Agecne France Presse

Karachi, January 30:

Moeenul Haque, a dealer in imitation gold and silver ornaments in Pakistan’s largest city Karachi, says his dream came true when he opened an interest-free bank account in line with his Muslim faith.

“I never went for conventional banking as it is based on interest, which is prohibited in Islam and amounts to waging war against Allah,” the jeweller told AFP. “Now I have my bank account in an Islamic bank and it satisfies my faith.” Pakistan’s financial sector is witnessing robust growth in Islamic banking, which is emerging as a happy alternative for millions of faithful who regard conventional banking as impure.

The past 18 months have seen a steep increase in Islamic banking counters at key local and foreign banks. Two fully-fledged Islamic banks — one local and one foreign-based — have opened 23 branches recently, while nine conventional banks including Standard Chartered and AG Zurich have 25 branches across the country.

Islamic finance is based on the main concept of outlawing fixed-interest returns and speculation, as well as forbidding investments in what the religion considers vices such as dealing in alcohol, pork or gambling. Instead, Islamic banks make regular payments to account holders based on profits from approved investments. They also provide small-scale services to replace direct loans for customers to buy items such as cars, furniture

and houses. Pakistani governments have made halfhearted attempts since the 1960s to make the economy more Islamic. In 1984 military dictator Zia-ul Haq ordered banks to keep their books according to Sharia, or Islamic law, but the move flopped without a workable financial infrastructure or regulations.

Banking authorities continued to be resistant to change until they realised there was an untapped, steadily growing appetite amongst consumers.

In a sign of the changing times, the central State Bank of Pakistan recently allowed Citibank, ABN Amro and seven other banks to enter negotiations for Islamic banking licenses.

“Almost all the strong and major banks are negotiating with us,” Pervez Said, director of the Islamic banking department at the state bank, told AFP. “Islamic banking is here to stay,” he said. “They are not coming out of some religious fervour but because there is a strong consumer push.” Banks agreed. “There is tremendous market potential for Islamic banking in Pakistan, as surveys show there is a high commitment level that will push demand higher,” said Hasan Aziz Bilgrami, chief executive of the Bank Islami Pakistan.

Bank Islami is poised to launch next month with more than half a dozen branches. It will be the third full-on Islamic bank here, with 25 per cent equity from Britain’s DCD Group, a property and real estate business which also has core shares in the Islamic Bank of Britain, he said. “We expect to tap the potential of Pakistan’s 90 per cent-plus Muslim population, who have the highest commitment to their faith,” Bilgrami said. Around 150 million people live in Pakistan.

“A reasonable expectation is that by 2010 about 20 per cent of conventional banking might come into the ambit of Islamic banking,” Said explained.

According to government statistics, assets of conventional banks stood at 2.3 trillion rupees or about $40 billion till 2004.