Democratisation of capital - PTI's Islamic finance policy
http://www.brecorder.com/articles-a...-ptis-islamic-finance-policy/?date=2013-05-03
"The adoption of Western economic theory and practice will not help us in achieving our goal of creating a happy and contended people. We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice. We will thereby be fulfilling our mission as Muslims and giving to humanity the message of peace which alone can save it and secure the welfare, happiness and prosperity of mankind." These are the words of the founder of Pakistan Quaid-e-Azam Muhammad Ali Jinnah at the inauguration ceremony of the State Bank of Pakistan on 1st July 1948. Like many other dreams of the Quaid about his beloved Pakistan this one remains unfulfilled to this day.
Pakistan Tehreek-e-Insaf (PTI) is the only mainstream political party that has wholeheartedly embraced the Quaid's vision of an Islamic welfare state. A state that provides affordable justice, education, healthcare, clean drinking water and equal work opportunities to every citizen. A state that provides a vibrant economy for creating jobs for the youth and better livelihoods for the poor. To support these goals we need to 'revolutionise' our financial sector so that we can raise funds for large investments in the energy infrastructure and improve its 'inclusiveness' so that growth is broad-based and reaches out to the Small and Medium Enterprises (SMEs) as well as the agriculture sector, backbone of our economy and critical to creating jobs.
PTI leadership believes that the only viable option to IMF loans is to develop a vibrant domestic financial sector. Conventional banking sector world-wide is struggling and the conventional bank lending model of creating debt constrains growth. There is enough evidence to suggest that conventional banking leads to concentration of wealth in a few hands through systematic transfer of wealth from the poor to the rich. Hence PTI believes that financial innovation has to come from the Islamic banking and finance sector. PTI's economic policy commits to making Pakistan a global leader in Islamic finance by 2023. We are currently ranked 8th in the Islamic Finance Country Index (IFCI).
Why the emphasis on developing Islamic financial markets? What value advantage does it give us over conventional banking industry? Islamic banks, both local and international, are flush with liquidity. Loans to deposit ratio for Islamic banks in Pakistan is only 38 percent, indicating that banks have the money but there are just not enough worthwhile financing opportunities in the market. If the PTI government is successful in implementing its economic policy, a new growth paradigm will be unleashed and Islamic bank financing could see exponential growth in a very short space of time. Additionally, large amounts of global Islamic liquidity can be attracted to fund infrastructure projects in Pakistan. The second advantage is that Islamic banking model is predicated on risk sharing (as opposed to risk transfer) between the bank and the customer which is inherently a fairer arrangement than the conventional banking model.
Globally Islamic finance is now accepted as a viable alternative to conventional finance. The global industry size has crossed US $1 trillion and is growing at approx. 20% per annum. In the next ten years it is likely to reach US $5 trillion. The asset-hungry and yield-searching Islamic liquidity is looking for destinations which offer political and macroeconomic stability, economic growth, consistent and business friendly policies, a credible regulatory framework and a large economy to absorb sizeable demand for investment. PTI leadership is determined to provide an enabling environment to attract large investments into infrastructure projects ideally suited for such financing. Power plants, dams, ports, road networks, all can be funded through the issuance of Sukuk, a popular Islamic instrument to raise financing.
Pakistan had negligible share of the US $120 billion Sukuk market in 2012 while Malaysia, currently the leader in Islamic finance, had more than US $50 billion Sukuk issuances. Egypt, despite its political and economic problems, has attracted US $6 billion allocation for Sukuk in 2013 from Islamic Development Bank for 17 different projects. Turkey's maiden sovereign Sukuk of US $1.5 billion attracted 70% first time investors into Turkey, including many from the oil rich Middle East. Pakistan can also woo these investors by offering a decent yield into low risk infrastructure projects. In particular, the conversion of 5,500 MW thermal power plants into coal, which will require billions of dollars, can be financed through Islamic finance.
Islamic finance is not just about financing large projects. It is equally well suited to provide access to capital to the bottom of the pyramid. Democratisation of capital is core to the PTI's Islamic finance strategy. Islamic microfinance institutions especially for rural and sub-urban Pakistan are the cornerstone of PTI's rural Pakistan uplift strategy which aims to finance 1,000 model villages every year, set up agricultural co-operatives, build storage facilities for agriculture goods (silos), construct farm to market roads and finance cattle farming. Islamic finance will help create an estimated one million jobs directly and indirectly in the next five years, including many in rural areas.
Pakistan has significant natural strengths in Islamic finance. These include a reasonably large and sophisticated market, qualified and experienced bankers, Shariah scholars of global stature and prominence (a prominent Pakistani scholar Mufti Taqi Usmani chairs the Shariah board of AAOIFI, the global standard setting body), a decent regulatory infrastructure and abundance of existing and potential assets (eg minerals) that can be developed through Islamic financing. What is needed is a clean government with political will and enhanced regulatory clarity from the central bank to drive the Islamic banking and finance agenda.
