Home Weekly Islamic Pages Islamic Banking & Finance Page 17-04-2020

Islamic Banking & Finance Page 17-04-2020

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Muhammad Arif : Chairman Centre of Advisory Services for Islamic Banking and Finance (CAIF), Former Head of FSCD SBP, Former Head of Research ArifHabib Investments and Member IFSB Task Force for development of Islamic Money Market, Former Member of Access to Justice Fund Supreme Court of Pakistan

How Islamic Banks should perform in Corona Virus Epidemic-case example of Meezan Bank

Despite its small size, the Islamic banking sector has achieved tremendous growth in recent years. According to the IMF, Islamic lenders have outperformed conventional banks over the past decade, and there is still plenty of room for growth. Sharia-compliant financial assets are forecast to reach $3.8trn by 2023, averaging annual growth of 10 percent, according to Thomson Reuters’ 2018 Islamic Finance Development Report.

In the latest edition of World Finance, the 2020 Islamic Finance Awards has celebrated the success stories that have emerged out of this rapidly growing sector. These institutions have demonstrated resilience even in the face of unexpectedly low growth last year caused by low oil prices, global trade disputes, political instability and now corona Virus epidemic.

They have achieved this by capitalizing on new opportunities such as the digitalization of the banking sector. Today, there are more than 100 Islamic fintech companies around the world, according to IFN Fintech. Through the deployment of robo-advisors and the creation of alternative asset marketplaces, these companies stand to significantly boost financial inclusion in North Africa and the Middle East, where the unbanked population is still relatively high.

Digitalization has also given rise to a burgeoning regulation technology sector. In its Islamic Finance Outlook 2019 Edition report, S&P Global Ratings said that regulations standardizing Sharia interpretation and legal documentation could streamline sukuk issuance and help “unlock the full potential of Islamic finance”.

Beyond the Gulf States, there is wealth of new opportunities for the Islamic banking sector around the world. In North Africa and the Middle East, the Muslim population is predicted to increase from 300 million in 2010 to more than 550 million in 2050. Meanwhile, the UK currently has five fully Sharia-compliant banks; a figure experts believe could grow in the coming years.

To see which companies are leading the pack in the Islamic banking sector we have to reassess the position because of COVID19 that is challenging human life globally and straining economic activity. Governments as well as central banks are taking extraordinary measures to address the challenges associated with this situation. Pakistan is no exception. SBP is taking a range of measures to protect the safety of public and address the economic impact. It is working with stakeholders to continuously assess the situation and stand ready to take additional measures as the situation related to COVID-19 and its impact on the economy become clearer.

In this situation let us see what the largest Islamic bank in Pakistan i.e. Meezan Bank who has also won Islamic Finance Awards (country wise) in 2019 is doing for its customers.

Like other banks It is advising its customers to use alternate banking channels such as Meezan Mobile App, Debit Card or Internet Banking for their banking needs such as checking balances, paying utility bills, school fees, transferring funds, topping-up mobile credit and other transactions from the safety of their homes instead of visiting branches.

  • It is advising its customers to avoid using currency notes and instead use their Meezan Debit Cards for shopping.
  • Ensuring availability of digital banking channels 24/7 to conduct banking transactions.
  • Business customers have been advised that they may use Meezan Bank’s digital banking channels eBiz and eBiz+ to execute critical banking transactions including funds transfer, IBFT, salary and bill payments, issue pay orders, etc. in an automated and secured manner from the convenience of their office.
  • Availability of banking facilities to customers of closed branches through open branches.
  • Quick replenishment of cash at ATM machines to ensure availability of cash at all times.
  • Cash tellers have been advised to use cash machines to count cash.
  • Staff dealing with currency notes is encouraged to use masks, gloves and sanitizers while dealing with currency notes.
  • Staff is also advised to frequently wash their hands for 20 seconds so as to facilitate customers under safe environment.

But these are safety measures.

About its financial position as on 31-12-2019, it holds Rs 932.5 billion as deposits with Rs 493.7 billion as financing and other investments. After taxation its profit is Rs 15.2 billion. Earnings per share is 11.84

Meezan Bank says that it provides Ijarah based products to provide flexible solution for meeting long term financing requirements of the customers. … The Bank uses this product for medium and long term financing purposes where the Bank acquires the asset required by the customer and then leases it to the customer for a fixed period. However SBP report suggests that overall Islamic Banks in Pakistan are using 47% of its total financing as diminishing Musharkah and Murhabah. In Ijarah the % is 5.7% and in Musharkah it is 19.8%. So easy and understandable non debt based (Ijarah,Musharkah and Mudrabah) financing is still far away and as largest Islamic Bank it is highly required that Meezan Bank may develop such products taking lead for other Islamic Banks. This can be done with research only as in case of corona virus till its remedy is not discovered in form of vaccine and drugs it would not get away. Further Meezan Bank at this critical time may devote some of its profit to support research going on to find treatment of corona Virus and for medical equipment required in the hospitals.

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