Islamic banks directed to improve risk management

Published June 15, 2021
The foundation of Islamic banking lies in compliance with Shariah rules and principles in all its business activities and operations, said the SBP. — AFP/File
The foundation of Islamic banking lies in compliance with Shariah rules and principles in all its business activities and operations, said the SBP. — AFP/File

KARACHI: The State Bank of Pakistan (SBP) has advised Islamic banking institutions (IBIs) to enhance their risk management through compliance of Shariah rules.

The central bank on Monday issued exclusive instructions on Shariah Non-Compliance Risk (SNCR) management aimed at enhan­­c­­ing the stability and soundness of Islamic banking.

The foundation of Islamic banking lies in compliance with Shariah rules and principles in all its business activities and operations, said the SBP.

“The SNCR is a unique risk faced by Islamic Banking Institutions (IBIs) and must be managed proactively,” said the SBP.

The increasing size of the industry in terms of assets and deposits, diversified operations, products and services make focused management of SNCR a necessity. In addition, the adoption of uniform practices will help in maintaining consistency over time and across Islamic Banking Institutions (IBIs).

For improving SNCR management, instructions issued by SBP require the Board of Directors (BoD) and senior management of IBIs to approve and ensure implementation of SNCR as a part of overall risk management framework in line with the size and complexity of their business.

The SNCR management framework will be developed using SBP’s instructions on Shariah principles and decisions in conjunction with rulings and fatawa of the Shariah Board of the IBI as key reference points.

Published in Dawn, June 15th, 2021

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