KARACHI: State Bank of Pakistan on Friday allowed Islamic banking institutions (IBIs) to start new products, which at present are being offered by commercial banks, provided they are Sharia-compliant.
The central bank, which issued draft instructions and guidelines for Sharia compliance in Islamic banking institutions, said besides 15 approved and Sharia-compliant products, the “IBIs with prior approval of their Sharia adviser can start new products.”
The draft further explained: “IBIs may also engage in other business as authorised under Section 7 of Banking Companies Ordinance, 1962 provided they are Sharia-compliant.”
This implies that IBIs now will be eligible to start financing products already marketed by commercial banks.
The draft guidelines have specifically permitted Modaraba, Musharaka, Diminishing Musharaka, equity participation in the form of shares in a corporate entity, Ijara (leasing), Murabaha, Musawama, Istijar, Salam, Istisna, but Tawarruq may also be used in exceptional cases requiring specific prior approval of State Bank of Pakistan.
As for Qard, Wakala, Assignment of Debt, and Ju’ala, all these permissible modes, which may not require security, will be subject to usual limits for unsecured financing as mentioned in the various prudential regulations issued by SBP.
Any security obtained by IBIs for participatory modes of Islamic financing shall not be applied or utilized to cover losses except those in case of negligence, fraud or misconduct by the customers.
It would be prohibited for IBIs to engage in or finance trading of not permissible (Haram) goods.
The guidelines have envisaged three-staged permission to IBIs to make investment in shares.
The first stage said IBIs in the course of their business might invest their surplus funds in shares of companies whose primary business is not prohibited under Sharia. For investment in shares of such companies, a screening process for the selection of shares shall be followed.
In this process, companies with acceptable primary business activities will be identified, which would be further evaluated according to several ratio filters as advised by the Sharia Advisor, to eliminate companies with unacceptable levels of non-sharia compliant debt, non-sharia income liquid assets.
The second stage said in the event a portion of non-Sharia compliant income exists in the invested company’s accounts, then income of IBIs shall need to be purified and IBIs share of non-Sharia compliant income shall be donated to charity on pro-rata basis for the period of its holding of share.
The third stage said IBIs should follow the regulatory limits prescribed by SBP in prudential regulations in terms of their aggregate exposure in shares both in ready, cash and future market.
IBIs will follow five policy principles for profit distribution with PLS depositors.
1. Identification and determination of pools of assets and related income and the basis of such determination together with method for allocation of profit, loss between PLS depositors and the IBIs, whether IBI participates in the investment with its own funds.
2. Policy for charging provisions against non-performing assets in compliance with prudential regulations and profit equalization reserves out of income generated from PLS funds and to whom these provisions and reserves revert to, in case of write-back or recovery.
3. Policy on the priority for investment of own funds and those of PLS depositors.
4. Basis for allocating expenses to equity holders and various classes of depositors for determination and appropriation of profit.
5. Profit sharing ratio and weightages for distribution of profit among various categories of deposits and periodicity for changing the same.
The guidelines said IBIs shall follow financial reporting standards for Islamic modes of financing issued by SECP.
While determining the Schedule of Service Charges Islamic Banking branches of conventional banks shall have a separate set of schedule of charges for their business. If IBIs want to fix different rate of charges for various categories of clients that is according to volume of business then such categories should be clearly defined by the IBIs.
The guidelines have vested final authority with central bank in case conflict resolution in Sharia Rulings is pronounced by different Sharia Advisors of IBIs.
The Sharia ruling of Sharia Board of SBP will be final.
The guidelines have also prescribed the criterion for the appointment of Sharia Advisor, Duties and Responsibilities of Sharia Advisor, use of charity fund, requirement of Internal Sharia Audit.
SBP said the comments, views on these draft instructions and guidelines may be sent within 15 days to director Islamic banking department.
Courtesy by “ The News“