Diversification of Islamic Financial Insturments



The industry needs to develop newer products catering to needs of the specific

population segments, e.g. agricultural farmers, SMEs, young university students, small

scale entrepreneurs etc. The Islamic banking segment also needs a Shariah compliant

profit rate benchmark.



Incentives need to be given to large corporations to finance their projects and long

term debts via Shariah compliant products, such as Diminishing Musharakah, Ijarah

and Musharakah – based Sukuk. The recent examples, such as K-Electric, Fatima

Fertilizers etc. doing so have been far and few.



More saving account products could be developed to attract the young age group (15 –

24 years) towards Islamic banking. E.g. UBL Ameen (Islamic window of United Bank)

offers a Minor Savings Account (age under 18) with significantly higher profit rates.



In 2016, the State Bank of Pakistan announced a 2% tax rebate for listed companies

that achieve Shariah compliance. Such major incentives, such as tax rebates/holidays

need to be introduced in policies to encourage more firms in non-financial industries,

including

Fertilizers,

Software

Engineering,

Cement,

Power

and

Gas,

Telecommunications, Motor industry etc. to achieve Shariah compliance. This will aid

the Islamic asset management industry as well, giving them a greater diversified

portfolio of stocks to invest in.



Fintech is causing a significant disruption in the Islamic banking industry. There is a

need for greater technical training and adaptation of smart phone technology, data

analytics, mobile banking etc. by Islamic banks.



There is a need for developing Re-Takaful providers, particularly for General Takaful.



A major opportunity for both Islamic banking and Islamic capital markets industry for

the next 15 years is the upcoming China Pakistan Economic Corridor. It should be an

important part of the policy to use Shariah compliant financing structures for many of

the USD 46 billion worth projects in infrastructure financing, Gwadar airport

development, energy and power etc.