- Effective cooperation strengthens trust, while clearer understanding helps Islamic banking gain credibility and long-term growth
Interview with Muhammad Zeeshan Farrukh, Head of Shariah Compliance, Bank Makramah Limited
PAGE: Tell me about yourself?
Muhammad Zeeshan Farrukh: Currently, I am working as Head of Shariah Compliance at Bank Makramah BLimited. I have a vast experience of more than 19 years in the field of Islamic banking & fnance related to product development, product structuring, Shariah Compliance, research, teaching, training, curriculum development, consultancy & advisory etc. Being a practitioner, I have served various Islamic financial institutions i.e. BankIslami Pakistan Limited, United Bank Limited, Al Baraka Bank Pakistan Limited, National Bank of Pakistan and Bank Makramah Limited and being an academician, I am engaged with Institute of Business Management, Karachi as Adjunct Faculty for teaching Islamic Banking & Islamic Financial Accounting courses.
As I have been associated with Islamic Banking Industry since 2006, I have seen various development phases of the industry and taken opportunity to see Pakistani Islamic Banking Industry from infancy stage to maturity stage. I have worked in developing and structuring various Shariah Compliant products, formulating and implementing Shariah Compliance mechanisms to strengthen and ensure strict Shariah Compliance environment, developing Islamic Finance training material and conducting Islamic Finance training etc.
As far as education is concerned; I have obtained degrees of BCom, MBA, MS Islamic Studies and Chartered Islamic Finance Professional. I have also done Islamic learning courses of Islamic Law, Advanced Islamic Jurisprudence and Uloom ul Qur’an. I am pursuing Dars e Nizami at the moment.
As Islamic Economics, Banking & Finance is my research field, so I have written various articles and papers which have been published and presented in various magazines, periodicals and conferences at local and international forums.
PAGE: What do you say about Islamic Banking growth in Pakistan?
Muhammad Zeeshan Farrukh: The growth of Islamic Banking in Pakistan is remarkable due to the reason of Central Bank’s serious focus upon the progress of Islamic Banking. The commitment from the banks’ management is also the factor behind the robust development of Islamic Banking. Due to Federal Shariat Court’s verdict on April 28, 2022, this pace has been more accelerated as now, the Central Bank and the Banking Industry has the clear objective to convert Pakistani Banking Industry till December 2027.
According to SBP’s recent Islamic Banking Bulletin with figures by end June 2025; the Islamic Banking Industry has demonstrated the marvelous annual growth with respect to assets, deposits, financing portfolio and investment portfolio. As far as Islamic Banking assets and deposits are concerned, the total assets of Islamic Banking recorded as PKR 12,344 billion by increment of PKR 834 billion with 27.4% growth, the total deposits recorded as PKR 9,533 billion by increment of PKR 1,114 billion with 29.5% growth., the financing portfolio recorded as PKR 4,033 billion with 16.9% growth and investment portfolio reached at PKR 5,935 billion with 32.2% growth. With respect to share of Islamic Banking in Pakistani Banking Industry, the share of Islamic Banking assets stood at 20.7%, the share of Islamic Banking deposits recorded as 25.5% and the share of Islamic Banking financing and investment portfolio recorded as 30.5% and 15.8% respectively. This growth is evident the continuous outstanding and impressive growth of Islamic Banking in Pakistan.
PAGE: What is the perception of Islamic Banking in the society?
Muhammad Zeeshan Farrukh: As far as perception of Islamic Banking is concerned; there is a mix opinion among different segments of the society. In the beginning of Islamic Banking, there was the general perception and assumption among people that Islamic Banking was just the name change of Conventional Interest Based Banking and it had the same operations and functions as Conventional Banking. With the passage of time when Islamic Banking grew, people interaction increased with Islamic Banking practices and Islamic Banking awareness disseminated into the society. The people introduced and understood the reality and functionality of Islamic Banking but unfortunately, still negative perception persists about Islamic Banking but this is also the reality that there are some reasons behind this negative perception.
