Summary of changes in Shariah Governance Framework for Islamic

Banking Institutions (IBI) issued on November 22,2024 by IFPD,

SBP:

S. Secti Previous Clause (2018) Current Clause (2024)

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1) 1. Role of Board of Directors Role of Board of Directors (BOD)
(BOD)
iii. The BOD shall appoint a SB and
iii. The BOD shall appoint a designate one of the SB members as
SB to perform such Chairperson and another as RSBM to
functions as stipulated perform such functions as stipulated
under Para 3(B) of this under para 3(B) & 4 respectively of the
Framework and shall cause SGF and shall cause to take appropriate
to take appropriate measures for introducing and
measures for introducing implementing an effective Shariah
and implementing an compliance framework. The Shariah
effective Shari’ah compliance framework shall contain
compliance framework. It scope,
shall also approve the duties/responsibilities/accountability
Terms of Reference (TOR) and communication channels between
of the SB and fix different functions to ensure across the
remuneration of the SB board Shariah compliance in its
members. In case of foreign operations.
banks having Islamic
Banking Branches, the
appointing authority shall
be the Country
Manager/CEO in Pakistan
2) N/A iv. The BOD shall also approve the
Terms of Reference (TOR) of the SB
and fix the remuneration of the SB
 members, based on fair and
transparent remuneration mechanism.
In case of foreign banks having Islamic
Banking Branches, the appointing
authority shall be the Country
Manager/CEO in Pakistan
3) N/A v. IBIs are encouraged to diversify their
SB by engaging renowned Shariah
Scholars, who have an adequate
experience of serving at Shariah
Boards/Committees of internationally
reputed organizations.
4) iv. The BOD shall meet the vi. The BOD shall meet the SB at least
SB at least on a half yearly on a half yearly basis to a) have a
basis to a) have a detailed detailed briefing on the Shariah
briefing on the Shari’ah compliance environment, the
compliance environment, issues/weaknesses (if any), and
the issues/weaknesses (if recommendations to improve Shariah
any), and recommendations compliance environment, and b)
to improve Shari’ah ensure timely and effective
compliance environment, enforcement of the SB’s decisions,
and b) ensure timely and fatawa, observations and
effective enforcement of the recommendations. The meetings may
SB’s decisions, fatawa, be held in person, virtual/online or
observations and hybrid mode (physical and through
recommendations. video conferencing). However, at least
However, one of the one of the meetings in a year should be
meetings between the SB held physically.
and BOD, during a calendar
year, may be held through
video conferencing.
5) N/A vii. The BOD in consultation with SB
shall devise a mechanism for self-
assessment of SB and SB members
 individually (including the
Chairperson) within 3 months from the
applicability date of these instructions.
The SB members and BOD members
involved in the process of devising such
assessment mechanism may be given
training on evaluation techniques to
achieve the desired results. Further,
annual self-assessment shall be done by
SB and made available to the BOD and
SBP. The mechanism is to be reviewed
and revised as appropriate.
6) N/A viii. The BOD is encouraged to
diversify SB by appointing Shariah
scholars from different schools of
thought in the country for promotion
of the Islamic Financial Industry. From
January 01, 2028, this diversity clause
shall become binding.
7) N/A ix. The BOD is encouraged to appoint
prominent Shariah Scholars who have
not yet served on SB of any IBI.
Further, SB may encourage to provide
opportunity to IBI’s senior Shariah
qualified officer(s) to attend SB
meetings for their professional
development.
8) N/A x. The BOD shall ensure that from
January 01, 2028, the IBI’s all SB
members, including the chairperson,
are not serving on any other IBI.
9) v. The deliberations of the xi. The deliberations of the meeting
meeting between SB and between SB and BOD shall be properly
BOD shall be properly recorded and consent of SB shall be
 recoded and duly confirmed obtained before confirmation of
by the BOD. A copy of the relevant portion of minutes of the
same shall be submitted to meeting held between SB and BOD. A
IBD-SBP within 15 days of copy of the same shall be submitted to
the confirmation. SBP within 15 days of the confirmation
of minutes.
10) 2. Role of Executive Role of Executive Management (EM)
Management (EM)
viii. IBI shall provide exposure to the
viii. IBI shall provide SB members with regard to
exposure to the SB developments in Islamic banking and
members with regard to finance. A yearly statement on the
domestic and international actions taken by the IBI shall be
developments in Islamic submitted to SBP by 15th of January
banking and finance. A every following year.
yearly statement on the
actions taken by the IBI
shall be submitted to IBD-
SBP by 15th of January
every following year.
11) 3(A) Shari’ah Board (SB) Shari’ah Board (SB)

