To further facilitate banks in the conversion of their branches, the State Bank of Pakistan revamped the existing criteria for the conversion of conventional banking branches into Islamic banking branches keeping in view the industry’s needs and issues emerging from time to time.
The rules were revised after a few banks are preparing to convert their operations from conventional to Islamic banking mode within the next few years, seeking the facilitation of the banking regulator to simplify rules and regulations for the transformation of bank operations.
The conversion of the banking system was initiated after the Federal Sharia Court of the country issued a verdict to end Interest-based banking in the country. In this regard, the banking regulator is working in line with the plan of the government, hence it revised up the rules for conventional banks seeking to transform their operations into Islamic.
Here are the rules for branch conversion All conventional banks having Islamic operations or those who intend to start Islamic banking operations shall be eligible to apply for conversion of their existing conventional branches into Islamic without any licensing fee.
The bank shall submit its Annual Branch Conversion Plan (ABCP) aligned with its overall conversion plan along with a specific request for in-principle approval to convert its conventional branches into Islamic to the Banking Policy & Regulations Department (BPRD) with a copy to Islamic Finance Policy Department (IFPD), SBP by 31st October of each preceding calendar year.
The bank shall inform the general public and account holders about the conversion of its respective conventional branches into Islamic at least three and a half months before the conversion by newspapers, website and notices in all branches.
In case of consent by the account holders, the accounts will be converted from conventional to Islamic whereas in case of dissent of the account holders on conversion of accounts, the bank may either allow the transfer of their accounts to another conventional banking branch or close the accounts as per choice of the account holders.
The bank shall ensure that no account of a non-Muslim customer is converted from conventional to Islamic unless consented explicitly.
The bank shall not convert accounts under litigation, accounts of deceased persons, accounts involved in any dispute, and accounts which are dormant/inactive.
In order to further facilitate and accelerate the conversion of branches, banks may establish a virtual conventional cost centre(s) on a temporary basis to park unconvertible deposits and asset portfolio of converted branches with the approval of bank’s Shariah Board.
The virtual conventional cost centre(s) shall only be used for managing existing conventional business.
No new business or enhancement in the existing business or roll over of conventional assets would be allowed through virtual cost centre(s), the revised rules stated.
The bank shall develop SOPs for conversion of branches, which shall inter alia include pre & post conversion processes, roles/responsibilities of field staff and head office level staff involved in conversion of branches.
The bank shall disseminate such SOPs among all relevant staff of branch(es)/head office for guidance purposes. Shariah Compliance Department (SCD) of the bank shall conduct periodic internal Shariah review(s) to ensure Shariah compliance during conversion process for virtual cost center (s), management of collaterals/securities & reporting line. SCD shall submit its report to the Shariah Board.
SBP may grant in-principle approval after evaluating the bank’s request for conversion of conventional branches. The bank shall initiate the conversion process as per the conversion plan and in-principle approval.
Upon completion of all requirements in light of the conversion plan and in-principle approval, the bank shall apply for license(s) of Islamic banking branch(es) and submit a Shariah Board certificate confirming that the whole conversion process has been undertaken in conformity with Shariah. Accordingly, the bank shall surrender the existing license(s) of the conventional branch(es). The rules are the same for microfinance banks.
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Islamic means less profit for consumers and more for banks and corporate sector.