Karachi: The State Bank of Pakistan (SBP) has introduced a new directive requiring Islamic Banking Institutions (IBIs) to offer a minimum profit rate on PKR saving deposits, effective January 1, 2025. This regulation, designed to ensure fair returns for depositors, mandates IBIs to pay at least 75% of the weighted average gross yield of all their pools.
Key Details of the Policy
The minimum profit requirement excludes deposits from financial institutions, public sector enterprises, and public limited companies. The weighted average gross yield for profit calculation will exclude pools created for Shariah-compliant standing ceiling facilities and open market operations (OMOs).
To calculate the gross yield for each pool, IBIs will divide the monthly gross earnings of the pool by the monthly average assets (excluding fixed assets).
Revisions to Existing Instructions
To align with the new framework, the SBP has made the following amendments to the Instructions for Profit & Loss Distribution and Pool Management for IBIs (issued under IBD Circular No. 03 of November 19, 2012, and IBD Circular Letter No. 01 of January 1, 2013):
- Clause 4.2.3 Deleted
This clause has been removed from the framework. - Clause 5.2.1 Amended
- IBIs may forego part of their Mudarib share as hiba to meet market expectations if a pool generates lower-than-expected returns.
- Institutions maintaining a Profit Equalization Reserve (PER) will only reduce their Mudarib share if the PER is insufficient to enhance profit payouts for depositors.
- Clause 5.2.2 Amended
- IBIs may provide hiba to saving account holders to ensure compliance with the minimum profit rate requirement.
Implications for the Industry
This step underscores SBP’s commitment to strengthening depositor confidence in Islamic banking by ensuring competitive and Shariah-compliant returns. By refining the mechanism for profit distribution, the central bank aims to enhance transparency and market alignment within the Islamic banking sector.
For stakeholders and depositors, this development sets a clear benchmark for expected returns, promoting fair practices across the industry.
