Pakistan's National Savings Scheme may offer Islamic banking services

A machinist works at a textile factory in Faisalabad. The World Bank says Pakistani business and industry need much more credit than what is available right now.

Pakistan's government-operated National Savings Scheme (NSS) is evaluating whether to go Islamic in the coming days.
This plan will help depositors put their cash into Islamic Shariah-compliant Ijara sukuk. The work is currently underway on its specifics like the price of the retail Ijara sukuk, its size, duration, maturity period and the mode of encashment during and at completion of the maturity period.
As soon as that happens, millions of new accounts are expected to be opened, bringing a huge population of medium and small savers into the banking stream. Millions of others who are currently operating accounts in conventional banks and are receiving interest on their deposits may also be snatched away by the NSS because of the rising religious sentiment to go Islamic.
"We collected deposits totalling Rs232 billion from our savings schemes in financial year 2015-16 and a still larger amount of Rs337 billion in 2014-15," an NSS spokesman told Khaleej Times.
Investments in all types of the NSS go directly to the government of Pakistan, which uses this cash inflow to fill the budgetary gap and to fund its development projects.
"We have recommended to the Ministry of Finance to extend Ijara sukuk to the NSS into for retail investors. We are confident that it will bring in large amounts to the government. Our research studies confirm that it will attract millions of people who do not want to go in for the conventional interest-based dealings with the commercial banks and other financial institutions, which are clearly forbidden in Islam," according to the spokesman for the State Bank of Pakistan, the central bank.
A senior official of the SBP said the central bank is happy over the potential size and volume of business coming into direct government fold.
He pointed out that "years of our experience with budget-making and borrowing to fill is shortfall, particularly on account of Prime Minister Nawaz Sharif's policy to enlarge spending on welfare of the poor, energy generation and supplies and infrastructure projects".
The government has issued a total of 18 domestic sukuks between 2008 and 2016, and collected a total of Rs669 billion. But small investors could not invest in these issues because they were geared to investment, chiefly, by the commercial banks. In financial year 2015-16, two issues were launched bringing in Rs196.6 billion.
NSS deposits by people totalled Rs233 billion in 2015-16 and Rs337 billion in 2014-15. In the event of introduction of Ijara sukuk in the NSS, some of these deposits are likely to be switched to this Islamic mode - Ijara sukuk.
"The SBP has recommended to the government that it is the right time to offer Ijara sukuk and other Islamic modes in NSS as the existing and potential depositors are eager to shift to Islamic modes," the central bank official said, quoting recent surveys on attitudes and trends in banking.
"Pakistani business and industry need much more credit than what is available now," says the World Bank in its annual GDP growth assessment for 2016-17.
"Low credit availability and the electricity and gas shortages have been the some of the key factors to keep the economy away from its big growth potential," the bank says.
Extending Shariah-compliant modes to tje NSS will be a big success of SBP's National Financial Inclusion Strategy and its Vision 2020 to bring more and more new depositors into the banking fold. More people coming into banking, with deposits rising, both in the conventional banking and the fast-track growth of Islamic finance and banking modes, will help businesses that are demanding larger and larger amounts of credit.
"It will result in a faster growth of the economy," Sharif said.
The writer is based in Islamabad. Views expressed are his own and do not reflect the newspaper's policy.