Islamic banking industry's share in the overall-banking sector has increased to 3.5 percent during last three year. This was stated by head of Islamic Banking Department, State Bank of Pakistan (SBP), Perviaz Saeed, while speaking at Islamic banking seminar, organised by Dadabhoy Institute of Higher Education (DIHE)
He said. "While the conventional banking is based only on a single contract, the Islamic banking has 21 contract of banking," he added, Islamic banking was rapidly increasing in the country and, at present, Pakistan's Islamic banking industry had become one of the fastest growing banking industries of the country. He said in the past several practices were made for introduction of Islamic banking in Pakistan, and added three years ago Islamic banking was introduced in the country and, present, six Islamic banks were functioning in the country.
Leading international conventional banks, including Citibank and Deutsche Bank, had also started Islamic banking, which was 100 percent based on to Islamic Shariah, he said. "As such, the customers can now trust on the Islamic banking products of the foreign banks,"
Head of south, Albaraka Islamic Bank, Ahmed Shuja Kidwai, said that presently over 500 institutions of Islamic banking were working across the world, while in the Pakistan, 13 conventional banks had started Islamic banking with separate branches, besides six were completely Islamic.
Head of Dadabhoy Institute of Higher Lerning (DIHE) Abdullah Dadabhoy; former Chief Executive Officer (CEO and Director, United Bank Mutual Fund, Professor Dr Ahsan H. Khan; Senior Vice President (SVP) of Dawood Bank Mujeeb Baig; Shariah Advisor, MCB Bank, Hamad Rasool – Director First WAPDA sukuk Company, Dr Mufti Mohammad Zubair Usmani, and Rector of the Institute, Dr M. H. Qazi, also addressed the seminar. On occasion, Pervez Saeed awarded certificates to 21 MBAs and 21 short course certificates, who have recently passed out in Islamic banking from the Dadabhoy Institute of Higher Education
Shariah Compliance Structure put in place by SBP
This structure has the following salient features:
1. Shariah Board at SBP
2. Shariah Advisor as per Fit & Proper Criteria
3. Essentials & Model Agreements of Islamic Modes of Financing
4. Shariah Compliance Inspection
5. Meetings of Shariah Advisors
1. Shariah Board at SBP:
• The Shariah Board of SBP advises on the procedures, laws and regulations
pertaining to Islamic Banking in line with Shariah principles. All the instructions
/ Guidelines pertaining to the Islamic banking Industry are issued with the
approval of SBP Shariah Board.
• Conflict Resolution in Shariah Rulings is also managed through the Shariah
Board of SBP as in case of any difference of opinion the decision of SBP
Shariah Board is considered final. The Shariah Board members are well versed
with local & international practices both in the field of banking as well as
Shariah and are thus instrumental in ensuring that the advice given to SBP is in
line with international practices.
2. Shariah Advisor as per Fit & Proper Criteria (prescribed by SBP) :
• Each Islamic banking institution (i.e. Islamic Bank and conventional bank
having Islamic Banking Branches) is required to appoint a Shariah Advisor as
per Fit and Proper Criteria prescribed by SBP. The requirement for Shariah
Advisors to meet the said criteria ensures that they have adequate and relevant
education, knowledge and experience, which in turn plays a vital role in
harmonization of Shariah Practices in different Islamic banking institutions.
• Shariah advisor of the bank is responsible to ensure that all the products and
services, operations and documents of the bank are compliant / consistent with
the Shariah Rules and Principles outlined for the respective modes of financing.
Before launching any new products the banks are required to get formal approval
from the Shariah Advisor regarding Shariah compliance of the product and its
3. Essentials & Model Agreements of Islamic Modes of Financing :
• Essentials of Islamic modes of Financing entail the basic principles of Islamic
modes of financing that have to be observed by Islamic banking institutions
while designing their product structures, manuals policies etc. These essentials
ensure compliance with minimum Shariah Standards by the Islamic banking
• Model Agreements for Islamic Modes of Financing have been introduced in
order to facilitate the existing Islamic banks and the potential market players in
developing Islamic banking products in a harmonized manner (without
restricting the process of product innovation).
4. Shariah Compliance Inspection:
• SBP conducts Shariah Compliance Inspection on the basis of recently
developed Shariah Compliance Inspection Manual for Islamic Banking
• Shariah Inspection helps in identifying variation in procedures adopted by
different banks. The decisions on Shariah Inspection findings are also a source
that helps in achieving the goal of having standardized procedures for Shariah
practices in the Islamic banking industry.
5. Meetings of Shariah Advisors:
• When Shariah opinion is required regarding an Islamic banking issue of
mutual/collective interest, the same is taken up in the meetings of Shariah
advisors for discussion and possible resolution if so required.
• In case the issue requires detailed study/clarification, a sub committee is formed
from the panel of Shariah Advisors to do some research and submit/present their
findings to SBP. In case of need the matter under consideration may be taken to
the SBP Shariah Board for its final resolution.
• Since some of the learned Shariah Advisors are based in other parts of the globe
like Middle East, we also get feedback/views based on their global
prospective/experience through their representatives.
New Initiatives for bringing in further Standardization in Shariah practices.
1. Adoption / Adaptation of Shariah Standards developed by Accounting and
Auditing Organization for the Islamic Financial Institutions (AAOIFI).
• The introduction of international players in our Islamic banking industry has
further necessitated the need to bring our industry at par with the global
Shariah standards. Shariah Standards developed by Accounting and Auditing
Organization for the Islamic Financial Institutions (AAOIFI) are an
important and effective source available for bringing in the desired
standardization in the Shariah practices.
• In order to bring our industry at par with the international standards and also
achieve standardization of Shariah practices locally, a mechanism for
adoption/adaptation of these Shariah standards has been developed by SBP.
According to this mechanism the meetings of Shariah Advisors of all IBIs
are being held with a view to thoroughly study the AAOIFI Shariah
Standards one by one, for their possible adoption / adaptation in our market.
2. Draft Instructions & Guidelines for Shariah Compliance :
• Draft Instructions for Shariah Compliance cover regulations in areas related
to appointment, duties/ responsibilities and report of Shariah Advisor; conflict
resolution in Shariah rulings; permissible modes of financing and investment;
essentials of Islamic modes of financing; use of charity fund; introduction of
new products & services and schedule of service charges.
• Draft Guidelines for Shariah Compliance cover areas like Internal Shariah
compliance, Internal Shariah Audit; investment in shares; policy for profit
distribution with PLS account holders and financial reporting & general
• Finalization of these instructions & guidelines will further contribute towards
the process of standardizing practices in the respective areas.
3. IFSB Risk Management Guidelines
• Islamic Financial Services Board (IFSB) promotes the development of a
prudent and transparent Islamic financial services industry through
introducing new or adapting existing international standards consistent with
Islamic Shariah principles.
• IFSB has issued standards/guidelines regarding Capital Adequacy, Risk
Management and Corporate Governance for institutions offering Islamic
financial services (other then Takaful). SBP is planning to adopt these
standards keeping in view the local environment and in consultation with
various internal and external stakeholders of Islamic banking.
• Currently SBP is working on the guidelines for Risk management of Islamic
banking institutions by tailoring them to the needs of local market. The aim of
these guidelines is to further complement and enhance the current Risk
Management regime of SBP by identifying and suggesting techniques to
manage various types of risks unique to Islamic banking institutions. This
exercise will further contribute towards the desired process of standardization
in the industry.
( Source www.sbp.gov.pk)