SBP adopts four more Shariah standards

After a comprehensive process of evaluation and deliberations with the internal and external stakeholders, and keeping in view the local environment, the State Bank of Pakistan (SBP) on Monday adopted four more AAOIFI Shariah standards.

These were Salam and Parallel Salam, Istisna’a and Parallel Istisna’a, Combination of Contracts, and Irrigation Partnership (Musaqat), with certain clarifications and amendments, said the SBP in a statement.

“Strengthening Shariah compliance by the Islamic banking industry in line with the best international practices is one of the key pillars of the State Bank’s 3rd Strategic Plan for Islamic Banking Industry 2021-25,” it said.

“Under the plan, the SBP has been adopting Shariah standards of Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) in a systematic and
gradual manner.”

The central bank said the standardisation and harmonisation in Shariah practices and procedures were helping in elevating the local Islamic banking industry at par with the international best practices.

Salam is a mode of finance frequently used in agriculture while Istisna’a is a mode generally used by Islamic banking institutions to provide financing where manufacturing/ assembling/ processing is involved.

Irrigation partnership (Musaqat) standard can be used in the agriculture sector, especially for orchard financing while the standard on Combination of Contract provides guidance to the Islamic banking institutions when making use of multiple contracts in their various arrangements to meet the needs of the customers.

Earlier, the SBP has issued detailed general guidelines on Islamic financing for the agriculture sector.

With the adoption of the four standards, the total number of AAOIFI Shariah standards adopted by the SBP has reached 20 while work on the remaining standards is underway.