In line with the burgeoning Islamic banking industry, the State Bank of Pakistan (SBP) revised terms and conditions relating to the appointment of Shariah scholars for Islamic banks and divisions.
As revised in the recent Shariah Guidance Framework for Islamic Banking Institutions (IBIs), all Shariah board members, including chairpersons, members, and resident Shariah board members, shall not be part of any other Islamic Banking Institutions effective 01 January 2028.
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The transition changes thus are to convert Islamic banking systems from conventionality to Shariah compliance by 2028, where Shariah scholars are to play a vital role in the supervision and operations of Islamic banks under Islamic guidelines. Presently, a Shariah scholar cannot serve more than two consecutive terms of three years for a particular bank but would be eligible for third term service upon securing SBP approval for specific conditions.
SBP further directed Islamic banks to have Shariah scholars in collaboration with experience from reputed Shariah Boards / Committees in local and global environments. Each Shariah board should have a chairperson as well as a member resident in the Shariah board.
In the past, full-fledged Islamic banks only had the privilege of appointing a team of Shariah scholars. Today, every Islamic banking institution must at least appoint three Shariah board members. But resident Shariah board members cannot be part of more than three Islamic banking Institutions in Pakistan, and each Islamic bank has to ensure that its Shariah Board comprises at least two members not part of any other Islamic bank board.
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The Federal Shariah Court ordering a shift away from conventional banking has, at this point, brought 6 full-fledged Islamic banks and 16 Islamic banking divisions of normal banks into the standard of converting their financial operations.
The SBP resurfaced and redefined the Shariah Governance Framework (SGF) in light of changes being made in the Islamic banking industry as well as internationally accepted best practices. This framework with respect to all IBIs will apply to full-scale Islamic banks, Islamic banking subsidiaries, and banks for Islamic banking acts.
The specific objective would be to buttress the Shariah compliance environment of IBIs in particular, while defining the roles and responsibilities of the different organs, including the general Board of Directors (BOD), Executive Management (EM), Shariah Board (SB), Shariah Compliance Department (SCD), Product Development (PD), Internal Audit, and External Audit. The SBP had issued the framework previously in 2015 and 2018.