The State Bank of Pakistan (SBP) has laid the digital railway to enable citizens abroad to invest in Shariah compliant sovereign investment papers remotely, a nation’s first, as part of the regulator’s efforts to attract Islamic investments from the diaspora into the local economy amid precarious market confidence.
Collaborating with several banks including Bank Alfalah, Faysal Bank, Habib Bank and Meezan Bank as well as Standard Chartered, the SBP officially launched the Roshan Digital Account which allows non-resident Pakistanis (NRPs) to open a banking account in Pakistan through an exclusively digital process without the need to visit a physical banking branch.
Through the new service, NRPs will be able to undertake banking services including transferring funds and making payments as well as investment activities, including investing into Naya Pakistan Certificates, which are sovereign investment papers reserved for the qualified diaspora. Already available in the US dollar and the local currency, the SBP confirmed that it is working on introducing a Shariah compliant version which will be launched “very soon”.
Issued by the finance ministry, the Naya Pakistan Certificates are available in five tenors: three months, six months, 12 months, three years and five years with returns of up to 7% per year for the US dollar papers and up to 11% for the rupee facilities.
These new initiatives come as the country is cautiously optimistic about its economy recovering from the debilitating effects of COVID-19. Since the outbreak, the regulator and the government have fired successive shots of measures to prop the economy from falling apart and alleviate the financial burden on its 212 million people. Policy rates were slashed by 625bps since March, although the SBP did keep the rate unchanged at 7% backed by recent improved business confidence and growth outlook since the government lifted the country out of lockdown. The SBP nonetheless is aware that market conditions remain volatile.
Every COVID-19 measure introduced by the regulator has catered to both conventional and Islamic financial institutions, and uses both conventional and Shariah funding options, a move the SBP has been cognizant to make as it also has its eyes firmly set on the national Islamic finance targets. By 2025, 30% of the country’s banking deposits are to be compliant with Islamic principles while 35% of the banking branch network must be Islamic. Islamic deposits accounted for 16.93% of the total deposit pool at the end of June 2020 while Islamic banking assets commanded a 15.3% market share according to latest official figures.
Stakeholders, particularly the National Assembly’s Standing Committee of Finance, have been critical about the Islamic Republic’s progress in advancing the Islamic finance proposition, particularly as it has always been accepted that Pakistan will eventually phase out conventional interest-based finance after failed attempts to embrace a fully Shariah compliant financial system some 40 years ago. Earlier this month, the committee spun off a special committee to revive this particular agenda.