What specific measures need to be taken to build the Islamic finance industry? The focus will be on providing an enabling environment and business opportunities to entice large global Islamic banks in the GCC, Malaysia and elsewhere to open branches in Pakistan and in partnership with local Islamic banks to bid for project financing. The PTI government will facilitate setting up of Islamic venture capital and Islamic private equity funds. PTI also plans to launch a US $5 billion open ended Islamic real estate fund, targeting overseas Pakistanis to invest in prime real estate property in Pakistan. PTI will mandate National Savings to offer truly Shariah compliant and authentic savings schemes to tap into the huge pool of retail savings which is looking for a decent return but remains outside the banking sector.
Tax policy and other laws need to be adjusted to ensure level playing field for Islamic financial institutions. A Global Center for Authentic Product Innovation (GCAPI) will be established with the mandate to come up with authentic new Islamic financial products in various areas which are accepted by global standard setting bodies. PTI will establish three world class universities in collaboration with the private sector and in alliance with international universities to produce Islamic finance graduates of international quality and caliber.
These measures will facilitate the Islamic banking market share to double to 16% within PTI's first term in office and further to 27% by 2023. Islamic asset management market share will rise to 25% of total asset management market in the next ten years. Pakistan will become a top three Sukuk market in the world with the aim to have US $50bn annual Sukuk issuances (local and foreign) by 2023. In this regard the PTI government plans to launch mega projects of US $5-10 billion each; these will be high impact and game-changing projects in their respective sectors. Islamic private equity and venture capital funds will also be launched with seed capital of US $1 billion each to promote entrepreneurship and economic development in a partnership model, which is closer to the true spirit of Islamic finance.
The story of Pakistan is one of many missed opportunities. We had a golden chance to become a world leader and a shining light in Islamic finance in 1980s when the industry had just started with the establishment of first Islamic banks in the UAE, Bahrain and Malaysia. We did not pursue this opportunity with seriousness and professionalism, with the result that other countries passed us by. PTI's Islamic finance strategy aims to provide Pakistan another chance at becoming a recognised global leader in Islamic banking and finance. And it has the right team to make it happen.
Copyright Business Record
http://www.brecorder.com/articles-a...-ptis-islamic-finance-policy/?date=2013-05-03
"The adoption of Western economic theory and practice will not help us in achieving our goal of creating a happy and contended people. We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice. We will thereby be fulfilling our mission as Muslims and giving to humanity the message of peace which alone can save it and secure the welfare, happiness and prosperity of mankind." These are the words of the founder of Pakistan Quaid-e-Azam Muhammad Ali Jinnah at the inauguration ceremony of the State Bank of Pakistan on 1st July 1948. Like many other dreams of the Quaid about his beloved Pakistan this one remains unfulfilled to this day.
Pakistan Tehreek-e-Insaf (PTI) is the only mainstream political party that has wholeheartedly embraced the Quaid's vision of an Islamic welfare state. A state that provides affordable justice, education, healthcare, clean drinking water and equal work opportunities to every citizen. A state that provides a vibrant economy for creating jobs for the youth and better livelihoods for the poor. To support these goals we need to 'revolutionise' our financial sector so that we can raise funds for large investments in the energy infrastructure and improve its 'inclusiveness' so that growth is broad-based and reaches out to the Small and Medium Enterprises (SMEs) as well as the agriculture sector, backbone of our economy and critical to creating jobs.
PTI leadership believes that the only viable option to IMF loans is to develop a vibrant domestic financial sector. Conventional banking sector world-wide is struggling and the conventional bank lending model of creating debt constrains growth. There is enough evidence to suggest that conventional banking leads to concentration of wealth in a few hands through systematic transfer of wealth from the poor to the rich. Hence PTI believes that financial innovation has to come from the Islamic banking and finance sector. PTI's economic policy commits to making Pakistan a global leader in Islamic finance by 2023. We are currently ranked 8th in the Islamic Finance Country Index (IFCI).
Why the emphasis on developing Islamic financial markets? What value advantage does it give us over conventional banking industry? Islamic banks, both local and international, are flush with liquidity. Loans to deposit ratio for Islamic banks in Pakistan is only 38 percent, indicating that banks have the money but there are just not enough worthwhile financing opportunities in the market. If the PTI government is successful in implementing its economic policy, a new growth paradigm will be unleashed and Islamic bank financing could see exponential growth in a very short space of time. Additionally, large amounts of global Islamic liquidity can be attracted to fund infrastructure projects in Pakistan. The second advantage is that Islamic banking model is predicated on risk sharing (as opposed to risk transfer) between the bank and the customer which is inherently a fairer arrangement than the conventional banking model.
