Sixth fully-fledged Islamic bank in the making in Pakistan as agricultural bank Zarai Taraqiati Bank gets license

Having planned to foray into Islamic finance since 2011 to capture Pakistan’s largely untapped agricultural market, Zarai Taraqiati Bank has now secured a license from the State Bank Pakistan, moving the regulator closer to its targeted 15% Islamic banking market share in 2018. MARC ROUSSOT brings you the story.

The bank, with assets amounting to PKR82.81 billion (US$679.68 million) at the end of 2016, intends to become the sixth fully-fledged Islamic bank operating in Pakistan, but will start by offering its Shariah compliant financing products on a window basis.

No timeline has been set for the full conversion of the bank operating a network of 489 branches, Muhammad Azhar Javed, an acting senior vice-president in charge of the Islamic banking department at Zarai Taraqiati Bank, told IFN.

The financial institution, which obtained an ‘AAA’ long-term credit rating from JCR-VIS Credit Rating Company in early July, has already set up a Shariah board with its first-ever meeting occurring during the first quarter of the year. It has also hired a team of Islamic banking professionals and is currently looking at acquiring new IT banking software.

Formerly known as the Agricultural Development Bank of Pakistan, the main purpose of Zarai Taraqiati Bank is to provide sustainable rural finance and services particularly to small farmers and low-income households to strengthen the rural and agricultural sector.

In 2017, Zarai Taraqiati Bank disbursed PKR51.9 billion (US$425.98 million) against its target of PKR125 billion (US$1.03 billion) while Pakistan’s five Islamic banks collectively disbursed PKR9.3 billion (US$76.33 million) against their target of PKR20 billion (US$164.15 million).

The agriculture sector plays a central role in Pakistan’s economy. Accounting for 18.9% of GDP, it remains one of the largest employers, absorbing 42.3% of the country’s total labor force, according to the Ministry of Finance. About 60% of the country’s population reside in rural areas, and are directly or indirectly linked with agriculture for their livelihood.

With Zarai Taraqiati Bank tapping Shariah modes of financing, the State Bank Pakistan is inching closer to its 2018 15% Islamic banking market share goal. In March, the industry’s market share was recorded at 13.5% in terms of assets amounting to PKR2.33 trillion (US$19.12 billion) and at 14.6% in terms of deposits worth PKR1.92 trillion (US$15.76 billion).

This article first appeared in IFN Volume 15 Issue 29 on the 17th of July 2018


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