KARACHI – State Bank of Pakistan (SBP) restricted Islamic Banking Institutions (IBIs) to stop placing funds with their conventional parent banks or head offices through Qard (loan-based) arrangements or any other subsidized financing mechanisms.
Under new guidelines, the central bank called these practice non-compliant with existing Islamic banking framework.
SBP said such fund placements are not permissible under current Shariah governance standards. It further instructed Islamic banks to withdraw any funds already deployed under these arrangements without delay.
State Bank said the move is aimed at strengthening Shariah compliance within the financial system and supporting the continued development of Pakistan’s Islamic banking industry.
The directive comes shortly after regulator allowed conventional banks to open Islamic banking windows within their existing branches without prior approval, a policy designed to accelerate the expansion of Islamic financial services and facilitate the gradual conversion of conventional banking operations.
As per SBP data, Pakistan’s banking sector comprises 16 conventional banks alongside growing Islamic banking network that includes 4,159 full-fledged Islamic banking branches, 3,473 Islamic banking windows, and 166 sub-branches.
The central bank further noted that Islamic banking branches operated by conventional banks account for approximately 42.8 percent of total assets in the Islamic banking industry, highlighting their significant role in the sector’s overall growth.
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