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Karachi, Pakistan

Al Baraka Forum for Islamic Economy in collaboration with the Islamic Chamber of Commerce and Development (ICCD) hosted the 2nd Al Baraka Regional Conference, in partnership with Al Baraka Bank Pakistan, to shed light on the crucial role of home remittances in Pakistan and their impact on sustainable development.

The conference served as a platform to discuss the multifaceted aspects of home remittances and their far-reaching implications in shaping the economic growth tracks of nations in general, and Pakistan in particular.

The event brought together leading experts, decision-makers, and stakeholders to engage in dialogue about strengthening Islamic finance tools to achieve the Sustainable Development Goals (SDGs) and align remittance strategies with sustainable development objectives in a globally changing remittance landscape.

Event was divided into three sessions; first session was about the Islamic financial institutions and their role in economic integration in Pakistan. Second session focused on the challenges and opportunities in harnessing home remittances for economic growth and the last session was the discussion on the policy frameworks and future outlook for home remittances.

The discussion started with keynote addresses delivered by Dr. Ahmad Kawesa Sengendo, Assistant Secretary-General for Economic Affairs of the Organization of Islamic Cooperation (OIC), Dr. Mufti Irshad Ahmad Aijaz, Chairman Shariah Advisory Committee of Securities and Exchange Commission of Pakistan (SECP) and State Bank of Pakistan (SBP), Dr. Ishrat Husain, Former Advisor to Prime Minister and Ex-Governor SBP, and Mr. Zulfiqar Ali Khokar, Head of the Pakistan Remittance Initiative at SBP, sharing industry insights and future outlook for the country.

“As one of the 57 member states of the OIC, Pakistan plays a crucial role in promoting economic integration through home remittances. Islamic financial institutions facilitate these remittances, encouraging recipients to invest sustainably in local businesses and welfare programs. Collaboration between governments and financial institutions is essential to establish secure, user-friendly, and legal channels for remittances and foster linkages with international financial institutions,” stated Mr. Yousef Khalawi, Secretary-General of the Al Baraka Forum for Islamic Economy.

Dr. Sengendo pointed out that remittances represent an important flow of foreign currency with a tremendous impact on local communities and national economies in many OIC Member States. He also emphasized that remittances were increasingly becoming the most important sources of external finance for low-income countries, and in some cases, a main driver of economic growth, where they amounted to nearly 20% of their Gross Domestic Products. He also emphasized the need for effective and planned strategies for human resources export to avoid the loss of human resources needed to develop the respective OIC countries through brain drain.

As a key note speaker, Dr. Ishrat Husain, former SPB Governor, said that the Islamic banking system has the potential to offer solutions to the economic problems. “Something we have to pursue vigorously”, he added.

As another keynote speaker, Dr. Mufti Irshad Ahmed Aijaz, Chairman Shariah Advisory Committee SECP, and SPB saw the conversion of the economy as a challenge to which the country’s financial players are not prepared yet.

Zulfiqar Ali Khokhar, Head of Pakistan Remittance Initiative SPB, informed about ‘Sohni Dharti’ which is a remittance program and serves as a digital platform. He said that there are also incentives for the market players and consumers. He said that the Islamic banks can grow their home remittance services up to 15%, besides enhancing their outreach and marketing.

According to the Saleh Kamel Islamic Economy Database, Pakistan received around US$150 billion in home remittance from 2017 to 2022. This ranks Pakistan fifth among the top remittance receiving countries in 2022 with US$29.9 billion. Global remittances reached US$758 billion in 2022, with OIC countries receiving 25.5% of this amount, i.e. over US$193 billion. Home remittances are crucial for Pakistan as they constituted 33% of total imports, making it the second highest among OIC countries and fifth globally in 2022.

Experts highlighted that remittances contribute to alleviating poverty at micro level as well as accelerating growth at micro level through converting low-income families into middle class families by providing better education level, better health care and general elevation in their lifestyle.

The conference conclusively put forth policy frameworks and future outlooks for home remittances, including suggestions to streamline remittance flows so they contribute to sustainable economic growth. The stakeholders also delved into future trends and outlook for home remittances in Pakistan and emphasized the need to collectively work on innovative strategies to further enhance the positive impact on the national economy.

During the panel discussions, it was emphasized that there is less trade among OIC countries than the more integrated trade blocks like NAFTA, EU and ASEAN. It is partly due to politics, but also because of economic inequality. Islamic finance can help with trade finance and infrastructure finance to set up export processing zones, industrial & IT parks, warehouses & port infrastructure along with business process engineering. For this, there is need to focus on cross border Sukuk issuance, using Islamic modes in bilateral and multilateral finance and exchange of expertise and resources for transformation of financial systems.

Experts pointed out that Islamic modes of financing are naturally synchronized with the real economy. Experts urged the industry to develop more innovative ways of reaching SMEs and agriculture. Furthermore, they also emphasized the need for product variety and price competitiveness. Government also needs to transform its monetary and fiscal policy.

In Pakistan, Islamic banks have one fourth share in banking, but one third share of profits in the banking industry, yet there is room for improvement in sharing profits equitably with depositors and also in reaching SMEs and agriculture (2.6% share of agriculture and SMEs financing in Islamic banking vs 7.3% in overall banking).

On the agenda of Islamic finance and ESG, experts highlighted that Islamic environmental ethics & Maqasid e Shari’ah are harmonized with SDGs & ESG. Protection of biodiversity, avoiding waste, responsible use of resources, transparency, fairness, equality, inclusivity and justice are duly emphasized in Islamic teachings. Need more green finance in countries facing infrastructure deficit, water stress levels and energy shortages. New market segment allows greater and speedy market penetration. Need to focus on green asset creation than just becoming a way of rolling over loans. More focus is needed on offering price differential in green finance than overindulgence in reporting and minimum compliance alone.

In embracing technology, experts emphasized that it is the only way forward to deal with disruptive technologies. Islamic banking should have very strong fintech, one touch services, and mobile apps, as digitalization is not just important for home remittance but it’s a game changer in many fields.

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