To further advance Islamic Banking in the nation, the State Bank of Pakistan has ratified four more Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Shariah standards.
One of the main tenets of SBP’s 3rd Strategic Plan for Islamic Banking Industry 2021–25 is strengthening Shariah compliance in the sector in accordance with the best global standards.
According to the strategy, SBP has been methodically and gradually implementing the Shariah requirements of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). The local Islamic banking sector is being advanced to parity with the global best practices thanks to the standardization and harmonization of Shariah norms and processes.
Today, the State Bank of Pakistan (SBP) announced the adoption of four more AAOIFI Shariah requirements following a thorough examination and discussion process with internal and external stakeholders, taking into consideration our local environment:
i) Salam and Parallel Salam
ii) Parallel Istisna’a and Istisna’a and iii) Contract Combinations
iv) Musaqat Irrigation Partnership, with a few clarifications and modifications.
In contrast to Istisna’a, which is typically utilised by Islamic financial institutions to offer funding where manufacturing, assembling, or processing is involved, salam is a style of finance that is widely employed in agriculture.
While the standard on a combination of contracts directs Islamic banking institutions when using multiple contracts in their various arrangements to meet the needs of the customers, the irrigation partnership (Musaqat) standard can be used in the agricultural sector, particularly for orchard financing. You should be aware that the SBP already published comprehensive general recommendations on Islamic finance for the agricultural industry.
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