AAOIFI Recognizes Pakistan as Home to 40% of Shariah Finance Experts

Pakistan has firmly established itself as a dominant force in the dynamic and rapidly expanding world of Islamic finance. This isn’t merely a claim; it’s a recognition endorsed by leading figures within the global industry. Sheikh Ibrahim Khalifa Al Khalifa, Chairman of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the leading international standard-setting body for Islamic financial institutions, recently commended Pakistan’s remarkable contributions, stating that nearly 40% of the world’s Shariah finance experts originate from the country.

This significant statistic underscores Pakistan’s increasing influence in shaping the trajectory of Islamic finance worldwide. This concentration of expertise positions Pakistan as a crucial center for knowledge dissemination, innovation, and the development of future leaders in the field.

Charting the Future of Islamic Banking

A recent reception hosted by the Islamic Banks of Pakistan served as a crucial platform, bringing together a distinguished gathering of influential figures in the banking and finance sectors. Among the attendees were luminaries such as Mufti Muhammad Taqi Usmani, a globally recognized Islamic scholar and a key figure in the development of modern Islamic finance; Jameel Ahmed, the current Governor of the State Bank of Pakistan (SBP), the country’s central bank; Dr. Ishrat Husain, a highly respected former SBP governor and a prominent economist; Yousaf Hussain, President of Faysal Bank, a leading Islamic bank in Pakistan; and Irfan Siddiqui, President of Meezan Bank, another major player in Pakistan’s Islamic banking landscape. This gathering provided a unique opportunity for open dialogue, strategic planning, and exchanging ideas on the future of Islamic finance.

Pakistan’s Leadership Potential

During his address at the reception, Sheikh Al-Khalifa emphasized Pakistan’s substantial leadership potential in Islamic finance. He acknowledged the country’s vast pool of highly qualified and experienced Shariah finance experts. These experts play a vital role in strengthening and promoting the Shariah-compliant financial system not only within Pakistan but also on a global scale. Their expertise spans various areas, including Shariah advisory, product development, risk management, and regulatory compliance. Sheikh Al Khalifa also stressed the critical importance of extending the benefits of Islamic finance to underserved communities, emphasizing social justice and financial inclusion as crucial challenges and opportunities for the industry. This focus on inclusivity is essential for realizing the full potential of Islamic finance as a tool for economic empowerment.

Sheikh Al Khalifa also commented on Pakistan’s economic progress, particularly its efforts to manage inflation. He noted that the country’s progress in this area was commendable, particularly when compared to other economies facing similar global economic pressures. This macroeconomic stability creates a more favorable environment for investment, innovation, and the sustained growth of the Islamic financial sector. It also fosters confidence among international investors and stakeholders.

Mufti Muhammad Taqi Usmani

Mufti Muhammad Taqi Usmani, a towering figure in Islamic scholarship and a key architect of modern Islamic finance, reiterated the critical importance of standardization within the Islamic banking sector. He praised AAOIFI’s instrumental role in developing and issuing over 70 global standards for Islamic financial institutions. These standards provide crucial guidance on various aspects of Islamic finance, including accounting practices, auditing procedures, corporate governance frameworks, and adherence to Shariah principles. These standards are essential for ensuring consistency, transparency, and comparability across different Islamic financial institutions globally. Mufti Usmani also acknowledged Pakistan’s significant strides in transitioning away from interest-based financial systems, highlighting the national commitment to establishing a fully Shariah-compliant financial system, with a timeline set by the country’s parliament. This commitment demonstrates Pakistan’s dedication to becoming a leading example of a fully Islamic financial system.

Furthermore, Mufti Usmani emphasized that Islamic banking must remain firmly anchored in the fundamental principles of the Quran and Sunnah. He stressed the importance of ensuring equitable wealth distribution, promoting social justice, and addressing the ethical challenges associated with wealth management, such as the misuse of financial resources, excessive speculation, and unethical investment practices.

