Central Bank Orders Withdrawal of Non-Compliant Fund Placements
KARACHI: The State Bank of Pakistan has directed Islamic Banking Institutions (IBIs) to immediately stop placing funds with their conventional parent banks or head offices through loan-based arrangements, commonly known as Qard, or any other form of subsidized financing.
In a circular issued to the banking industry, the central bank stated that such transactions do not comply with the existing Islamic banking framework and therefore cannot continue. Consequently, Islamic banks have also been instructed to withdraw any funds currently placed under these arrangements without delay.
The latest directive forms part of the regulator’s broader efforts to reinforce Shariah compliance standards and further strengthen Pakistan’s Islamic banking ecosystem.
Move Supports Transition Toward Islamic Banking System
According to banking officials, the decision reflects the State Bank’s commitment to ensuring that Islamic financial institutions operate strictly within approved Shariah principles.
Furthermore, the measure aligns with Pakistan’s long-term objective of expanding Islamic banking services and gradually increasing the sector’s share in the national financial system.
The regulator emphasized that Islamic banks must maintain operational independence and avoid financing structures that could compromise Shariah-compliant practices.
Sector Continues Rapid Expansion
Meanwhile, the directive comes shortly after the central bank allowed conventional banks to establish Islamic banking windows within their existing branches without obtaining prior regulatory approval.
Officials believe the move will accelerate the conversion of conventional banking services into Islamic alternatives and support the sector’s continued growth.
According to State Bank data, Pakistan’s banking sector currently consists of 16 conventional banks alongside a rapidly expanding Islamic banking network. The country now has 4,159 full-fledged Islamic banking branches, 3,473 Islamic banking windows and 166 sub-branches.
Data further shows that Islamic banking windows operated by conventional banks account for nearly 42.8 percent of the total assets of Pakistan’s Islamic banking industry.
Industry observers say the latest regulatory measures are expected to enhance transparency, improve governance standards and strengthen public confidence in the country’s growing Islamic banking sector.
