The State Bank of Pakistan (SBP) has introduced revised guidelines for appointing Shariah scholars in Islamic banking institutions (IBIs). These updates are part of an effort to enhance the governance framework for Islamic banking and align the sector with the Federal Shariat Court’s directive to transform Pakistan’s conventional banking system into an Islamic model by 2028.
The revised Shariah Governance Framework (SGF), set to take effect on January 1, 2028, incorporates more stringent requirements for Shariah board members, aiming to ensure better compliance with Islamic principles. One of the key changes is that Shariah board members, including the chairperson and resident Shariah scholars, will no longer be allowed to serve on the boards of multiple Islamic banking institutions simultaneously. This exclusivity aims to prevent conflicts of interest and ensure focused oversight.
Furthermore, the framework introduces tenure limitations for Shariah scholars, restricting their service to two consecutive three-year terms at a single institution. Any reappointment for a third term will require prior approval from the SBP and must meet specific conditions.
To strengthen oversight, each Islamic banking institution must have at least three Shariah board members. At least two of these members must not serve on the boards of other Islamic banks, and one must be a resident Shariah board member. Additionally, banks are required to engage experienced scholars who have prior service on Shariah boards or committees of reputable organizations, both local and international.
The updated SGF also includes a clear definition of roles and responsibilities for all stakeholders involved in the governance and operations of Islamic banking institutions. This includes the Board of Directors, Executive Management, Product Development, Shariah Compliance Department, and both internal and external audit teams. These measures aim to ensure a robust and transparent adherence to Shariah principles across banking operations.
These updates reflect the SBP’s ongoing efforts to align Islamic banking in Pakistan with international best practices. Originally introduced in 2015 and revised in 2018, the SGF has now been updated to cater to the evolving landscape of the Islamic finance industry. The framework applies to all IBIs, including fully Islamic banks, Islamic banking subsidiaries, and Islamic banking divisions of conventional banks.
Currently, Pakistan hosts six full-fledged Islamic banks and 16 Islamic banking divisions within conventional banks. Many of these institutions are actively working to transform their operations to comply with Shariah principles, a process spurred by the Federal Shariat Court’s ruling.
This step by the SBP underscores its commitment to fostering a globally competitive and Shariah-compliant banking environment. By refining the governance framework, the central bank aims to establish a robust Islamic banking ecosystem that meets the expectations of both domestic and international stakeholders. These changes are expected to strengthen the Islamic finance sector, contributing to its growth and enhancing its reputation for transparency and compliance.