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Focused: Pakistan targets Islamic finance growth in rural areas

Focused: Pakistan targets Islamic finance growth in rural areas

Pakistan, bidding to nearly double Islamic banking in the South Asian state by 2015, is focusing on poor, conservative villages to drive growth and has ordered Islamic lenders to open 20 percent of all new branches in rural areas.

August 14, 2011 12:59 by



“Islamic banking, primarily being a faith-driven industry, has a significant potential inPakistan as the concept directly appeals to the religiously sensitive segment of the society,” said Saleem Ullah, director of the Islamic banking department at the State Bank. “The share of the industry in the banking system has risen to over 7 percent from just 0.5 percent in 2002.”

The fact is Islamic banking will help draw the funds of rural customers, a less sophisticated client base who also traditionally shun conventional banks due to concerns over interest which is forbidden under Islam. Pakistan’s plan is to raise that figure to 12 percent from 7 percent currently by 2015.

Islamic finance growth has faced challenges due to the worsening geopolitical and security situation in Pakistan. But with a population of around 180 million Muslims, the small South Asian nation is still considered as one of the hottest growth areas for the industry.

Pakistan has five fully-fledged sharia-compliant banks and twelve conventional banks with Islamic operations, creating a network of 800 branches in Pakistan. Ullah anticipates that 150 new branches will open by the end of the year.

Islamic banking currently accounts for 497 billion rupees ($5.74 billion), or 7.3 percent of the country’s overall banking system.

“Historically, the poor and oppressed in a society are more inclined to follow the norms of their religion than the affluent,” said Muddassir Siddiqui, an Islamic scholar and partner at law firm SNR Denton in Dubai.

The combination of aggressive advertising and more Islamic branches in rural areas should drive the industry, Zahid Mansoor, treasurer at DIB Pakistan, a unit ofDubai Islamic Bank , said.

“The new regulatory requirements are a good first step by the government to reaching those in rural areas, where there is little trust for banks and people prefer to keep money under their pillows,” he said.

“If you create awareness in the minds of these people, there is significant potential to take Islamic finance beyond a niche market and make it the main



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