The State Bank of Pakistan (SBP) has updated the terms and conditions for appointing Shariah scholars in Islamic banks and Islamic banking divisions. This revision aligns with the expanding Islamic banking sector and aims to facilitate the transformation of the conventional banking system into an Islamic banking model by 2028.
Key Highlights of the Revised Framework
The updated Shariah Governance Framework (SGF) introduces stricter requirements for Shariah board members at Islamic Banking Institutions (IBIs), effective January 1, 2028. Under the new guidelines:
- Exclusive Roles for Shariah Scholars:
Shariah board members, including the chairperson, members, and resident Shariah board members, are barred from serving on the Shariah boards of multiple Islamic banking institutions simultaneously. - Tenure Limitations:
Scholars cannot serve a single institution for more than two consecutive three-year terms. Reappointment for a third term will require SBP’s approval under specific conditions. - Mandatory Appointments:
Each Islamic bank must have at least three Shariah board members, including a resident Shariah board member. At least two of these members must not serve on any other Islamic bank’s board. - Qualifications and Expertise:
Banks are required to engage experienced Shariah scholars who have served on the Shariah boards or committees of reputable local and global organizations.
Enhanced Focus on Shariah Compliance
The revised SGF emphasizes strengthening the Shariah compliance framework of IBIs. Key measures include the explicit definition of roles and responsibilities for the Board of Directors, Executive Management, Shariah Board, Product Development, Shariah Compliance Department, Internal Audit, and External Audit teams. The aim is to ensure robust adherence to Shariah principles in banking operations.
Transitioning Towards Full Islamic Banking
The SBP’s revisions come as part of broader efforts to facilitate the Federal Shariat Court’s ruling on transforming the conventional banking system into an Islamic model. With six full-fledged Islamic banks and 16 Islamic banking divisions of conventional banks currently operating, several institutions are actively working on converting their operations to comply with Islamic principles.
Global Alignment and Future Implementation
First introduced in 2015 and later revised in 2018, the SGF has been updated to reflect international best practices and align with ongoing developments in the Islamic banking industry. The new framework applies to all IBIs, including full-fledged Islamic banks, Islamic banking subsidiaries, and Islamic banking divisions of conventional banks.
These steps reaffirm SBP’s commitment to fostering a robust and transparent Islamic banking environment in Pakistan, aligning with the global standards and expectations of the Islamic finance sector.
