KARACHI, Aug 11: The State Bank has taken serious notice of the irresponsible practice of some banks that are selling their products as ‘Shariah-compliant’ without obtaining an Islamic banking licence.

The central bank has asked these banks to stop this practice or face consequences.

The banks have shown tremendous progress during the last four years and earned massive profits with diversified growth from corporate sector to consumer financing, including Islamic banking.

It may be interesting to note that the most organised banking sector under the nose of the regulator is involved in deceiving the customers, who do not want to buy interest-based products but they are getting the same under the garb of Shariah-compliant products.

“It has been noted that some banks are marketing their products by using the name of Islamic or Shariah-compliant modes of financing without obtaining an Islamic banking license from the State Bank,” said a SBP circular on Saturday.

Such products often do not comply with the ‘essentials’ of the Islamic modes of financing as defined by the SBP, it added. Banks are selling these products in violations of the SBP’s guidelines.

The State Bank has its own Shariah Board and the board is well connected with the Shariah boards and Islamic institutions of the Muslim countries, which are either in advance stage of Islamic banking or are following the Shariah path. The State Bank’s guidelines for Islamic banking are well respected in the Muslim world, including Malaysia, Bahrain, and Saudi Arabia.

The violations by the banks show that the conventional bankers are not taking the issue seriously considering it another money making window.

The State Bank has asked these banks to stop this malpractice but it did not come out with any penalties for the banks involved despite the fact that tens of millions of Pakistanis want to avoid interest-based products.

“All banks not authorised by the SBP through a licence to carryout Islamic banking are directed not to offer products and services in the name of Shariah compliant without obtaining a license,” said the SBP circular.

A chief executive of an Islamic Bank while commenting on the issue said that the State Bank should not only warn but the banks involved in this wrong practice should be penalised as the this could hurt the entire efforts for the growth of Islamic banking in the country.

“Response to Islamic banking is not as big as it should be, mainly because the people are still in the stage of judging the banking products to be in line with Islamic Shariah. If some banks deceive them at this moment it will hurt the entire efforts for promoting Islamic banking, including the efforts of the State Bank,” said the head of the Islamic bank.

Islamic banks have only 3 per cent share of the total banking in the country while the Islamic bankers want to make it a facility parallel to conventional banking. Pakistan is holding a grand conference on Islamic banking in November this year with a participation of over 100 institutions from the world over, especially from Muslim countries and the aim is to accelerate the pace of growth as there is vast potential for the growth.

The SBP further said that any recoveries made or penalties imposed by banks on their clients in excess of the originally agreed pricing under the purported Shariah-compliant products, must forthwith be refunded to the respective customers within 15 days of this circular with confirmation in writing to the Director Islamic Banking department.

“Failure to comply with these instructions may invoke penal action,” the State Bank warned.