Q: What explains the rapid growth in Islamic banking in Pakistan?
A: The significant growth of Islamic banking in Pakistan can be primarily attributed to three key factors: religious beliefs, the resilience of Islamic finance during global financial crises and the availability of a diverse range of financial products that present a credible alternative to the conventional banking system.
A notable 2014 KAP [knowledge, attitudes and practices] study conducted by the State Bank of Pakistan (SBP) revealed that more than 88% of the population in Pakistan regards banking interest as riba [unjust gain], underscoring the strong inherent demand for Islamic banking in the country.
Second, Islamic banks have demonstrated remarkable stability and resilience during global financial crises, earning them trust and attracting a growing customer base worldwide.
Islamic banks have excelled in developing competitive, innovative and transparent financial products, setting them apart from their conventional counterparts and making them increasingly appealing to a broader audience.
In 2002, Meezan Bank obtained the first Islamic commercial banking licence in Pakistan, with a vision ‘to establish Islamic banking as banking of first choice’. Our transformation from one of the smallest banks in the country to a market leader underpins the acceptance of sharia-compliant banking in the region.
Q: The government has set a target of making the country’s entire banking system sharia-compliant by 2027. How likely is this to succeed?
A: In the 1990s, there was no alternative to conventional banking in Pakistan. However, the success of Meezan Bank, which has been a fully established Islamic bank from its inception, and the conversion of Faysal Bank from a conventional institution to Islamic banking [in 2022] have set clear and robust precedents. These developments make it more practical for other banks to contemplate and pursue conversion.
Additionally, conventional banks have accumulated significant experience in Islamic banking over the years through the establishment of Islamic windows and branches. This experience can further facilitate the conversion process.
I am witnessing an unwavering commitment from both the government and the SBP toward this goal. In my opinion, this commitment significantly enhances the prospects of success.
Q: The overlap between Islamic and sustainable finance is becoming increasingly prominent. What are your main priorities in terms of sustainable finance in 2023/24?
A: Over the past few years, we have proactively implemented measures to curtail our carbon footprint, substantially reducing our reliance on fossil fuels and transitioning towards renewable energy sources. Concurrently, we are championing a low-carbon agenda by supporting environmentally friendly projects. The adoption of a comprehensive Green Banking Policy, in alignment with the guidelines set forth by the SBP, has empowered the bank to define compliance measures, ensuring seamless and transparent operations.
We recognise that the convergence of Islamic and sustainable finance, particularly in Pakistan — a nation experiencing unprecedented natural disasters — holds the potential not only to yield financial returns but also have a positive influence on environmental and social aspects.
The bank has extended financing to four wind power projects, each with a capacity of 50 megawatts, thereby contributing to the national exchequer’s energy security and fostering a sustainable energy source.
Q: How is Meezan Bank faring in the midst of the country’s economic challenges?
A: In 2022, Meezan Bank recorded impressive growth across all key areas, despite the ongoing economic and political challenges facing our country. These challenges include high interest rates, sluggish economic growth, surging inflation and fiscal and current account imbalances.
Nonetheless, the bank has once again demonstrated its resilience by maintaining a prudent decision-making process. We have provided a robust cushion against non-performing advances, managed assets and liabilities prudently, and sustained stable and growing profitability. Notably, we also improved our cost-to-income ratio in the midst of a volatile macroeconomic environment.
We are dedicated to navigating through these crises together, as exemplified by our efforts to reduce exchange rate volatility. In this regard, we have taken on the role of net sellers in the interbank dollar market, thereby affecting both our non-funded and funded business.
We have also invested in resources, infrastructure and support systems, ensuring that Meezan Bank branches are accessible within a two-hour drive anywhere in the country. Our customers have played a pivotal role in shaping our sharia-compliant solutions, and we are thankful for their support.
