DUBAI, (Reuters) – Pakistan’s central bank has announced it will develop rules defining the roles and responsibilities of all those involved in the sharia compliance process of Islamic banks, including scholars.
The rules aim to strengthen governance of the Islamic finance sector in the world’s second most populous Muslim nation, the central bank said in a statement on Tuesday. It did not give details of the new rules.
There are growing calls in the Islamic finance industry globally to improve the credentials and certification process of sharia boards at Islamic banks, to reduce the potential for conflicts of interest and increase transparency.
The central bank also said it was developing a five-year plan for Pakistan’s Islamic banking sector in the 2013-2017 period.
“The new plan will set the strategic direction for the Islamic banking industry. This would define the strategies and action plans to move the industry to the next level of growth,” said deputy governor Kazi Abdul Muktadir.
Islamic banking will grow to 15 percent of the country’s total banking sector in the next five years, he added. Islamic banks held 644 billion rupees ($6.8 billion) or 7.7 percent of total banking assets in March this year, central bank data shows.
The central bank will also be willing to offer “necessary support” to Islamic banks to build portfolios in non-traditional sectors such as agriculture and small and medium-sized enterprises (SMEs), the statement said.
Financing by Islamic banks is currently dominated by the mainstream corporate sector at 73.9 percent of total financing, with agricultural financing representing just 0.1 percent and SMEs 5.1 percent, central bank data shows.
Expanding into these sectors “would not only improve their repute amongst the masses but would also provide them an attractive avenue to develop and expand their assets portfolios”, Muktadir said.
A campaign will also be launched to increase awareness of Islamic banking and boost growth momentum in Pakistan.
The country’s Islamic banking industry includes five full-fledged Islamic banks and five takaful (Islamic insurance) firms, with an additional 12 conventional banks offering services through Islamic windows.
Pakistan’s securities commission announced new takaful rules last month, aiming to boost competition and lift the sector’s market share by allowing the entry of conventional players. However, this prompted a legal challenge from takaful providers and it is unclear when the new rules will actually be implemented.