GIS (CDC) as collateral: SBP unveils MFFs access mechanism for IBIs

KARACHI: The State Bank of Pakistan (SBP) has announced a new mechanism for Islamic Banking Institutions (IBIs) to avail Shariah-Compliant Standing Ceiling Facility and OMO Injections, using Government of Pakistan Ijara Sukuk (GIS) held in the Central Depository Company (CDC) as collateral.

This step is in line with SBP’s commitment to enhancing liquidity management tools for Shariah-compliant financial institutions.

SBP introduced Modaraba-based Shariah-compliant Standing Ceiling Facility and Open Market Operations (OMO-Injections) in 2021.

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Pursuant to the availability of benchmark/revaluation rates of GIS issued through the Pakistan Stock Exchange (PSX) and the custody of which resides with CDC, SBP has set the mechanism for eligible IBIs for availing Modaraba-Based Financing Facilities (MFFs) against GIS (CDC) as collateral.

For availing Shariah-Compliant Modaraba-Based Standing Ceiling Facility OMO-Injections using GIS (CDC) as collateral, the IBIs will pledge the collateral in favor of SBP in Central Depository System (CDS) of CDC, using Group IDs, created by the SBP on CDS for pledging of GIS (CDC).

As per mechanism, the market value of collateral provided by IBI to avail MFF must be at least equivalent to the sum of financing amount availed from SBP, the expected profit on MFF, and the applicable haircut on market value of the security offered as collateral in line with the collateral requirements notified by SBP from time to time.

Market value of GIS (CDC) used as collateral will be determined using their respective revaluation rates published by FMAP, as on the last working day before the day on which the facilities are requested.

According to SBP, collateral pledged in favor of SBP for availing the said facilities will cease to be un-encumbered and will not be counted towards SLR of the IBIs, during the period of facility. After receipt of deal confirmation from the IBI, and confirmation of the pledge of collateral in CDS in favor of SBP, the funds will be transferred to IBI’s current account at SBP.

On settlement/maturity date of each financing transaction under MFF, SBP will debit the current account of the IBI maintained with SBP to recover the amount of financing and the profit (as per the expected profit rate), and release the pledged securities in CDS.

Previous provisions are applicable for availing MFFs from SBP against GIS (CDC) as collateral.

The SBP has advised all IBIs availing Modaraba-based Financing Facilities against eligible collateral to henceforth submit the deal confirmation letter as per revised format via Data Acquisition Portal (DAP), duly signed by the authorized signatories, to Chief Manager, SBP (BSC) Karachi Office.

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