July 04, 2022: After a comprehensive process of evaluation and deliberations with the internal and external stakeholders, the State Bank of Pakistan (SBP) today, has adopted four more AAOIFI Shariah standards on Salam and Parallel Salam, Istisna'a and Parallel Istisna'a, Combination of Contracts and Irrigation Partnership (Musaqat), with certain clarifications and amendments, a press release said on Monday.
In line with the best international practices, strengthening Shariah compliance in the Islamic banking industry is one of the key pillars of SBP’s 3rd Strategic Plan for Islamic Banking Industry 2021-25.
Under the plan, SBP has been adopting Shariah standards of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in a systematic and gradual manner.
The standardization and harmonization of Shariah practices and procedures are helping in elevating the local Islamic banking industry at par with the international best practices.
Salam, one of the AAOIFI Shariah standards, is a mode of finance frequently used in agriculture while Istisna’a is a mode generally used by Islamic banking institutions to provide financing where manufacturing/assembling/processing is involved.
Irrigation partnership (Musaqat) standard can be used in the agriculture sector, especially for orchard financing while the standard on a combination of contracts provides guidance to Islamic banking institutions when making use of multiple contracts in their various arrangements to meet the needs of the customers. It may be noted that earlier SBP has already issued detailed general guidelines on Islamic financing for the agriculture sector.
With the adoption of these four standards, the total number of AAOIFI Shariah standards adopted by SBP has reached twenty while work on the remaining standards is underway. Besides, there are few AAOIFI standards that have already been adopted by SBP as part of its various regulations, instructions and guidelines issued from time to time.
AAOIFI is a leading international organization primarily responsible for the development and issuance of standards for the global Islamic finance industry. SBP has remained a key member of AAOIFI’s Board of Trustees. For details: https://www.sbp.org.pk/ibd/2022/C1.htm