SBP to facilitate conversion
of conventional banks to Islamic banking
The State Bank of Pakistan (SBP) has
revised the rules governing the conversion of conventional banking branches
into Islamic banking branches, aiming to simplify the process and accommodate
the evolving needs of the industry.
These updates come as several banks
prepare to transition from conventional to Islamic banking in the coming years.
The revisions follow a verdict by the Federal Sharia Court, which called for
the end of interest-based banking in Pakistan. The SBP’s updated rules align
with the government's plan to shift the country's banking system to Islamic
banking.
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New Rules for Branch Conversion
Under the revised regulations,
conventional banks with Islamic banking operations—or those intending to begin
such operations—can now apply to convert their branches to Islamic banking
without a licensing fee. Banks must submit an Annual Branch Conversion Plan
(ABCP), in line with their overall transformation strategy, to the SBP’s
Banking Policy & Regulations Department (BPRD) and the Islamic Finance
Policy Department (IFPD) by October 31 of each preceding year.
Banks are also required to notify
the general public and account holders of the conversion at least three and a
half months in advance through newspapers, their website, and notices at all
branches. Accounts will be converted from conventional to Islamic banking with
the account holder’s consent. If account holders do not consent, they will be
allowed to transfer their accounts to another conventional branch or close
them.
Importantly, accounts belonging to
non-Muslim customers will not be converted without explicit consent, and
accounts involved in litigation, those of deceased persons, disputed accounts,
or dormant accounts will not be converted.
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Facilitating Branch Conversion
To further streamline the
transition, banks are permitted to temporarily set up virtual conventional cost
centers to handle deposits and assets that cannot be immediately converted.
These centers will only manage existing conventional business and are not
allowed to conduct new business, expand existing operations, or roll over
conventional assets.
Banks must develop and distribute
Standard Operating Procedures (SOPs) for the conversion process, detailing the
responsibilities of staff at both branch and head office levels. The Shariah
Compliance Department (SCD) will conduct periodic reviews to ensure Shariah
compliance during the transition.
Once all requirements are met, the
bank will apply for licenses for Islamic banking branches, submit a certificate
from its Shariah Board confirming compliance, and surrender the conventional
branch licenses.
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These revised rules also apply to
microfinance banks.
The SBP’s changes are designed to
facilitate the smooth and compliant conversion of the country's banking sector
to Islamic banking, in line with broader economic and financial reforms.
Source: Pro Pakistani