Islamic banking attracts flocks of Pak customers

Islamic banking in Pakistan, although still in infancy stage, is attracting flocks of customers including the government of Pakistan.

At the same time, the Islamic banks, financial institutions including UAE banks' Pakistan units are launching new products, which provide ever-new attractions to the customers. Several banks have offered or will do this year new investment plans to an ever growing number of Muslim customers.

The business of these banks is going up - both in terms of volume and transaction numbers - in the case of the government of Pakistan, industry, business, financial institutions and the big and small customers.

The latest report indicates that Islamabad has just borrowed Rs71 billion from Dubai Islamic Pakistan Ltd (DIBL) a subsidiary of Dubai Islamic Bank.

The auction of government's 'Ijara Sukuk' was made against the Pakistan MI Motorway, which was provided as the underlying asset. The Islamic banks, riding high in their business, as well as the conventional banks, which operate their Islamic windows, offered Rs167 billion bids, as against the government requirement of Rs71 billion, under its auction tender for fixed rental.

"We never expected such a huge amount," said Ministry of Finance spokesman.

The government in Islamabad accepted bids totalling Rs71 billion for the sale of 'Ijara Sukuk' bonds in order to narrow the budgetary deficit and to help the Islamic banking industry, which had an excess liquidity with them.

The State Bank of Pakistan (SBP), the central bank, said the proposed assets for this transaction include the highway land alongside all construction and improvements thereon, have been identified as the proposed assets to facilitate issuance of he government's 'Ijara Sukuk.' A Pakistan Banks' Association (PBA)-approved independent valuator to determine the sale price of the offered assets carried out the valuation of the assets. The bonds carry a maturity period of three years.

The sukuk carries a fixed rental of 5.24 per cent. The ownership of the assets will be MI Motorway, which will be transferred to Islamic banks and the Islamic branches of conventional banks. But the registered title will stay with the government's National Highway Authority.

Junaid Ahmad, CEO of DIBPL, said the sukuk issuance would provide the much-needed impetus to continue with their financing activities focusing on corporate, small and SME banking, commercial and consumer banking.

"Our bank has received an overwhelming response from the market. We are in a position to complete such transactions within a record time, thanks to the timely approvals granted by the State Bank of Pakistan," said Junaid Ahmad.

New Islamic finance and products, meanwhile, are sprouting up in Pakistan in several forms and ways. The Islamic banking operations of Bank Al-Habib Limited are spreading in various ways to provide Islamic funding.

"We now have 42 dedicated Islamic banking branches, plus 107 Islamic windows in our conventional branches in 25 cities. Our online banking network of 620 branches and sub-branches in 222 cities are also operating to serve the customers. This new plan is grouped under Al-Haib Islamic banking operations," told Khaleej Times.

Another example is the attractive offer by a big Pakistani bank. National Bank of Pakistan (NBP), one of the country's big-5 commercial banks, invited customers to invest Rs1 million, which will grow to Rs3.6 million in "Nafa" (profit) Asset Allocation Fund only in six years. NBP also said the government allows investment tax credit exemption if the investment of the amount is made within the government-prescribed period.

The Nafa investment yielded 13.1 per cent in 2015-16, 33.8 per cent in financial year of 2014-15, 22.2 per cent in 2013-14, 36.3 per cent in 2012-13, 13.2 per cent in 2011-12 and 28.4 per cent profit in 2010-11.

As Islamic banking spread across the country most customers are happy for these investment, borrowing and saving modes.

The writer is based in Islamabad. Views expressed are his own and do not reflect the newspaper's policy.

Source: Khaleej Times