KARACHI: State Bank of Pakistan has decided to gradually adopt Shariah standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). The standards will cater to the need of local environment and that of Islamic banking industry in the country, said an SBP circular here on Saturday.

The decision to adopt AAOIFI Shariah Standards has been taken to harmonize and standardize the Shariah practices and procedures of Islamic banking institutions (IBIs) in the country as per internationally recognized standards. The Circular said that in the first phase, AAOIFI’s Shariah Standards No. 3 (Default in Payment by a Debtor), No. 8 (Murabaha to the Purchase Orderer), No. 9 (Ijarah and Ijarah Muntahia Bittamleek) and No. 13 (Mudaraba) have been reviewed and adopted for IBIs in Pakistan.

The adoption of these Standards shall, however, be subject to certain clarifications and amendments details of which are given in the Appendix- A of the Circular. IBIs have also been advised to be prepared for adoption of other AAOIFI’s Shariah Standards in next phases.

Adoption of the AAOIFI Shariah Standards for IBIs is in addition to current Prudential Regulations, guidelines and other circulars and directives issued by different SBP departments from time to time and are not replacing them by any means.

Further, in case of any conflict with the Shariah Standards adopted vide IBD Circular No.1; Para F : Essentials of Islamic Modes of Financing, Annexure-I : Instructions for Shariah Compliance of IBD Circular No. 2 dated March 25, 2008 shall prevail.

To provide ample time and a level of comfort to IBIs for preparation, it has been decided that these standards shall be implemented w.e.f July 01, 2010. However, failure to comply with these instructions may invoke penal action under the provisions of Banking Companies Ordinance, 1962. The IBD Circular No.1 and its annexure are available at http://www.sbp.org.pk/ibd/2010/C1.htm.