The islamic financial services industry needs to

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The Islamic Financial Services Industry needs to further strengthen itself to continue its growth and acceptability. The main target areas include: (a) financial inclusion of SME, Agriculture and Microfinance, (b) Regulatory and Shariah Compliance Framework, (c) awareness and capacity building, and (d) greater coordination with stakeholders both locally and globally. Financial Inclusion The three most notable financially excluded areas are Microfinance, Agriculture finance, and SME. In my view Islamic finance is better placed to cater to the needs of these sectors, as people that are reluctant to deal with the conventional finance on religious grounds would have access to financial services. Moreover, this will help in achieving the most important objectives of the Islamic economic system, that is, fair distribution and non -exploitative economic dealings. State Bank has announced policies for Islamic microfinance and would encourage the sponsors and promoters to establish Islamic microfinance institutions, which can provide financial services to the public in accordance with their faith. Reducing transaction costs is particularly important for enabling access for micro and small enterprises, which can be achieved through technology based solutions or using the vast network of mosques and religious places at a very low cost. Another potential area is Agriculture and agro based industry. Agriculture finance could prove to be a very powerful tool for poverty alleviation especially in agrarian economies like Pakistan. This is even more pertinent nowadays as the Agriculture finance could lead to food self-sufficiency thus helping the domestic economy to reduce and stabilize commodity prices. While, most banks do not have rural branch network or/and agricultural lending expertise. As a result, significant number of Agriculture population still relies heavily on informal financial arrangements and there is a need for development of products for Islamic agriculture finance by Islamic banking industry. Realizing the importance of this sector, State
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July-September 2009 3 Bank has issued Guidelines for Islamic Agriculture Finance, which can be used by Islamic banks in this regard. Regulatory and Shariah Compliance Framework Devising a regulatory framework for Islamic finance is challenging as some regulations are imposed from a Shariah standpoint while most of the conventional banking regulations based on prudential standards are also applicable. Collaborative efforts across jurisdictions have improved credibility of Islamic Finance in the global financial industry. Many international institutions like Islamic Financial Services Board, Accounting and Auditing Organization for Islamic Financial Institutions, Islamic Development Bank, International Islamic Financial Market, International Islamic Rating Agency are playing a key role in this regard. Pakistan has played an active role in these initiatives and would continue to support them. The legal and regulatory framework for Shariah compliance in Pakistan is regarded as among
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The Islamic Financial Services Industry needs to further...

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