Globally Islamic finance is now accepted as a viable alternative to conventional finance. The global industry size has crossed US $1 trillion and is growing at approx. 20% per annum. In the next ten years it is likely to reach US $5 trillion. The asset-hungry and yield-searching Islamic liquidity is looking for destinations which offer political and macroeconomic stability, economic growth, consistent and business friendly policies, a credible regulatory framework and a large economy to absorb sizeable demand for investment. PTI leadership is determined to provide an enabling environment to attract large investments into infrastructure projects ideally suited for such financing. Power plants, dams, ports, road networks, all can be funded through the issuance of Sukuk, a popular Islamic instrument to raise financing.
Pakistan had negligible share of the US $120 billion Sukuk market in 2012 while Malaysia, currently the leader in Islamic finance, had more than US $50 billion Sukuk issuances. Egypt, despite its political and economic problems, has attracted US $6 billion allocation for Sukuk in 2013 from Islamic Development Bank for 17 different projects. Turkey's maiden sovereign Sukuk of US $1.5 billion attracted 70% first time investors into Turkey, including many from the oil rich Middle East. Pakistan can also woo these investors by offering a decent yield into low risk infrastructure projects. In particular, the conversion of 5,500 MW thermal power plants into coal, which will require billions of dollars, can be financed through Islamic finance.
Islamic finance is not just about financing large projects. It is equally well suited to provide access to capital to the bottom of the pyramid. Democratisation of capital is core to the PTI's Islamic finance strategy. Islamic microfinance institutions especially for rural and sub-urban Pakistan are the cornerstone of PTI's rural Pakistan uplift strategy which aims to finance 1,000 model villages every year, set up agricultural co-operatives, build storage facilities for agriculture goods (silos), construct farm to market roads and finance cattle farming. Islamic finance will help create an estimated one million jobs directly and indirectly in the next five years, including many in rural areas.
Pakistan has significant natural strengths in Islamic finance. These include a reasonably large and sophisticated market, qualified and experienced bankers, Shariah scholars of global stature and prominence (a prominent Pakistani scholar Mufti Taqi Usmani chairs the Shariah board of AAOIFI, the global standard setting body), a decent regulatory infrastructure and abundance of existing and potential assets (eg minerals) that can be developed through Islamic financing. What is needed is a clean government with political will and enhanced regulatory clarity from the central bank to drive the Islamic banking and finance agenda.
What specific measures need to be taken to build the Islamic finance industry? The focus will be on providing an enabling environment and business opportunities to entice large global Islamic banks in the GCC, Malaysia and elsewhere to open branches in Pakistan and in partnership with local Islamic banks to bid for project financing. The PTI government will facilitate setting up of Islamic venture capital and Islamic private equity funds. PTI also plans to launch a US $5 billion open ended Islamic real estate fund, targeting overseas Pakistanis to invest in prime real estate property in Pakistan. PTI will mandate National Savings to offer truly Shariah compliant and authentic savings schemes to tap into the huge pool of retail savings which is looking for a decent return but remains outside the banking sector.
Tax policy and other laws need to be adjusted to ensure level playing field for Islamic financial institutions. A Global Center for Authentic Product Innovation (GCAPI) will be established with the mandate to come up with authentic new Islamic financial products in various areas which are accepted by global standard setting bodies. PTI will establish three world class universities in collaboration with the private sector and in alliance with international universities to produce Islamic finance graduates of international quality and caliber.
These measures will facilitate the Islamic banking market share to double to 16% within PTI's first term in office and further to 27% by 2023. Islamic asset management market share will rise to 25% of total asset management market in the next ten years. Pakistan will become a top three Sukuk market in the world with the aim to have US $50bn annual Sukuk issuances (local and foreign) by 2023. In this regard the PTI government plans to launch mega projects of US $5-10 billion each; these will be high impact and game-changing projects in their respective sectors. Islamic private equity and venture capital funds will also be launched with seed capital of US $1 billion each to promote entrepreneurship and economic development in a partnership model, which is closer to the true spirit of Islamic finance.
The story of Pakistan is one of many missed opportunities. We had a golden chance to become a world leader and a shining light in Islamic finance in 1980s when the industry had just started with the establishment of first Islamic banks in the UAE, Bahrain and Malaysia. We did not pursue this opportunity with seriousness and professionalism, with the result that other countries passed us by. PTI's Islamic finance strategy aims to provide Pakistan another chance at becoming a recognised global leader in Islamic banking and finance. And it has the right team to make it happen.
Copyright Business Record
