Conventional to Islamic banking: SBP issues broad parameters for conversion

KARACHI: The State Bank of Pakistan (SBP) has developed broad guiding parameters to help banks to devise their conversion plan from conventional to Islamic.

According to a circular issued on Friday, in pursuance of SBP Vision 2028 and to facilitate banks in their conversion from conventional to Islamic, SBP has developed broad guiding parameters which will help banks to devise their own conversion plans.

Accordingly, banks may consider broad parameters, developed by SBP to prepare their conversion plans. These broad parameters included vision and strategy, governance structure and business conversion milestones and timelines (internal milestones for conversion of assets, deposits, financing, investments, syndicated transactions and non-funded portfolio and branches, etc.)

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In addition, these parameters also asked for gap analysis with respect to policies, products and services, infrastructural requirements, human resources, identification of issues/ challenges, potential areas to work on to achieve target of conversion, etc.

On-boarding employees of the bank and strategy for their training and capacity building Communication plan with stakeholders (internal and external) and customer facilitation like awareness creation and information sharing with bank’s customers and complaint handling mechanism are part of these parameters.

SBP has said that the banks may approach Islamic Finance Policy Department, SBP for further guidance.

It may be mentioned here that recently, the landmark judgement by the Federal Shariat Court, requiring Pakistan’s banking sector to be Shariah-compliant by 2027, has set an ambitious target for the Islamic banking industry.

SBP said that achieving this goal requires a well thought out plan and coherent actions from all stakeholders. In light of this judgement, through the SBP Vision 2028, SBP aims to strengthen legal and regulatory environment and build a conducive legal and regulatory landscape, ensure alignment with international prudential standards and ensure tax neutrality for Islamic banking vis-à-vis conventional banks.

In addition, in order to transform existing conventional banks into Islamic banks, SBP will design a roadmap for transition towards Islamic banking, coordinate with banks for conversion to Islamic banking and design solutions/ tools for liquidity management for Islamic banks.

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