ISLAMABAD: On Wednesday, a parliamentary panel scrutinized the practices of Islamic banks, raising concerns over potential exploitation of customers, while clearing two banking sector laws designed to meet International Monetary Fund (IMF) requirements under the $7 billion Extended Fund Facility (EFF).
The Senate Standing Committee on Finance and Revenue, chaired by Senator Saleem Mandviwalla, called for enhanced transparency in Islamic financial institutions. The committee demanded a comparative analysis of profit margins charged to consumers by Islamic banks versus conventional banks and a detailed report on Islamic banking practices in other countries.
Mandviwalla alleged that Islamic banks were charging interest rates higher than their conventional counterparts and requested the State Bank of Pakistan (SBP) to provide a comprehensive briefing on the subject. He criticized Islamic banks for charging up to 30 percent in rates, compared to around 20 percent by conventional banks, and called for improved regulatory oversight and transparency.
SBP Deputy Governor Dr. Inayat Hussain informed the committee that Islamic banks held a 25 percent share of the banking market, with conventional banks controlling the remaining 75 percent. He also noted that Rs97 billion was tied up in approximately 14 million dormant bank accounts, leading the committee to approve extending the closure period for these accounts from 10 to 15 years.
The committee reviewed and passed the “Deposit Protection Corporation Amendment Bill 2024,” which raises deposit protection limits from Rs250,000 to Rs500,000. Dr. Hussain mentioned that while microfinance banks are not currently covered by the bill, future amendments might include them. He also highlighted that the IMF had advocated for enhanced depositor protection.
Additionally, Dr. Hussain revealed that SBP board members earn Rs75,000 per meeting, in contrast to other banks with fees exceeding Rs50,000. Senator Mohsin Aziz noted that such financial incentives help attract talent to the banking sector.
The committee also examined “The Banking Companies (Amendment) Bill 2024,” which includes provisions related to Islamic banking. Dr. Hussain emphasized that Islamic banking in Pakistan is regulated more stringently compared to global standards and that a unified regulatory framework for commercial and microfinance banks should be implemented by December under the IMF programme.
