New SBP Guidelines Restrict Shariah Board Members to Single Islamic Bank

State Bank of Pakistan (SBP) has revised the terms and conditions for the appointment of Shariah scholars for Islamic banks and Islamic banking divisions keeping in view the expansion of the Islamic banking industry. According to the updated Shariah Guidance Framework for Islamic Banking Institutions (IBIs), all Shariah board members of an Islamic banking Institution (including the chairperson, member(s), and resident Shariah board members shall not serve on any other Islamic banking institutions with effect from January 01, 2028. These terms and conditions were revised targeting the transformation of the conventional banking system into the Islamic banking system by 2028 in which the role of Shariah scholars is crucial to supervise and operate Islamic banks under the guidelines of Islamic. At present, Shariah scholars cannot serve a bank for more than two consecutive terms of three years, however, the scholars may be reappointed for the third time after approval and clearance of the State Bank of Pakistan (SBP) depending upon the specific conditions. The SBP directed Islamic banks to engage renowned Shariah Scholars, who have adequate experience in serving on Shariah Boards/Committees of reputable organizations at local and global levels, The board shall designate one of the Shariah board members as chairperson and another as resident Sharia board member to take appropriate measures for introducing and implementing an effective Shariah compliance framework. Previously, only full-fledged Islamic banks appointed a team of Shariah scholars with a resident in charge or a chairperson, the framework stated. Each Islamic banking institution shall have at least three (3) Sharia board members. Except, resident Shariah board members, Shariah scholars may serve on the board of up to three (3) Islamic banking Institutions Is in Pakistan. However, the Islamic bank must ensure that its Shariah Board has at least 2 members (other than resident members), who are not on the Sharia Board of any other Islamic bank. Hence, each IBI shall have at least three (3) board members, including resident Shariah board members, who are not serving on board of any other bank. There are six full-fledged Islamic banks and 16 Islamic banking divisions of conventional banks. A number of banks are working to convert their operations from conventional to Islamic on the ruling of the Federal Shariat Court. SBP revised the Shariah Governance Framework (SGF) keeping in view the developments taking place in the Islamic banking industry and to remain abreast with the international best practices, The framework shall apply to all IBIs i.e. full-fledged Islamic banks, Islamic banking subsidiaries, and Islamic banking divisions of conventional banks. The primary objective of the framework is to strengthen the overall Shariah compliance environment of IBIs and explicitly define the roles and responsibilities of various organs of IBIs including the Board of Directors (BOD), Executive Management (EM), Shariah Board (SB), Shariah Compliance Department (SCD), Product Development (PD), Internal Audit and External Audit towards Shariah compliance. SBP released the framework in the years 2015 and 2018, previously.