United Law Company

Islamic Banking & Finance

Islamic Banking is one of the emerging field in global financial market, having tremendous potential and growing at a very fast pace all around the world. Islamic Banking is a high priority area for State Bank of Pakistan. Steps

are being taken to make Islamic banking industry in Pakistan robust enough to offer a viable alternative to conventional banking, should the market decide that Pakistan should have an exclusively Islamic banking system in the country. State Bank of Pakistan wants to develop a progressive and sound Islamic banking system that is in line and compatible with the global financial sector, providing innovative Shariah compliant products and services so as to achieve equitable economic growth.

ULC regularly advises clients involved in Islamic financing transactions, across the spectrum of the banking, capital markets and leasing industries. Our team has a detailed understanding of the conventional and religious legal principles governing Islamic finance, evolving financing techniques and the primary factors fostering and affecting development in this sector. Our extensive knowledge base allows us to provide advice on a brad range of nuanced issues that arise during both traditional and complex Islamic financing transactions, including jurisdictional concerns, commercial motivations, taxation, accounting and other regulatory considerations. We not only advise on major transactions and large scale projects for banks, corporations and sovereigns, but also assist clients in developing innovative Islamic financial products.

Islamic finance is booming. Although Islamic banking emerged in the 1970s in the Muslim world, the global economy is now realizing that non-Muslims can also take advantage of the sector. Hong Kong is looking to establish its own market for Islamic bonds, or Sukuk. Western companies are starting to target Muslim consumers with Halal products. And conventional banks like HSBC are offering Islamic financial services.

In addition to Murabahah and Ijarah, Islamic Banks have also started financing on the basis of Salam and Istisna. Islamic banking institutions also get funds from each other in order to meet their liquidity requirements. Islamic banking assets as percentage of total banking assets in the country are around 3%, a sizable growth compared to only 1.5% in 2004.

In addition to full-fledged Islamic banks, there are Islamic Banking segregated branches of conventional banks. So far, 12 banks have been issued licenses for dedicated Islamic Banking Branches (IBBs).

According to the report, the total deposits with Islamic banks in Pakistan will reach Rs. 780 billion by 2014. The report says Pakistan is becoming an increasingly attractive market with higher growth potential. It is expected that in next 5 years, Islamic banking industry of Pakistan will be bigger than the current Islamic banking market of Bahrain and Qatar combined and by 2014, Islamic banking industry of Pakistan is likely to equal the current size of the UAE and Kuwait markets put together.

Pakistan, whose constitution requires that all laws be brought in conformity with Sharia, is transitioning to a completely interest-free economy. The country began pursuing this goal in the 1980s but ran into difficulties when it tried to convert the entire banking system too suddenly. In 2001, the State Bank of Pakistan (SBP) launched the Islamic Banking Policy, which promotes simultaneous development of Islamic and conventional financial industries. The policy is meant to establish a full-fledged Islamic banking system in an evolutionary and flexible manner that allows markets and customers to gain confidence in Islamic banks and prepare for an eventual launch of the new system.

Practice Spotlight:

Accounting & Shariah Standards

Prudential Regulations

Risk Management

Corporate Governance

Area of Practice

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FBR considers decentralizing Sales Tax Registration
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SNGPL challenges ECC raw material price escalation formula in the Lahore High Court
The Federal Cabinet of Pakistan has approved the draft Anti-Dumping Duties
Pakistan seeking from US consular access for Dr Afia
Pakistan is seeking from United States consular access and medical
Heroism of Pakistani Lawyers and Judges to be Honoured by the American Bar Association
The bravery of Pakistani lawyers who faced down baton-wielding police over
Foreign investors to invest USD $25 billion in Punjab Province, particularly Lahore, in the next 3 years
Foreign Investment According to the Department for Trade and Investment, Government of the Punjab
Supreme Court issues notices to Geo and Jang
The Supreme Court has directed the print and electronic media neither to publish

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