Re: Question about Interest
Nice to See Pakistan is quickly adopting Islamic Banking System
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Pakistan’s Islamic Banks Plan to Open 230 New Outlets in 2009 **
**By Shanthy Nambiar and Farhan Sharif
Jan. 27 (Bloomberg) **
Pakistan’s Islamic banks, which saw assets grow 20 times in the past five years, plan to expand their network of outlets this year to take advantage of rising demand for Shariah-compliant loans.
Islamic lenders may add about 230 branches in 2009, driven by the world’s second-biggest Muslim population, Pervez Said, director of Islamic banking at the State Bank of Pakistan, the central bank, said in a telephone interview today. **These banks have 500 branches, after adding 210 outlets last year.
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Pakistan is promoting growth in Islamic finance to expand the reach of the banking sector which has less than 25 million deposit accounts. Shariah-compliant loans are forecast to rise to** 277 billion rupees ($3.5 billion) this year from 185 billion in 2008, according to central bank data. **
“Islamic banking has the ability to take banking to sectors outside conventional banking because of peoples’ beliefs,” said the central bank’s Said, 52, who started the Islamic banking department in 2003.
Pakistan’s Islamic banks expanded assets by** 7 percent to 251 billion rupees as of Sept. 30 last year from 235 billion rupees in 2007.** Shariah-compliant lenders account for about 5 percent of total banking assets, which the central bank aims to raise to **12 percent by 2012. **
“Islamic banks are in the phase of acquiring market presence,” said Farhan Rizvi, banking analyst at JS Global Capital Ltd. in Karachi. “That doesn’t mean their income growth won’t be hurt in the same way as conventional banks.”
Profit Drop
Bank profitability is expected to decline as much as 18 percent this year as economic expansion tapers, according to JS Global. South Asia’s second-biggest economy is forecast to grow at its slowest pace in seven years because of political wrangling and worsening security.
Loans for farming and lending to small and medium enterprises will be primary growth areas for Islamic banking, said the central bank’s Said.
Agriculture accounts for a quarter of Pakistan’s $146 billion economy and employs 45 percent of the workforce. Loan disbursement to farmers rose 10.2 percent in the six months ended Dec. 31, according to the central bank.
The central bank forecasts Islamic loans to small and medium companies will reach 20 percent of total lending by 2012 from 2.9 percent in 2007.
**Coverage Gaps **
Islamic banking “is positioned to respond to the mindsets of the people,” said Afaq Khan, the Dubai-based chief executive officer of Standard Chartered Plc’s Islamic banking unit. “Branch expansion will moderate but will continue to fill coverage gaps.” Standard Chartered has 10 Islamic bank branches in Pakistan.
Six lenders, including **Meezan Bank Ltd. and Dubai Islamic Bank, have Islamic banking licenses, compared with one in 2003, central bank data shows. Twelve conventional banks, including London-based Standard Chartered **have opened Islamic branches, up from three five years ago.
Islamic law bans the payment and receipt of interest, prohibits investment in businesses such as gambling and alcohol, and stresses profit-sharing. Pakistan is the world’s second- most populous Muslim nation after Indonesia, with about 97 percent of its 174 million people following the faith.
To contact the reporters on this story: Shanthy Nambiar in Bangkok at [email protected]; Farhan Sharif in Karachi, Pakistan at [email protected].
Last Updated: January 27, 2009
Bloomberg.com: India & Pakistan