History of Islamic Banking in Pakistan

C,x7ik y7ku`w2History of Islamic Banking in Pakistan Efforts to Islamize the economy of Pakistan started in the mid 60s. However a significant attempt was made in the mid 80s1 to convert the banking system to an Islamic banking system. The Banking Companies Ordinance (BCO, 1962) was amended to accommodate non-interest based transactions and the industry was given a specific timeline to convert to the non-interest based system. In early 90s, the whole exercise was challenged in the Federal Shariat Court which declared some products and processes being used by the banking system un-Islamic. Prior to the re-launch, to study the experience of different countries in Islamic banking, a delegation from Ministry of Finance (MoF), led by Advisor to Finance Minister, Dr. Tariq Hassan visited Malaysia, Egypt and Saudi Arabia in September 20012. Based on the recommendations of this delegation and the past experience of SBP, the policies for promotion of Islamic banking were formulated. Accordingly, State Bank of Pakistan issued detailed criteria for setting up of Islamic banks in December 2001. Al-Meezan Investment Bank Limited applied under the criteria issued by SBP to convert itself into an Islamic commercial bank. They were issued a license in the name of Meezan Bank Limited to operate as full-fledged Islamic bank in January, 20023. Current Status of Islamic Banking Industry in Pakistan As at end of the year 2003 only one bank operated as a full-fledged Islamic bank and three conventional banks were operating Islamic banking branches. Today there are 6 full fledge licensed Islamic banks (IBs) and 12 conventional banks have licenses to operate dedicated Islamic banking branches (IBBs).4 The total assets of the Islamic banking industry are over Rs. 225 billion as of 30th June, 2008 which accounts for a market share of 4.5% of total banking industry assets. The market share of deposits stands at 4.2%. Total branch network of the industry comprises of more than 330 branches