Islamic Banking in Pakistan

Government steps
As the part of the Islamization of economic structure the all commercial bank convert their some work to non – interest basis. But the procedure by their selves was un – Islamic declared by Federal Shariat Court (FSC) in 1991, the government and other banks were to go appeal in Supreme Court of Pakistan. The Shariat Appellate Bench of Supreme Court of Pakistan upheld the previous decision in 1999. In the light of this order government of Pakistan form a committee to judge the strength and risks of conversion of the interest based system in to Islamic finance system. Because it was not possible to implement this in short term. The State Bank of Pakistan issued criteria for the establishment of Islamic banks in private sector and it decided to promote Islamic banking parallel with the conventional banking.

10. 2 - Role of State Bank of Pakistan


Since 1991 verdict by Supreme Court that initially sought a conversion of the banking and finance system along with Islamic principles. On appeal, the court's ruling was toned down but central bank officials say that rather than converting the entire financial system to an Islamic one, the authorities are now working to create either a network of new Islamic banks or "windows" offering Islamic services within conventional banks.

Islamic Banking Department was established on 15th September, 2003 and has been entrusted with the huge task of promoting & developing the Shariah Compliant Islamic Banking as a parallel and compatible banking system in the country.

Islamic Banking is one of the emerging field in global financial market, having tremendous potential and growing at a very fast pace all around the world. The progress of Islamic Banking in Pakistan has also been commendable during the last three years. Islamic Banking is a high priority area for State Bank of Pakistan. Steps are being taken to make Islamic banking industry in Pakistan robust enough to offer a viable alternative to conventional banking, should the market decide that Pakistan should have an exclusively Islamic banking system in the country.
State Bank of Pakistan wants to develop a progressive and sound Islamic banking system that is in line and compatible with the global financial sector, providing innovative Shariah compliant products and services so as to achieve equitable economic growth.

One of the biggest challenges being faced by this growing industry is the dearth of professional Islamic Bankers and capacity building in this regard is one of the top most priorities for the promotion of Islamic Banking. In order to play our regulatory and supervisory role more efficiently we are working on the areas like Risk Management, Corporate Governance, Prudential Regulations, Accounting & Shariah Standards etc. regarding Islamic Banking


Currently the Islamic Banking Department (IBD) consists of following four divisions:
1. Policy Division
2. Shariah Compliance Division
3. Business Support Division
4. Shariah Board Secretariat
1. Policy Division:

Objectives:
• Devise a vision and strategy paper and work for the promotion of the Islamic banking industry.
• Study the best international practices being applied in the field and work upon their possible application in local market.
• To deal with legal, regulatory, taxation and accounting issues faced by IBIs.
• To steer the Task Force on R&D and deal with issues relating to Islamic economics.
2. Shariah Compliance Division

Objectives:
• To strengthen the supervisory aspect of Islamic banking industry through implementation of Shariah Compliance Inspection Manual.
• To analyze the financial data received from the banks and review the same.
• To coordinate with different departments in preparing various SBP publications.
• To develop new products for liquidity management and interbank market
• To liaison with international institutions involved in Islamic finance
3. Business Support Division

Objectives
• To provide administrative support to the department.
• To make arrangements for various meetings
• To make arrangements for the training and video conferences
4. Shariah Board Secretariat:

Objectives:
To arrange Shariah Board meetings, preparing agenda and minutes of the meetings and conduct due diligence of Shariah Advisors of IBIs