SBP issues guidelines on transformation from conventional to Islamic banking
The State Bank of Pakistan (SBP) has released comprehensive guiding
parameters to assist banks in formulating their conversion plans from
conventional banking to Islamic banking.
According to a circular issued on Friday, as part of SBP Vision 2028 and to
facilitate the transition to Islamic banking, the SBP has outlined broad
guiding parameters. These parameters are designed to aid banks in developing
their own conversion strategies.
Banks are encouraged to utilize these parameters, which encompass vision and
strategy formulation, governance structure, business conversion milestones, and
timelines for internal transitions such as assets, deposits, financing,
investments, syndicated transactions, non-funded portfolios, and branch
conversions.
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Additionally, the parameters require banks to conduct gap analyses
concerning policies, products, services, infrastructure needs, human resources,
identification of challenges, and areas for improvement to achieve conversion
goals.
Key components include onboarding and training strategies for bank
employees, effective communication plans with internal and external
stakeholders, customer awareness initiatives, information dissemination, and
robust mechanisms for handling customer complaints.
The SBP has advised banks to seek further guidance from the Islamic Finance
Policy Department regarding these guidelines.
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The recent landmark judgement by the Federal Shariat Court mandating
Pakistan’s banking sector to become Shariah-compliant by 2027 has set an
ambitious target for the Islamic banking industry. In response, the SBP
emphasizes the need for meticulous planning and coordinated efforts from all
stakeholders. Through SBP Vision 2028, the central bank aims to bolster the
legal and regulatory framework, ensure alignment with international prudential
standards, and establish tax neutrality for Islamic banking compared to
conventional banks.
Furthermore, the SBP will develop a structured roadmap for transitioning
conventional banks into Islamic banks, collaborate closely with banks during
the conversion process, and devise liquidity management solutions tailored for
Islamic banking institutions.
Source: Daily Times