – “A good example will help to understand the nature of the difference; a couple living together after nikah is justified and according to shariah while without nikah it is not.”

    What an analogy. Now, I know what is Islamic banking!!!


  • Rais
    May 17, 2012 - 9:19AM

    Holy Prophet (Peace be upon him) has warned his ummah that because of their moral degradation they will follow the ways of the Jews and Christians. The Islamic bankers are employing the same philosophy and tricks that the Jews and Christian money lenders of the Middle Ages applied to circumvent the canon law edicts prohibiting usury. At the time, most Christian nations heavily incorporated scripture into their laws, and as such it was illegal for any person to charge interest on a loan of money. To get around this, a set of three separate contracts were presented to someone seeking a loan: an investment, a sale of profit and an insurance contract. Each of these contracts were permissible under Church law, but together replicated the effect of an interest-bearing loan. This was called Contractum trinius ( In the Islamic Banking contracts the devil is in the details also the and the most important factor is the date and time of signing of the contract.


  • Mujtaba
    May 17, 2012 - 11:17AM

    @Shyam… the 2nd part of my previous comment…..what you are implying is malpractice or even fraud……


  • May 17, 2012 - 11:24AM

    How did a spiritual idea come to give tips on matters of finance?

    Thats the problem. This idea interferes in not just financial matters, but also in political as well. No wonder most of the 50 odd Muslim majority nations are non-Democratic and non-secular.


  • Islamic Sheep
    May 17, 2012 - 9:24PM

    If the Wolf Pays the Shepherd
    What Hope is there for the Sheep

    Abdassamad Clarke, delivers a brief message to those who misuse the knowledge they have been given and warns us against following them but instead to look for the men and women of true knowledge and right action.

    Islamic Bankers, ‘Ulama as-Su’ and ‘Ulama al-Haqq


  • United
    May 17, 2012 - 9:34PM

    Is Islamic Finance Delivering?

    Has the industry lived up to its original ideals? If so, what were they and what was the path that the industry was expected to take? Importantly, if it hasn’t achieved its objectives, how does it hope to get there? More importantly, what role can you play in this process?

    The Journey of Islamic Finance: Ideals, Inception and Realities


  • Junaid Naseer Faroqui
    May 23, 2012 - 12:13PM

    Islamic Banking — An oxymoron !


More in Business