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The journey of Islamic banking in Pakistan

Islamic banking aligns with the spirit, ethos, and value system of Islam and is governed by the principles laid down by Islamic Shariah. At the core, it is Riba-free banking and has evolved its instruments on the concepts of profit-loss sharing at the very base.

Over the years, there has been a rise in the demand for Islamic banking. The first modern Islamic bank was established in Egypt in the 1970s, followed by financial institutions of countries like Bahrain, Pakistan, Indonesia, Bangladesh, Sudan, Saudi Arabia, and the UK. Their initial objective must be the provision of a sharia-compliant financial system for the market, where substantial segments of the population could do investments but avoid Interest or Riba at any cost.

Pakistan’s financial institutions, for some time, kept experimenting with the Islamic banking system. But in the light of the decision given by the Supreme Court and Federal Sharia’h Court in 1992 to launch Islamic banking system in Pakistan, the equation changed. The first and today the largest Islamic bank of Pakistan, Meezan Bank was established in 2002.

In the last few years, following the recession of 2008, Islamic banking and Islamic financial instruments showed an exponential rise in the global markets and Pakistan became all set to go even bigger in its share of the same. The rise was greatly dependent on the increasing preference of the customers to use Sharia compliant instruments for monetary matters. However, the fact that Islamic banking institutions showed a stronger growth during the 2008 recession, compelled customers dealing with conventional banks to invest in Islamic banks.

Pakistan has become one of the frontline countries, playing an effective role in the progress of Islamic Banking. State Bank of Pakistan now has a dedicated Islamic banking department and Sharia Board to monitor and govern Islamic windows and institutions with the Sharia framework. With 21 Islamic banking institutions, 6 full-fledged Islamic Banks, and 16 conventional banks with stand-alone Islamic branches, Pakistan has a large-scale set-up for Islamic banking. By the end of 2021, Islamic banking’s share reached 18.6% of banking sector assets (end-2017: 12.4%) and 19.4% of deposits (end-2017: 14.5%). State Bank of Pakistan has set the target of the Islamic banking sector to contribute 30% to the overall banking industry assets and deposits by 2025.

With the acceleration of Islamic banking in Pakistan, conventional banks looking to open an Islamic banking window need the right technology as well as a seasoned system integrator to implement this technology. Therefore, most of the banks in Pakistan prefer to use Temenos Core Banking & Digital Banking solution, with NdcTech as the implementation partner. Temenos & NdcTech have a vast client base in Pakistan with renowned customers such as UBL, HBL, Bank of Punjab, Bank of Khyber, Meezan Bank, Telenor Microfinance Bank, UBank, etc.

NdcTech is a certified Temenos Partner and has transformed the landscape for banks and financial institutions through its unmatched services and innovations. With 22 years of experience, NdcTech’s team has successfully transformed 15 Islamic banks globally. In Pakistan, NdcTech’s has transformed many large Banks such as Meezan Bank (largest Islamic Bank of Pakistan), Soneri Bank, and Allied Bank. Internationally, NdcTech has transformed Banks like BTPN Syariah, Farmers Commercial bank, Banque Islamique du Sénégal, Export Development Bank, and has recently enabled Tourism Development Fund Saudi Arabia to launch digital lending service in record time.

These successful implementations and deep domain knowledge and experience of best practices built in Core & Digital Banking have enabled NdcTech to transform many Islamic and conventional banks globally. NdcTech has also enhanced the Temenos Country Model Banks and continue to augment it for every release of Temenos Core based on new and updated regulations and market practices in several countries.

NdcTech offers Islamic banking services for Core banking, retail banking, corporate, SMEs, and treasury. For Islamic banks, NdcTech implements a unique profit distribution system for banks to meet Shariah-compliant regulations. NdcTech offers complete Sharia compliance for all processes and accounting entries and their team is credited with mode of accounting certification and Islamic Standard certifications. Other than that, any customized products that are required by Islamic banks are specifically created by NdcTech, to bridge the gaps that may arise between the conventional and Islamic windows.

The banking tech sector keeps evolving because of its fast pace. However, having a strong consulting partner like NdcTech on board enables Islamic banks to stay aggressively ambitious and progressive, and bring innovations to meet the evolving needs of all customers.

(The writer is a seasoned educationist, communication specialist, and storyteller. She tweets at @shahajamshed. The views expressed in this article are not necessarily those of the newspaper)

Shaha Tariq, "The journey of Islamic banking in Pakistan," Business recorder. 2022-10-27.
Keywords: Economics , Meezan Bank , islamic banking , State Bank , Soneri Bank , Pakistan , Saudi Arabia , UBL , HBL , BTPN

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