Making Islamic banking first choice for Pakistanis

It is worth mentioning that for the first time Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has created Standing Committee on Islamic Banking and none other than Ahmed Ali Siddiqui, Director IBA-CIEF and Head of Product Development, Meezan Bank chairs this committee and Arish Tareen, Unit Manager (South), Corporate & Institutional Liability Unit, Dubai Islamic Bank is Vice chairman. Other members of this committee are Farhan Usmani, Head of Shariah Audit & Advisory, Meezan Bank, Ms. Shazia Farooq, Consultant – CEIF & ICD / Visiting Faculty, IBA, Karachi, Kashif Nisar, Head of Shariah Advisory & Structuring, BankIslami Pakistan, Sarfaraz Ahmed, Senior Vice President, Islamic Banking Group, National Bank of Pakistan, Tanveer Mahmood, Head of Islamic Banking, United Bank, Faisal Shaikh, Head of Islamic Banking, Faysal Bank, Syed Sitwat Rizvi, Head of Product Development, Dubai Islamic Bank, Fahim Siddiqui, Head of Product Development & Operations, Habib Bank, Muhammad Naveed Alam, Shariah Scholar, Meezan Bank, Shaikh Muhammad Asif, Vice President & Manager, Islamic Financial Advisory Services, Meezan Bank, Syed Taha Ghayas, Assistant Vice President, Product Development & Shariah Compliance, Meezan Bank, Shabbir H. Kazmi, Freelance Journalist and Irfan Hussain, Deputy Manager Coordination, FPCCI. The Committee has representation from almost all Islamic banks. The Vision of the Committee was unanimously agreed is ‘To establish Islamic Banking as Banking of First Choice’.

One of the themes of a recently organized conference by IBA-CIEF was ‘Making Pakistan Hub of Islamic Finance by 2025. Some of the critics termed this too ambitious; keeping in view less than 15 percent share of Islamic banking in total commercial banking in the country. Professionals associated with Islamic banking believe very strongly that if right impetuses are offered and a conducive environment is provided the growth rate can be enhanced. In this regard a Standing Committee has been established at Federation of Pakistan Chambers of Commerce and Industry (FPCCI). This Committee promptly prepared its recommendation to Dr. Miftah Ismail, Advisor to Prime Minister, when he came to Karachi to inaugurate two-day conference organized by IBA-CIEF. The key recommendation included:

  • To incentivize the conventional banks to convert their portfolio into Shariah compliant, it is recommended that conventional banks increase their Islamic assets share in terms of their overall bank’s assets to 50% and their tax rate applicable on income generated by Islamic operations be reduced by 2%.
  • To encourage the growth of Islamic banking in Pakistan, tax incentives in terms of 25% tax exemption as compared to its conventional counterpart for the period of first three years may be given to all new Islamic banks or Islamic banking subsidiaries of conventional banks and a concessional tax rate should be given to Islamic banks to expand footprints of Riba-free banking across the country.
  • Those conventional banks who may convert their complete operations into Islamic may be given 25% tax benefit for three years period starting from the completion of their conversion.
  • Currently over 95 percent of the government’s internal debt are Riba-based and are non-compliant as per the rules of Shariah, including Treasury Bills and Pakistan Investment Bonds. At least 50 percent of all new debt, if not all, should be replaced with Shariah-compliant modes.
  • To incentivize companies to opt for Shariah-compliant financing, Federal Board of Revenue (FBR) should announce a plan to gradually disallow interest paid on conventional loans as a tax-deductible expense over the next five years. In the first-year FBR may allow 80 percent of the interest paid on conventional loan to be tax deductible and gradually decrease this percentage to zero over the next five years to encourage the companies and businesses to convert to Shariah-compliant financing modes.
  • For specialized government schemes like Prime Minister Youth Loan Scheme, concessional mark-up schemes for agriculture sector etc. offered by any institution should be offered through Shariah complaint modes of financing.
  • Risk Sharing Facility for low-cost housing sector may be allowed only to financial institutions offering Shariah-compliant financing schemes.
  • Similarly, House Building Finance Corporation (HBFC) shall be given the target to offer Islamic House Finance scheme.
  • For the clients who need special consideration like widows, old aged / retired individuals / special persons etc., who opt to invest their funds in Islamic banking or Islamic funds, profits received by them may be exempted from With Holding Tax similar to National Savings Behbud Certificates.
  • To broaden the scope of Islamic finance, in the country, proposed institutions like Pakistan Infrastructure Bank, should operate on Shariah principles. Additionally, Islamic finance should be declared preferred mode of financing for China Pakistan Economic Corridor (CPEC) related projects. In this pursuit, it must be made mandatory for both local and foreign financial institutions to avail at least 50% project financing under Shariah-compliant modes to claim eligibility for tax incentives.
  • Tax neutrality should be introduced in various stamp duties on all kinds of financing by IBIs.


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