PAGE: What are the reasons of negative perception about Islamic Banking yet?
Muhammad Zeeshan Farrukh: In our society; unfortunately people generally make comments about certain thing without any knowledge and when the word “Islam” comes under discussion, every person tries to become philosopher and makes comments. The Islamic Banking is also facing the same behavior from the society. I think this behavior of our society should be changed. I amaze at many times that the people pass negative comments about Islamic Banking without any knowledge. There is a general misunderstanding among people that banking cannot practiced without the factor of “Interest”. The second reason is mindset of Islamic Banking professionals. The number of staff members even do not accept the reality of Islamic Banking and assume it as the same as conventional banking. This behavior is very dangerous for Islamic Banking as when the customers come to Islamic Banking and interact with the staff members, the staff members communicate negatively to the customers by saying that the Islamic Banking practices are the same as conventional banking. Thirdly the learned persons; including Shariah scholars, economists, thinkers etc., also having adverse opinion about Islamic Banking as it is not following the Islamic economic principles and works on the same lines as conventional banking. I think when these learned and inspiring social personalities make negative comments regarding Islamic Banking then they should formulate and introduce practical Islamic alternate to conventional economic and banking system and if not, they should understand the prevalent Islamic Banking system and accept it as the prevalent Islamic Banking system is the result of decades of research of Shariah scholars and economic experts from all over the world and the uniform global Shariah standards have been formulated and still being formulated with the consensus of the prominent Shariah scholars from all over the world. I think that the behavior of “Criticism for Improvement” should be prevailed rather than “Criticism for Criticism” that should be avoided.
PAGE: Do you think that Islamic conversion of Pakistani Banking Industry is going and progressing in the right direction?
Muhammad Zeeshan Farrukh: Yes. After the clear verdict of Federal Shariat Court in April 2022, the Central Bank and the Government of Pakistan took serious actions and initiatives and showed clear intention for efficient and effective Islamic conversion of Pakistani Banking Industry. In June 2024, the Central Bank issued “Guidelines for Conversion of Conventional Banks into Islamic – Broad Parameters” through which all banks were guided to formulate their Conversion Plans and submit to the Central Bank. These guidelines for Conversion Plan were comprehensive in nature and included the broad parameters including governance structure, business conversion milestones and timelines till 2027, gap analysis of the important functional areas, Capacity building of employees, customer facilitation including awareness creation and complaint handling, risk identification, Shariah governance system, expected issues in conversion process & their appropriate solutions, alternatives to Conventional products, services & transactions, IT infrastructure, financial impact of conversion etc.
It is worthy to note that these guidelines emphasize very much on training & capacity building measures as this is very important aspect of Islamic conversion as without effective training & capacity building measures, the conversion process cannot be done smoothly.
In short, the conversion activity is going in a planned and systematic manner keeping in view the target of conversion till December 2027.
PAGE: What are the major challenges in Islamic conversion of Pakistani Banking Industry and which strategies and measures required in this respect?
Muhammad Zeeshan Farrukh: I think the foremost major challenge is the mindset change of employees of Islamic Banking. As I mentioned before, if the employees will not be convinced then we cannot achieve the desired objective as the first thing to achieve the desired objective is the enthusiasm and if enthusiasm will not exist, the desired objective cannot be achieved. In case of Islamic Banking, the desired objective is the Islamic Conversion of Banking Industry and the implementation of Islamic Economic System and it can only be achieved through team work and joint enthusiasm.
After the mindset change, capacity building of employees is equally important as when the employees will not know and understand the concepts and practices of Islamic Banking, they cannot educate customers and people so they cannot contribute to the Islamic Conversion in an effective and efficient manner.
