KARACHI: The State Bank of Pakistan (SBP) issued guidelines for Development Finance Institutions (DFIs) to undertake Shariah compliant businesses and operations aimed to enlarge the scope of Shariah compliant financial services in the country.
Further, keeping in view the various developments, such as changes in the licensing and regulatory regime for banks, SBP has also updated the guidelines, introduced in 2004, for establishing Islamic banking Institutions.
Conventional Banks and DFIs desirous of commencing Shariah compliant business and operations will be required to apply to State Bank for issuance of license and grant of permission respectively under these guidelines.
SBP believed that these guidelines will facilitate the new entrants in the field of Islamic banking through establishment of full-fledged Islamic banks, Islamic banking subsidiaries by conventional banks and the commencement of Shariah compliant business and operations by conventional banks and DFIs.
According to a circular issued on Friday, Guidelines and Criteria for Establishing Islamic Banking Institutions (IBIs) and Commencement of Shariah Compliant Business and Operations by DFIs were issued to facilitate the DFIs.
The updated guidelines for establishing Islamic banking institutions will deal with the establishment of a full-fledged Islamic bank, Islamic banking subsidiary and Islamic banking branches of conventional banks.
In addition, these guidelines cover different areas including minimum capital adequacy, requirements related to sponsor directors, business plan, Shariah governance, application fees, and preconditions for commencement of business.
The guidelines for conventional banks and DFIs to undertake Shariah compliant business and operations also cover the eligibility criteria for in-principle approval, proposal requirements, Shariah governance, minimum capital requirement and systems and controls.
Further, separation of Islamic banking/finance division and its different components, responsibilities of head of the Islamic banking/ finance division and requirements for commencement of operations are part of these guidelines.
As per guidelines, the applying CB or DFI is required to submit a proposal (approved by the Board of Directors) including the overall strategy for Shariah compliant businesses and operations, a feasibility study along with a long and short term business plan to the Banking Policy & Regulations Department of the State Bank of Pakistan, with a copy to Islamic Banking Department.
State Bank will evaluate the proposal of the CB/DFI keeping in view merits of the case and upon its satisfaction, will grant an in-principle approval to the CB/DFI for starting Shariah compliant business and operations upon such terms and conditions as it deems fit. The in-principle approval will lapse if the CB/DFI fails to commence Shariah compliant business and operations within a period of six months from the date of grant of such approval.
A CB will be required to have and maintain at all times a minimum Islamic Banking Fund of Rs500 million whereas the DFI will be required to have and maintain at all times a minimum Islamic Finance Fund of Rs150 million and they will also maintain Capital Adequacy Ratio (CAR) as prescribed by SBP from time to time.
The CB or DFI will ensure that proper systems and controls are in place in order to ensure segregation of funds between Shariah compliant and conventional business and operations and to protect the interest of all stakeholders.
Copyright Business Recorder, 2020
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