KARACHI: Central bank on Monday adopted four more Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) Shariah standards following comprehensive evaluation and deliberations with internal and external stakeholders, keeping in view the local environment.
These standards include Salam and Parallel Salam, Istisna’a and Parallel Istisna'a, Combination of Contracts and Irrigation Partnership (Musaqat), with certain clarifications and amendments, the State Bank of Pakistan (SBP) said in a statement.
Salam is a mode of finance frequently used in agriculture, while Istisna’a is a mode generally used by Islamic banking institutions to provide financing where manufacturing/assembling/processing is involved.
Irrigation partnership (Musaqat) standard can be used in the agriculture sector, especially for orchard financing, while the standard on the combination of contracts guides Islamic banking institutions when making use of multiple contracts in their various arrangements to meet the needs of the customers, according to the SBP.
Strengthening Shariah compliance with the Islamic banking industry in line with the best international practices is one of the key pillars of SBP’s 3rd Strategic Plan for Islamic Banking Industry 2021-25. Under the plan, SBP has been adopting Shariah standards of AAOIFI systematically and gradually.
“The standardisation and harmonisation in Shariah practices and procedures are helping in elevating the local Islamic banking industry at par with the international best practices,” it said.
The SBP is among the few regulators across the globe where comprehensive legal, regulatory, and Shariah governance frameworks have been successfully developed and implemented. Presently, 22 Islamic banking institutions (5 full-fledged Islamic banks and 17 conventional banks having standalone Islamic banking branches) with a branch network of 3,983 branches along with 1,418 Islamic banking windows (Islamic banking counters at conventional branches) are operational across the country, according to the figures from the SBP. The industry now accounts for 19.4 percent of the country's overall banking system in terms of assets, while in terms of deposits the share is 20 percent (as of March 31, 2022).