So keeping in view the need of the day, the special consideration is required by the banks towards mindset change and capacity building. The special sessions for mindset change should be arranged for staff from higher management to lower staff and these sessions should be conducted by learned Shariah scholars and Islamic Banking experts so that they can convince people and make appropriate and suitable responses to the queries to eradicate confusions in their minds. For capacity building, the Central Bank has already issued circulars and guidelines for effective capacity building of staff at each level so the banks should follow these guidelines. The fundamental course should be conducted for each staff member in which the foundations of Islamic Banking, major prohibitions in Islamic economic i.e. Riba & Gharar, basic Islamic jurisprudence, basic Islamic law of contracts, basic practical application of Islamic financing & deposit modes, basic pool management & profit distribution mechanism should be taught and after this fundamental course, the specialized and focused trainings keeping in view the needs of certain departments i.e. Investment Banking, Corporate/SME, Trade Finance, Treasury etc. should be conducted. These steps and actions will strengthen the ability of staff to perform Islamic Banking activities in an effective and efficient manner.
After mindset change and capacity building, the other major challenge is customer convincing at deposit and financing levels. The staff must convince the customers for the Islamic conversion and educate them about the suitable Islamic alternate mode for their conventional deposit account or financing facility. It can only be done if the bank’s official has clear positive mindset regarding Islamic Banking and has adequate knowledge and understanding about Islamic Banking concepts and practices. In this regard, the banks may also face challenge to offer adequate Islamic alternate with respect to conventional counterpart. Therefore; the banks should increase the shelf of Islamic products and services as they can offer the suitable alternate to the customers at the time of Islamic conversion. In this respect, the proper product mapping should be done before going to the customer for Islamic conversion.
The appropriate IT infrastructure is also a big challenge in which proper automation of Islamic products and services is required. As the Islamic products and services require different automation needs, the banks should take prompt actions and ensure availability of adequate IT infrastructure to tackle the issues in Islamic conversion.
One of the major challenges is “Dealing with Prohibited Part of Retained Earnings”. The banks should make proper plan and strategy to dispose of the prohibited part of retained earnings and this portfolio cannot be retained with Islamic Banking. There may be several options in this respect like payment of certain prohibited amount to charitable institutions, payment of certain amount to shareholders etc. One of the major challenges is Conventional Bad Debt Portfolio in which restructuring and legal issues shall be involved. In this regard, the certain portfolio may be transformed to Islamic mode of financing, if possible, or if the certain portfolio cannot be transformed to Islamic mode of financing, the interest part may be waived but these cases should be resolved with the consultation of higher management and Shariah Board.
As the challenges may vary with respect to each bank, the banks must do comprehensive and effective Gap Analysis and then make strategy accordingly keeping in view each aspect. The Central Bank also emphasized on Gap Analysis in Broad Conversion Guidelines as without the adequate Gap Analysis, the issues cannot be resolved.
With reference to major challenges in Islamic Conversion, I would like to say that the joint efforts and collaboration required from the Central Bank and Banking Industry. The joint sessions and meetings should be held in which the critical conversion issues shall be discussed and tried to resolve. In this way, the banks may share their experiences and strategy to resolve the certain issues and the whole industry shall be benefited.
PAGE: Shall the Islamic Conversion of Banking Industry bring the significant economic impact upon the society?
Muhammad Zeeshan Farrukh: The conventional banking has the factor of interest and we believe that interest is the curse for the economy and society. So, the economic prosperity cannot be achieved through interest-based banking or economy.
As far as banking conversion is concerned, there is no doubt that the banking sector has the pivotal role in the present economic scenario and the economic impact will definitely arise when we will replace the interest-based conventional banking with Interest-free Islamic Banking but one thing should be noted here that as far as significant economic impact is concerned; it is also the reality that the banking is only one part of the economic system and only Islamic Conversion of Banking Industry cannot bring the significant and ideal economic impact. For the significant economic impact, we must convert the whole conventional economy in a proper effective and efficient manner. When all segments of the economy shall follow the Islamic economic injunctions then we may expect the significant overall economic impact that shall lead to real welfare society.
Islamic banking growth and current status Management and societies cooperation and understanding for wholeheartedly and candidly learning islamic teachings.