In recent years, Islamic banking and finance in Pakistan has experienced phenomenal growth. Islamic deposits – held by fully-fledged Islamic banks and Islamic windows of conventional banks – at present stand at 9.7% of total bank deposits in the country: meaning that every 10th rupee is now being deposited in an Islamic bank account.

Similarly, assets managed by banks offering Islamic financial services are 8.6% of total banking assets in the country. Net Islamic savings and investments are 8.19% of the total savings and investment in the banking sector in Pakistan.

Total Islamic banking assets in Pakistan stand at Rs837 billion ($8.5 billion), which is only a fraction of the total global Islamic financial assets of $1.631 trillion. Once considered a global powerhouse for Islamic financial thinking, Pakistan is now far behind a number of other countries, which have expended more energy into developing the Islamic banking and finance sector. London-based Edbiz Consulting has recently released a ranking of the top 10 countries in Islamic banking and finance on its Islamic Finance Country Index (IFCI). The ranking is presented in the table.

According to the IFCI, Iran has remained the number one market for Islamic banking and finance, primarily because its entire banking and finance sector is operating under Shariah law. But this cannot be the only reason, as the only other country with all of its banking and finance in compliance with Shariah, Sudan, stands only ninth.

Pakistan, the third country that adopted a policy of Islamisation of banking and finance in the 1980s, stands just eighth – one point above Sudan.Malaysia, on the other hand, has emerged as a true global leader in Islamic banking and finance. It has consistently stood at number two since the creation of the index in 2011. Committed to developing Islamic banking and finance as a strategic economic tool, Malaysia has this year enacted a new comprehensive law, the Islamic Financial Services Act 2013, which is coming into force from May this year.

The Government of Pakistan has given the Islamic banking project to the State Bank of Pakistan (SBP), the central bank, which has very ably helped Islamic banking and finance grow by issuing guidelines to conduct Islamic banking business, and regulating and supervising the institutions offering Islamic banking and finance.

The government, however, has failed to develop the country as a centre of excellence for Islamic banking and finance, despite it having a number of strengths especially in ensuring Shariah authenticity of financial products. While countries in the Gulf Cooperation Council are involved in controversial practices like tawarruq (a financial transaction done through a series of commodity trades) and, likewise, Malaysian institutions are engaged in transactions based on bai’ina (sale and buyback) and bai’dayn (discounted trading in debt),

Pakistan maintains a very strict view on Shariah matters, and the SBP has ensured that no controversial practices creep into the country’s Islamic banking and finance sector.

It was because of this strict Shariah supervision and control by the SBP (along with the Shariah advisory board of a Pakistani Islamic bank, BankIslami) that BankIslami won the prestigious Shariah Authenticity Award at the Global Islamic Finance Awards held in Kuala Lumpur in November 2012. This strength in Islamic banking should be further developed to make Pakistan as a centre of excellence for Shariah authenticity in the global industry.

After a lull of about four years following the inception of the global financial crisis, different countries have already started seeking a greater share in the global Islamic financial services industry. While Malaysia stood firm during the crisis, and rightfully claims to be the global leader in Islamic banking and finance, there are other countries that are reclaiming their share of leadership in the industry.

Sheikh Mohamed bin Rashid alMaktoum, the Ruler of Dubai and vice president of the UAE, has affirmed that Dubai has all the ingredients of becoming a regional hub for Islamic banking and finance. The Bank of London and the Middle East, an Islamic investment bank in the UK, has recently claimed that Britain could do a lot more to become a European centre of excellence for Islamic banking and finance.

Other financial centres like Hong Kong and Singapore have once again started positioning themselves to claim their share of the industry. It is, therefore, the right time for Pakistan to start highlighting strengths of its Islamic banking sector that at present comprises five fully-fledged Islamic banks and thirteen conventional banks with Islamic windows/branches.

One obvious way for Pakistan to claim a role in the global Islamic financial services industry is to deepen its domestic Islamic banking and finance sector. Given that this is election year in Pakistan, it will certainly be a good strategic move by a political party to put Islamic banking and finance on top of its election manifesto.

While the Jamaat-e-Islami is a natural candidate, it will only benefit other mainstream political parties to start owning Islamic banking and finance. While outsourcing the ownership of the Islamic banking project to the SBP has worked so far, it will certainly benefit the government even more if it starts owning and hosting the project in Islamabad.