The State Bank of Pakistan (SBP) has revised the Sharia Governance Framework (SGF) to advance the Islamic banking industry and enhance its compliance with Sharia principles.
In a circular issued on Friday, the State Bank of Pakistan directed Islamic banking institutions to prepare to implement the updated framework by January 1, 2025. “To further strengthen the Social Security Fund and align it with international best practices, market developments and feedback from stakeholders,” the SGF has been reviewed and issued for compliance, Male SBP.
The Islamic banking sector is witnessing rapid growth, as Pakistan aims to convert its entire banking system to usury-free operations by 2027.
Between March 2015 and March 2024, the assets of Islamic banking institutions grew by about 24% per year on average. Deposits with Islamic banking institutions grew by about 22% during the same period.
By the end of March 2024, the industry’s assets increased by Rp241 billion, reaching Rp9.24 trillion, while deposits grew by Rp126 billion, reaching Rp6.88 trillion.
The share of Islamic banking institutions in the banking sector in general has almost doubled. In 2015, the share of Islamic banking assets and deposits in the total banking sector was only 10% and 12%. This changed a decade later as the share of assets and deposits doubled to approximately 20% and 23% respectively.
The number of branches of Islamic banking institutions reached 5,101 branches as of March 2024.
The SBP circular highlighted that IFIs must ensure compliance with the revised framework by 31 March 2025. “The revised social security framework will become effective from 1 January 2025. IFIs are advised to make arrangements to comply with the requirements of the revised SBP and submit their SBP compliance status by March 31, 2025.
All applications related to the Sustainable Development Fund should be sent to the Director, Islamic Finance Policy Department, as directed in the Reserve Bank of Pakistan circular. The central bank also warned that any non-compliance with the provisions of the Social Security Fund will result in penal action under the Banking Companies Act of 1962.