IBD Monetary (Islamic Banking Dept of Pakistan)

7/28/2019 IBD Monetary (Islamic Banking Dept of Pakistan)

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ISLAMIC BANKING

DEPARTMENT

(IBD)


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GROUP MEMBERS

M. Shahryar Saeed (SP10-BB-0039 )

Nabeel Hassan Khan (SP10-BB-0053)

M.Ahsan Baig (SP10-BB-0035)

Arsalan M. Khan (Sp07-BB-0032)


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INTRODUCTION

Department of State Bank of Pakistan.

Established on September 15, 2003.

Task of promoting and developing Shariah Islamic bank.

Currently there are six licensed full fledged Islamic Banks and

twelve conventional banks.

Over 336 branches operating in more than 50 cities.


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VISION STATEMENT

To make Islamic banking the banking of first choicefor the providers and users of financial services.


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MISSION STATMENT

To promote and develop Islamic Banking industry

in line with best international practices, ensuring

Shariah Compliance and transparency.


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RULES AND REGULATIONS

Instructions and Guidelines for Shariah compliance.

Guidelines for Islamic Microfinance Business by Financial

Institutions.

Risk Management Guidelines for Islamic Banking Institutions.

Guidelines on Islamic Financing for Agriculture.

Guidelines For Opening Of Stand Alone Branches for Islamic

Banking.

Fit & Proper Criteria for Appointment of Shariah Advisors.


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MONETARY POLICY


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WHAT IS MONETARY POLICY?

The term monetary policy refers to actions taken bycentral banks to affect monetary magnitudes orother financial conditions.

Monetary Policy operates on monetary magnitudes

or variables such as money supply, interest ratesand availability of credit.

Monetary Policy ultimately operates through itsinfluence on expenditure flows in the economy.

In other words affects liquidity and by affectingliquidity, and thus credit, it affects total demand inthe economy.


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AIMS OF MONETARY POLICY

MP is a part of general economic policy of thegovt.

Thus MP contributes to the achievement of thegoals of economic policy.

Objective of MP may be:

Full employment

Stable exchange rate

Healthy BoP

Economic growthReasonable Price Stability

Greater equality in distribution ofincome & wealth

Financial stability


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OPERATION OF MONETARY POLICY

Instruments

1. Discount Rate

(Bank Rate)

2.Reserve Ratios

3. Open Market

Operations

Operating

Target

Monetary Base Bank Credit

Interest Rates

IntermediateTarget

Monetary

Aggregates(M3)

Long term

interest rates

Ultimate

Goals

Total Spending

Price Stability

Etc.


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INSTRUMENTS OF MONETARY POLICY

Direct Instruments:

These are direct controls on the financial prices

(interest rates) or quantities ( deposits or credits)

of financial institutions.

Indirect Instruments:

These influence the behavior of financialinstitutions by affecting initially the central bank's

own balance sheet or the pricing (interest rates) of

central bank facilities, and are used mainly in

liberalizing or liberalized financial systems.


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DIRECT INSTRUMENTS

Direct instruments are typically directives given bythe central bank to control the quantity or price(interest rate) of money deposited withcommercial banks (and sometimes other financial

institutions) and credit provided by them.

Examples of Direct Instruments are:

Interest Rate Controls

Credit Ceilings Directed Lending

Statutory Liquidity Requirements


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INDIRECT INSTRUMENTS

SBP uses targeting monetary aggregates for itsmonetary management function, So Indirectinstruments are used for controlling price or volume ofthe supply of its own liabilities i.e. reserve money,

which in turn affects interest rates and the quantity ofmoney and credit in the whole banking system.

Examples of Indirect instruments are

T-bill and PIB Auctions Open-Market Operations

Discounting Facility

Foreign Exchange Management


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CIRCULARS

OR

NOTIFICATIONS


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POLICIES FOR THE PROMOTION OF ISLAMIC BANKING

1. Establishment of full-fledged Islamic bank(s) in the private

sector.

2. Setting up of subsidiaries for Islamic Banking by existingcommercial banks.

3. Allowing Stand-alone branches for Islamic banking in theexisting commercial banks.


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2004

Contact Details of Islamic Banking Department.

FIT AND PROPER CRITERIA FOR SHARIAH ADVISORS .

Essentials and Model Agreements for

Islamic Modes of Financing.

Minimum Shariah Regulatory Standards.


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SUBMISSION OF RETURNS TO ISLAMIC BANKING

DEPARTMENT.

Banks are required to submit the copies of following returns to

Islamic Banking Department:

1. Weekly statement of position

2. Quarterly report of condition

3. Half yearly/Quarter Ended Financial statement

4. Annual Accounts


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INFORMATION ABOUT ISLAMIC BANKING WINDOWS

Banks having Islamic banking branches may authorize some of

their branches to sell Islamic banking deposit schemes.

Conventional banks having IB window shall submit

following to IBD:

Details of products & services.

Details of systems and controls.

Commission/fee arrangement with authorized branch. Details about training of Human Resource in Islamic Banking.

Contact details of Islamic Banking Window.


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GUIDELINES FOR ISLAMIC MICROFINANCE BUSINESS

Focus on the products and services to low income segments ofthe society in a Shariah compliant manner.

