IIFM membership for Pakistan

The membership of the State Bank of Pakistan was approved at the seventh meeting of the Board of Directors of the IIFM held late January in Khartoum Sudan.

Pakistan's membership also includes representation on the IIFM Board.

The admission of Pakistan, a major player in Islamic finance with one of the largest Muslim population of almost150 million is expected to provide a major boost to the IIFM, whose mission is to create and develop an international market of Islamic financial instruments by promoting and facilitating cross-border investment activity.

"We welcome the admission of Pakistan which has been a major force in the global Islamic banking industry since its early days," said Mr. Abdul Rais Abdul Majid, Chief Executive Officer of the IIFM.

The Islamic financial system in Pakistan has a long history that go to the early days of Islamic banking system whereas efforts for economy wide elimination of riba started during the 1970's and most of the Practical steps were taken in early 1980s. Recently, the government of Pakistan opted for the dual system of Banking where Islamic banks can operate along side the conventional banks.

"Pakistan's experience in developing Shariah-compliant financial instruments such the Musharikah Certificates and Islamic Term Finance Certificates are very valuable to the global Islamic banking industry, in general, and the IIFM, in particular," said Mr. Abdul Rais

Pakistan is also very much interested in developing the Islamic capital market and as it is reported it may tap the capital market by issuing Sukuk to boost the country's Islamic banking sector.

The potential for Islamic banking in Pakistan is huge, but it has been slow to take off. It is reported that around 20pc of the total Rs1.7 trillion bank deposits in the country are non-interest bearing accounts.

The IIFM was established in April 2002 through a multilateral effort. The main mission of the IIFM is to create an environment that would encourage active trading of Shari'a-compatible instruments among Muslim countries and among Islamic and conventional financial institutions.

The IIFM Board comprises top officials from monetary authorities and central banks of Bahrain, Brunei, Indonesia, Malaysia and Sudan, as well as the Islamic Development Bank.

The Board also includes several market players, which are Abu Dhabi Islamic Bank (UAE), Kuwait Finance House (Kuwait), Shamil Bank of Bahrain (Bahrain), Bank Islam Malaysia Berhad (Malaysia) and El-Nilein Industrial Development Bank Group (Sudan).

A key tenet of Islamic finance is the prohibition of interest (riba). Islamic banks, thus, have devised a variety of alternative instruments, primarily based on profit and loss sharing principle.