The State Bank of Pakistan (SBP) has revised the Shariah Governance Framework (SGF) to advance the Islamic banking industry and strengthen its compliance with Sharia principles.
In a circular issued on Friday, the SBP directed Islamic Banking Institutions (IBIs) to prepare for implementing the updated framework by January 1, 2025. “To further strengthen the SGF and align it with international best practices, market developments, and feedback from stakeholders, the SGF has been revised and issued for compliance,” the SBP stated.
The Islamic banking sector has been growing rapidly, with Pakistan targeting the conversion of its entire banking system to riba-free operations by 2027.
Between March 2015 and March 2024, the assets of Islamic banking institutions have, on average, grown by around 24% annually. Deposits with Islamic banking institutions have grown by around 22% during the same period.
By the end of March 2024, the industry’s assets increased by Rs 241 billion to reach Rs9.24 trillion, while deposits grew by Rs 126 billion, standing at Rs6.88 trillion.
Share of Islamic banking institutions in the overall banking sector has almost doubled. In 2015, the share of Islamic banking assets and deposits in the overall banking sector accounted for only 10% and 12%. This has changed a decade later with the share of assets and deposits doubling to almost 20% and 23% respectively.
Additionally, the number of branches of Islamic banking institutions has reached 5,101 as of March 2024.
The SBP’s circular highlighted that IBIs must ensure compliance with the revised framework by March 31, 2025. “The revised SGF shall be effective from January 1, 2025. IBIs are advised to make necessary arrangements to comply with the requirements of the revised SGF and submit compliance status to the SBP by March 31, 2025,” reads the statement.
All submissions related to the SGF must be sent to the Director, Islamic Finance Policy Department, as per the directives in the SBP circular. The central bank has also warned that any non-compliance with the provisions of the SGF will lead to penal action under the Banking Companies Ordinance, 1962.
