Qudsia Bano

The State Bank of Pakistan (SBP) recently issued comprehensive guidelines to facilitate the conversion from conventional to Islamic banking. This initiative is part of the central bank’s Vision 2028, which aims to fully transform the banking system in accordance with the Sharia principles, reports WealthPK. The SBP has developed broad guiding parameters, which will help banks devise their conversion plans, the central bank stated in a circular. The guidelines emphasize several critical factors banks must consider when creating their conversion strategies. These include establishing a clear vision and strategy, a robust governance structure, and setting internal milestones for conversion of various financial elements such as assets, deposits, financing, investments, syndicated transactions, and branches. Additionally, the SBP has mandated the banks to conduct a thorough gap analysis covering policies, products, services, infrastructure requirements, human resources, and identification of potential issues and challenges.

This analysis is intended to help banks identify prospective areas for improvement and work systematically toward achieving their conversion goals. “Strategic planning and strict adherence to timelines are crucial for successful conversion of conventional banks to Islamic banking,” said Dr. Syed M. Abdul Rehman, Shariah Adviser Security and Exchange Commission of Pakistan (SECP). “The guidelines provided by the SBP are a significant step forward, but banks need to ensure they have the necessary resources and commitment to follow through on these plans. “Key challenges identified in the transformation process include converting government debt into Sharia-compliant financing, simplifying Sharia-compliant financing products, and enhancing training and capacity building within the industry. The SBP is actively collaborating with the banking industry, Sharia scholars, and the federal government to address these issues,” he said. Dr. Rehman further emphasized the importance of addressing the human resource challenge.

“Training and capacity building are paramount. The industry needs a workforce well-versed in Islamic finance principles to navigate this transition effectively.” Muhammad Ibrahim, an Islamic banking professional at the Meezan Bank, emphasized the need for innovation in Sharia-compliant products. “Simplification and innovation in product offerings will make Islamic banking more accessible and attractive to customers. This will require significant research and development efforts from the banks.” The SBP's proactive approach towards laying down these guidelines and its collaborative efforts with various stakeholders reflect its commitment to transforming Pakistan's banking landscape. The success of this ambitious vision will depend on the collective efforts of banks, regulatory bodies, and financial community at large. As the industry gears up for this significant transformation, adherence to the SBP’s guidelines and a strategic, well-planned approach will be essential to achieve a fully Sharia-compliant banking system by 2028.

Credit: INP-WealthPk