KARACHI: In view of the industry practices and considering the feedback from Islamic Banking Institutions (IBIs), the State Bank of Pakistan (SBP) has further refined Shariah Governance Framework (SGF) and accordingly issued for compliance.

The framework will come into force with immediate effect and the SBP has advised IBIs to make all the necessary arrangements to comply with the requirements of the framework and submit compliance status to the SBP by July 31, 2018.

Any non-compliance with provisions of the framework will render the bank liable for penal action under the provisions of Banking Companies Ordinance, 1962.

In 2008, SBP issued detailed set of instructions and guidelines for Shariah compliance. However, keeping in view the developments taking place in the Islamic banking industry over the recent years, some of the instructions and guidelines have been revisited and a comprehensive Shariah Governance Framework (‘SGF or Framework’) was developed in 2015, which has now been further reviewed. Now this framework has further refined in the line with best industry practices.

The Framework will be for all IBIs, ie, full-fledged Islamic banks, Islamic banking subsidiaries and Islamic banking divisions of conventional banks.

The primary objective of the Framework is to strengthen the overall Shariah compliance environment of IBIs and explicitly define the roles and responsibilities of various organs of IBIs including the Board of Directors (BOD), Executive Management (EM), Shariah Board (SB), Shariah Compliance Department (SCD), Product Development (PD), internal auditors and external auditors towards Shariah compliance.

According to Framework asked for an effective mechanism for the BOD’s oversight of the IBI’s Shariah compliance environment and accountability of management and staff of the IBI in implementation of the Framework.

An independent and effective SB should be appointed as per Fit and Proper Criteria (FAPC) set out in this Framework, with one of its Shariah scholar members working as Resident Shariah Board Member (RSBM) to oversee the procedures and processes to be adopted for implementation of the SB’s fatawa, resolutions and guidelines and provide clarification thereon.

A SCD to assist SB and to serve as a conduit between the SB and the management of an IB, besides, Shariah compliance review mechanism to assess operative effectiveness of Shariah governance and compliance framework devised by the SB and BoD of the IBI.

The framework asked for an independent Internal Shariah Audit Unit (ISAU) which may be a part of internal audit department or an independent unit depending on the size of the IBI and a product development (PD) department/unit responsible for development of new and innovative products and services.

As per framework External Shariah Audit to be undertaken along with the annual audit of the IBI.