The State Bank of Pakistan (SBP) has allowed conventional banks to establish Islamic Banking Windows (IBWs) within their conventional branches without obtaining prior regulatory approval, as part of efforts to accelerate the country’s transition toward a Shariah-compliant banking system.
According to an SBP circular, banks and microfinance banks can now open IBWs in branches approved for conversion under their annual branch conversion plans or through separate conversion requests. These Islamic Banking Windows can operate on an interim basis from the initiation of the branch conversion process until the branch is fully converted to Islamic banking.
Shariah-Compliant Services During Conversion
During the conversion period, banks and microfinance institutions will be permitted to offer a full range of Shariah-compliant products and services through these windows. These include deposit products as well as all types of financing facilities, both funded and non-funded.
Banks intending to establish IBWs must outline their plans when seeking SBP approval for branch conversion, either through their annual conversion plans or separate applications.
SBP Waives Fees and Relaxes Signage Requirements
To facilitate the transition, the central bank has waived both the processing and annual fees for Islamic Banking Windows established on an interim basis during branch conversions.
The SBP has also relaxed the requirement that the name of the Islamic Banking Window occupy one-fourth of the conventional branch’s signboard. Instead, banks must ensure alternative arrangements at branch entrances and prominently display information inside branches indicating the availability of Islamic banking products and services.
Technology Requirements Updated
In another move aimed at simplifying operations, the SBP has revised the connectivity requirements for IBWs. Previously, Islamic Banking Windows were required to maintain real-time connectivity with the nearest Islamic banking branch or hub.
Under the revised framework, banks and microfinance banks may now connect these windows with their controlling branch, hub, or centralized data center, allowing institutions to better utilize technology for the segregation of conventional and Islamic funds.
Guidelines Extended to Microfinance Banks
The central bank clarified that the existing regulatory instructions governing Islamic Banking Windows of conventional banks will also apply to microfinance banks offering Islamic products and services through similar arrangements.
According to the State Bank of Pakistan, the country’s banking sector currently operates more than 7,508 Islamic banking branches and 347 Islamic Banking Windows, reflecting the continued growth of Shariah-compliant banking services across Pakistan.