Stipulates four types of institutions:1. Establishing Full Fledged Islamic Microfinance Banks

(IMFBs)

2. Islamic Microfinance Services by Full-fledged Islamic Banks

3. Islamic Microfinance Services by Conventional Banks

4. Islamic Microfinance Services by Conventional Microfinance

Banks (MFBs)


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DIRECTIVE UNDER SECTION 41 OF BCO, 1962

No bank can sell Islamic mode product without getting Islamic

Banking license from SBP.

It is directed under section 41 of Banking Company Ordinance,

1962.

Failure to comply with these instructions may invoke penal

action under the provisions of Banking Companies Ordinance,

1962.


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SALIENT FEATURES OF PRODUCTS AND SERVICES

It is required to send information to IBD about product or

service before its launch.

Under this process, IBIs shall submit salient features of the

products along with Certificate from their Shariah Advisor to the

Director Islamic Banking Department, State Bank of Pakistan.


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DECLARATION OF WEIGHT AGES & PROFIT

SHARING RATIOS Weight ages & Profit sharing ratios must be made available to

all constituents and websites before beginning of period.

The statement of declaration must mention:I. Minimum contain date of declaration

II. Period for which they remain effective,

III. All categories/pools & banks equity share.IV. Types, sizes, tiers of accounts and actual rates paid during

the preceding period.


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CONTINUE

The Statement of weight ages & Profit sharing ratios must be

prominently displayed in all Islamic Banking Branches.

All Islamic Banking Institutions are advised to update the

weight ages & Profit sharing ratios on their websites within 7

days form issuance date of Circular Letter.


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RISK MANAGEMENT GUIDELINES FOR ISLAMICBANKING INSTITUTIONS

Issued by Islamic Financial Services Board (IFSB).

Applicable to six categories:

1. Credit risk

2. Market risk

3. Liquidity risk

4. Operational risk

5. Equity investment risk

6. Rate of return risk.


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INSTRUCTIONS AND GUIDELINES FOR SHARIAH

COMPLIANCE IN IBD

Cover various areas related to:

Appointment, removal and working of Shariah advisors.

Shariah compliant modes.

Use of charity fund. Introduction of new products and services and schedule of service

charges.

Shariah compliance.

Internal Shariah audit.

Investment in shares.

Policy for profit distribution.

Financial reporting and general disclosure.


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CONTINUE

The invoice issued by the supplier shall be in the name of

bank.

Murabaha financing debited after offer and acceptance.

Record valid reason for difficulties in payment to supplier byIBI.

The reason shall be submitted by agents to supplier.

Failure to comply invoke penal action under the provisions ofBanking Companies Ordinance, 1962.


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FIT AND PROPER CRITERIA FOR SHARIAH

ADVISORS

The Shariah Advisor of an Islamic Banking Institution (IBI) shallnot work in any other IBI.

No Shariah Advisor shall approve a transactions.

Shariah Advisor of an IBI shall not hold any executive position

except working as member Shariah Board/Committee of otherfinancial institutions.


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ISLAMIC FINANCIAL ACCOUNTING STANDARD FOR

IJARAH

IBIs shall ensure that henceforth all returns/statements

submitted to State Bank as well as the Quarterly/Annual

Financial Statements shall be prepared in line with this

Standard.

REVISION OF CAPITAL ADEQUACY REQUIREMENT


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REVISION OF CAPITAL ADEQUACY REQUIREMENT

(CAR) FOR IBBS

All conventional Banks having Islamic Banking License for

IBBs should maintain a minimum Islamic Banking Fund of Rs

50 million, at any point of time as seed capital and should alsomaintain Capital Adequacy Ratio (CAR).


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O


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AAOIFI

Adoption of Shariah standards issued byAccounting and Audit Organization for Islamic

Financial Institutions.

AAOIFI Shariah Standards will be adopted in gradual manner,after a detailed review, keeping in view the local environment

and needs of Islamic Banking Industry in Pakistan.


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COLLECTION OF UTILITY BILLS AFTER DUE DATE

Some Islamic Banking Institutions (IBIs) refuse to acceptpayment of bills after the due date as the late paymentincludes a penalty which in their opinion is Riba and thuscannot be collected by them.

The Shariah Scholars opined that keeping in view the largerpublic interest and convenience, the IBIs can collect /accept

utility bills after the due date with Karahiat( )(displeasure).


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INVOICE OF MURABAHA TRANSACTIONS

In case where obtaining invoice in the name of IBI is notpossible, the invoice in the name of client may also be

acceptable.

In transaction where obtaining formal invoice either in the

name of bank or the client is not possible, then the

document like Truck Receipts, Delivery Note, Goods

Received notes, Physical Inspection Report etc may be

accepted in place of invoice with the approval of Shariahadvisor.


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CONTINUE

Shariah advisor shall document all reasons in payment

difficulties to suppliers.

The Shariah Advisors shall also, either themselves or through

suitably trained staff of the IBIs, make onsite verifications ofsuch transactions on sample basis.

The reason shall be submitted by agents to supplier.


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IBD Monetary (Islamic Banking Dept of Pakistan)

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