Covid-19 has cast a pall of recessionary gloom over the economy. The jolt of the pandemic forced many traditional businesses to completely rethink how they work and some even emerged as bright spots. The Islamic banking sector in the country has emerged as one of those rare bright spots, posting a sustained increase in assets and deposits as it overcomes its adoption curve. Just over the past year, the sector has posted increases in assets and deposits of 30% and 28% respectively, showing a trust that the public has placed in Islamic banks with their money and the ability of these banks to overcome their very stringent and complex operational mechanisms. As a result, there exists today a complete banking sector that finds itself awash with money with little idea of what they can do with it.

Two consumer sectors have spearheaded growth in Islamic banking over the past decade. Thy include housing and construction sector and car financing sector. For these two sectors, Islamic banking accounts for a 60% and 50% of the market share, respectively. Of course, the central bank has also played a role in making the sector viable, propounding policies as it targets Islamic banking to increase its market share to the quarter mark in the next couple of years. We also see some evidence of that in how the incumbent government has literally borrowed support from Islamic banks, taking Rs700 billion from Shariah-compliant banks. The government also wants to exponentially increase the share of funds it draws from Shariah-compliant banks.

This is the worrying aspect of Islamic banking. If it gets arm-twisted into giving funds to the government in return for favourable access and consultation, it may become yet another slush fund for the government which would severely impact the trust the sector has managed to build in the public. In a conservative and religiously-inclined country, it is quite surprising to see that there has not been a greater uptake of a banking product like Islamic banking. Until there is deep introspection on this end, Islamic banking will remain a novelty.

Courtesy by :https://tribune.com.pk/