Jameel Ahmed

Jameel Ahmed, the Governor of the SBP, provided valuable insights into the remarkable growth of Islamic banking on a global scale. With total assets now exceeding $3.7 trillion (and continuing to grow), the Islamic finance industry is demonstrating its increasing significance in the global financial landscape. Mr. Ahmed emphasized the crucial need for developing robust and well-functioning local Islamic financial systems as a vital foundation for broader global expansion. This localized development allows for greater responsiveness to local needs and cultural contexts.

He also provided details about a high-level steering committee established by the SBP to specifically promote and advance Islamic banking within Pakistan. Recognizing key challenges, such as the complex process of transitioning government debt instruments from conventional structures to Shariah-compliant alternatives like Sukuk (Islamic bonds), Mr. Ahmed called for innovative solutions and collaborative efforts involving regulators, financial institutions, and Shariah scholars to ensure the continued and sustainable growth of the sector.

Governor Ahmed also highlighted several critical areas that require further attention to support the development of a thriving Islamic finance ecosystem in Pakistan. These include:

• Interbank Islamic Market: Creating a well-functioning interbank market specifically for Islamic financial institutions is crucial for managing liquidity effectively, facilitating short-term financing needs, and promoting greater efficiency and stability within the sector. This market allows Islamic banks to manage their surplus funds and access short-term financing in a Shariah-compliant manner.
• Liquidity Management Tools: Developing innovative and Shariah-compliant liquidity management tools is essential for Islamic banks to manage their assets and liabilities effectively, maintain financial stability, and optimize their investment portfolios. This includes exploring new instruments and techniques that comply with Islamic principles.
• Financial Literacy: Raising public awareness and improving financial literacy about Islamic finance principles, products, and services is essential for increasing adoption rates, fostering greater financial inclusion, and empowering consumers to make informed financial decisions.
• Capacity Building: Investing in comprehensive training programs, specialized educational initiatives, and professional development opportunities to cultivate a highly skilled workforce with deep expertise in Islamic finance is crucial for the long-term growth, innovation, and sustainability of the industry.

Dr. Ishrat Husain’s Perspective

Dr. Ishrat Husain, a highly respected economist and former SBP Governor, emphasized the transformative potential of the Islamic financial system in addressing critical societal challenges. He articulated a compelling vision where Islamic financial institutions actively contribute to promoting social justice, reducing poverty, fostering inclusive economic development, and promoting shared prosperity, aligning their practices with the core Islamic principles of fairness, equity, transparency, and social responsibility.

Dr. Husain urged Islamic banks to strategically focus their investments and financing activities on sectors that have a significant positive impact on communities. He specifically highlighted the importance of:

• Small and Medium Enterprises (SMEs): Providing access to Shariah-compliant financing for SMEs, which are crucial engines of job creation, economic growth, and innovation.
• Agricultural Development: Facilitating access to Shariah-compliant financing for farmers to invest in modern agricultural inputs, technology, and sustainable farming practices.
• Affordable Housing: Developing innovative and Shariah-compliant financing solutions to make affordable housing accessible to low-income families and address housing shortages.
• Skills Development: Investing in education through scholarships, educational loans, and the development of educational infrastructure to enhance human capital and promote social mobility.

He argued that these targeted investments are essential for achieving sustainable economic growth, fostering inclusive social development, and creating a more equitable and prosperous society that benefits all segments of the population.

Pakistan’s Expertise as a Cornerstone of Global Islamic Finance

Pakistan’s substantial and growing pool of Shariah finance experts, combined with its unwavering commitment to ethical and socially responsible financial practices, firmly positions the country as a key player and emerging leader in the global Islamic finance arena. Through continuous innovation, strategic policy initiatives, robust regulatory frameworks, and a dedicated focus on addressing critical challenges and promoting financial inclusion, Pakistan is not only shaping the future of Islamic banking domestically but also serving as an important contributor to the global development and evolution of the entire Islamic finance industry. This expertise provides a strong foundation for Pakistan to become a leading center for Islamic finance education, research, and innovation, further solidifying its role on the world stage.