Process for Standardization of Shariah Practices

Process for Standardization of Shariah Practices - Process...

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Process for Standardization of Shariah Practices Shariah compliance is the most important aspect of Islamic banking/finance. The credibility of Islamic Banking Institutions (IBIs) not only depends on the financial health of the institution but also on its adherence to the Shariah. Under the current strategy for promotion and development of Islamic Banking as a parallel, viable and compatible banking system, State Bank of Pakistan has taken a number of steps to ensure Shariah compliance by IBIs and for standardization of Shariah practices. To bring in harmony and standardization of Shariah practices, the State Bank has put together a comprehensive compliance/harmonization framework. This is based on a detailed analysis of international and local industry practices. The framework consists of multiple elements utilizing formal as well as informal forums. However, it is to mention here that a flexible approach has been adopted while devising the said Shariah compliance/ harmonization framework. This has been done to avoid revisiting the experience of 1980’s where a rigid model was applied that resulted in a stalled process of product innovation and development. The aim this time is not to standardize each and every practice just for the sake of standardization only. Rather emphasis has been on a market based approach wherein the industry can on an on going basis provide Shariah compliant banking services through a parallel and compatible system. This paper highlights the framework already put in place and new initiatives undertaken by SBP which either directly contributes to, or indirectly augments the process of Standardization of Shariah practices in the Islamic banking industry of Pakistan both in the local as well as global context. Shariah Compliance Structure put in place by SBP This structure has the following salient features: 1. Shariah Board at SBP 2. Shariah Advisor as per Fit & Proper Criteria 3. Essentials & Model Agreements of Islamic Modes of Financing 4. Shariah Compliance Inspection 5. Meetings of Shariah Advisors 1. Shariah Board at SBP:
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  • Fall '11
  • Finance, Financial services, Shariah Advisors

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