KARACHI, Jan 2: The State Bank of Pakistan has formulated Risk Management (RM) Guidelines for Islamic Banking Institutions (IBIs) with a view to further strengthening the regulatory framework in the area of risk management for IBIs.

These RM Guidelines are based on a ‘Guiding Principles of Risk Management for Institutions offering Islamic Financial Services’ issued by Islamic Financial Services Board (IFSB), which is an international-standard setting body of regulatory and supervisory agencies and the same have been tailored keeping in view the regulatory regime of the SBP.

However, these guidelines will be in addition to the various Risk Management Guidelines issued by SBP from time to time and IBIs will be required to comply with both set of guidelines. These guidelines set out 15 principles of risk management and provide guidance for each category of risk, drawn from discussion on Islamic Financial Industry practices.

Further, these set of principles are applicable to the six categories of risks viz: credit risk, market risk, liquidity risk, operational risk, equity investment risk and rate of return risk.

For each type of risk, risk management practices have been discussed giving examples of specific Islamic banking modes of financing and according to various roles that an Islamic Banking Institution may perform.