‘PRI introduction boosted remittances to $12bn annually’
* SBP governor says remittances have surged from $6.5bn in 2008 to $12bn
ISLAMABAD: State Bank of Pakistan (SBP) Governor Yaseen Anwar said on Tuesday that introduction of Pakistan Remittances Initiatives (PRI) in the country has helped increase remittances from $6.5 billion in 2008 to $12 billion annually.
Replying to a question of the media after his address as chief guest at the inaugural session of the two-day 2nd International Conference on Islamic Business (ICIB- 2012) organised by the Ripah Islamic University at National Institute of Banking and Finance (NIBAF), he said that measures taken by the regulator under the scheme brought discipline in the financial sector and led to merger of informal sector into the formal sector.
The governor said that in 2009, SBP issued guidelines about home remittances related to Agreements of Exchange Companies with Foreign Entities and launched Real Term Gross Settlement System (RTGS).
He said RTGS introduced by the central bank enabled the banks making large-value payments to one another in real-time, using online telecommunication facilities and payments are settled on gross basis in real time thus minimising the systemic risks that are inherent in large-value net settlement system.
The governor categorically clarified that his statement in the Senate standing committee regarding injection of liquidity was not reported in the right context and explained that he did not mean that failure to do so by the regulator would result in collapse of financial system. He said that the money was being injected to maintain stability in overnight cost of borrowing and to protect weaker institutions from being running into business collapse owing to higher rate.
To a question about the requirement of maintaining minimum credit limit by the banks, he said that the limit was set up during good times when there was no financial crisis. In reply to a question of foreign media about the role of the central bank to promote the Islamic banking in Pakistan and other Islamic countries, Anwar said that Islamic banks have huge potential in the agriculture sector and SBP has been taking very aggressive measures for creating awareness in this regard. About obstacles, he said that lack of training, capacity building as well as understanding about risk management are the major obstacles in the way of Islamic banking.
The SBP governor regretted that Islamic banks have not been able to come out of the conventional shadow and lack better risk management and due diligence. The Islamic banks have been working both in international and domestic market in the conventional shadow. He said that the agriculture sector and Small and Medium Enterprises (SMEs) are of paramount importance for the growth but these were highly ignored, urging the Islamic banks to tap the huge opportunities available in the agriculture sector.
The agriculture sector is contributing 21 percent to the gross domestic product (GDP) and provides 40 percent of the employment whereas Pakistan is the fifth milk producer in the world. He said that the Nestle and other international companies have realised the opportunity and making investment in the dairy sector. He said that huge opportunities exist for Islamic banks in agriculture sector and they must make efforts to tap these through agriculture financing. He said that inclusive growth is beneficial only and Islamic banks are required to be more aggressive and increase their outreach beyond major cities and deplored that 70 percent of their branch network was confined to 12 major cities of the country.
He said that the State Bank of Pakistan (SBP) is working to provide Islamic inter bank market to the Islamic banks and regulator has been taking measures to help Islamic banking in Pakistan. He said that the Islamic banking system has to come out of the conventional shadow and overcome the lack of understanding about risk management and training and capacity obstacles.
Anwar said that Islamic banking has been growing at a very robust rate of around 30 percent for the last six years and constitutes 8.5 percent to the total deposits of the banking sector. Anwar said that over 886 branches of the Islamic banks have been working in the country but the industry is still facing challenges that are required to be addressed.
The debate, he said has now started how the Islamic banking system should move towards stability. He said that Islamic finance is a profitable economic opportunity and the country is required to learn a lesson from the global financial crisis. Anwar said that despite financial crisis, the fundamental of the economics of western countries are very deep and it would be a misconception that their system has collapsed. He said that financial institutions have to be cautious and prepare themselves to show resilience against any sort of crisis.
Anwar said that the Islamic financing has been lacking in better risk management and due diligence and key challenge for them was their working both in international and domestic markets in conventional shadow.
He said that despite all of this, he was optimistic about global and domestic role of the Islamic banking and considers it most dynamic area of financial services today. Financial and economic devastation caused by the recent financial crisis has provided further impetus to the healthy growth momentum, as the Islamic financial system is increasingly being looked at as a prudent, stable and viable alternative against the conventional system. staff report