The Securities and Exchange Commission of Pakistan (SECP) has given legal backing to the “Islamic financial institutions”, offering Islamic financial services, including Shariah-compliant companies and Shariah-compliant securities to achieve the constitutional objective of eradication of Riba and Islamization of the economy.
In this connection, the SECP issued Shariah Governance Regulations, 2023 through S.R.O. 1314 (I)/2023 on Tuesday.
Under the new regulations, every company shall, prior to claiming to be a Shariah-compliant company, by whatever name called, obtain a declaration in the form of a Shariah compliance certificate from the Commission in accordance with the provisions of these regulations.
Any company desirous of obtaining a declaration in the form of a Shariah compliance certificate shall make an application to the Commission, as set out in Form A, along with documents as mentioned therein and receipt evidencing the payment of non-refundable processing fee, as prescribed in Schedule I.
A company declared as Shariah compliant by the Commission shall admit that raising loans on interest is prohibited, whatsoever the amount, and it shall endeavor to settle the interest-bearing loan at the earliest possible time and shall not take any further interest-based loan in the ordinary course of business.
Provided that in case of a dire need, such loans may be raised with specific approval of the Shariah supervisory board or the Shariah advisor, as the case may be, and the board of directors with complete disclosure in the annual financial statements and annual report.
It will also admit that any interest-based investment is prohibited, whatsoever the amount, and it shall endeavor to dispose of the same and not make any further interest-based investments and make concerted efforts to eliminate any prohibited elements from its income, operations, assets, and liabilities.
The regulations stated that every person, before claiming that security is Shariah compliant, shall obtain a declaration in the form of a Shariah compliance certificate under these regulations as per the laid down process.
The SECP has also notified the minimum Shariah screening criteria for Shariah-compliant companies and securities. The core business activities of the company shall not include Shariah non-permissible business activities.
Shariah non-permissible business activities shall include but not be limited to conventional financial institutions including conventional banks, and insurance, interest based-lending, gambling and betting, liquor and liquor-related activities, pork and pork-related activities, non-halal food and beverages, Shariah non-compliant entertainment, tobacco and tobacco-related activities, and other activities that are deemed Shariah non-permissible.
The company does not state in its memorandum of association that one of its objectives is to deal with Shariah non-permissible business activities.
The Commission may, through a notification, require a Shariah-compliant company, a class of Shariah-compliant companies, an Islamic financial institution or a class of Islamic financial institutions to form, constitute, appoint, or engage a Shariah supervisory board within a stipulated period, comprising at least two persons who meet the fit and proper criteria of a Shariah scholar member and other requirements as provided in these regulations.