ii. The appointment of the ii. The appointment of the SB members

SB members shall be shall be subject to prior written
subject to prior written clearance of SBP. The IBI shall apply for
clearance of SBP. The IBI SBP’s clearance after obtaining BOD’s
shall apply for SBP’s approval. Further, the IBI shall use no
clearance after obtaining other nomenclature for the SB
BOD’s approval. members except Chairperson, member
SB and RSBM.
12) iv. The SB members shall iv. a. The SB members shall be
be appointed for a term of appointed for a term of three (3) years.
three (3) years. The SB The SB members are eligible for
members shall be eligible reappointment with the approval of
for reappointment with the SBP for another consecutive term of
 approval of SBP. The three three (3) years. The three (3) years’
(3) years term of SB shall term of SB shall commence from the
commence from the date of date of SBP’s clearance for
SBP’s clearance for appointment/reappointment.
appointment /
reappointment. b. The appointment on the same SB
after serving two consecutive terms
may be considered after a cooling off
period of at least 3 years and the
instructions given in clause 3A(iv)(a)
above shall be applicable.

c. However, to ensure smooth

implementation of clause 3A(iv)(b)
above, the existing SB member(s) are
allowed to complete their existing term
and may also be reappointed for two
more consecutive terms. The
reappointment for each term shall be
subject to clearance of SBP
13) v. Up to three (3) years i.e. 4 The SB members, except RSBM, may
June 2021, the SB members, serve on the SBs of up to three (3) IBIs
except RSBM, may serve on in Pakistan. However, the IBI must
the SBs of up to three IBIs ensure that its SB has at least 2
in Pakistan. members (other than RSBM), who are
not on the SB of any other IBI. Hence,
(The following were each IBI shall have at least three (3) SB
added on February 03, members, including RSBM, who are
2021) not serving on SB of any other 5 IBI.
With effect from January 01, 2028, all
The SB members, except
SB members of an IBI (including the
RSBM, may serve on the
chairperson, member(s) and RSBM)
SBs of up to three IBIs in
shall not serve on any other IBI.
Pakistan. However, the IBI
must ensure that its SB has
 at least 2 members (other
than RSBM), who are not
on the SB of any other IBI.
Hence, each IBI will have at
least three unique members
in SB including RSBM.
14) vii. At least two months vii. At least two months prior to the
prior to the expiry of the expiry of the term of the SB members
term of the SB, members (including the Chairperson), the SB
(including the Chairperson) member(s) may be reappointed for
of SB may be reappointed another term by the BOD, subject to
as a member of SB for afresh prior written clearance of SBP
another term by the BOD, pursuant to FAPC and para 3A(iv).
subject to afresh prior
written clearance of SBP
and pursuant to FAPC.
15) xi. A casual vacancy arising xi. A casual vacancy arising on the SB
on the SB caused by caused by resignation, removal or
resignation, removal or termination or death of a member shall
termination or death of a be filled by the BOD within three (3)
member shall be filled by months from the date on which such
the BOD within three vacancy was caused. The term of such
months from the date on appointment on casual vacancy of any
which such vacancy was SB member shall also be for a term of
caused. However, the SB three (3) years.
member appointed on
casual vacancy shall hold
the office until the expiry of
the existing term of the SB.
a. Role of Shari’ah Board
3(B) Role of Shari’ah Board

vi. All reports of internal vi. Summaries/key findings of the

Shari’ah audit, external reports of Internal Shariah Audit and
Shari’ah audit, Shari’ah Shariah compliance reviews and
 compliance reviews and complete report of External Shariah
SBP Shari’ah compliance Audit and SBP Shariah compliance
inspection shall be assessment shall be submitted to SB for
submitted to the SB for consideration and prescribing
consideration and appropriate corrective/enforcement
prescribing appropriate action. The SB shall take up the
enforcement action. The unresolved issues with management
report of Internal Shari’ah and shall include all significant
Audit shall be finalized by outstanding issues in its annual report
the Internal Shari’ah Audit on the Shariah compliance
Unit/ department (ISAU) environment of the IBI. Moreover, the
and the final report shall be Head of SCD and RSBM shall discuss
submitted to SB for both the significant and unresolved
prescribing appropriate issues with SBP assessment team
enforcement/ corrective during their on-site assessment
actions. The SB shall take
up the unresolved issues
with management and shall
include all significant
outstanding issues in its
annual report on the
Shari’ah compliance
environment of the IBI.
Moreover, the Head of SCD
and RSBM shall discuss
both the significant and
unresolved issues with SBP
inspection team during
their on site inspection.
16) 3(C) Shari’ah Board Meetings, Shari’ah Board Meetings, Quorum,
Quorum, Minutes Minutes

iv. All meetings shall be iv. All meetings shall be chaired by the
chaired by the Chairperson Chairperson of the SB and in his/her
 of the SB and in his absence absence one of the Shariah scholar
one of the Shari’ah scholar members, other than the RSBM, shall
members, other than the preside over the meeting.
RSBM, shall be elected as
the acting Chairperson to
preside over the meeting.
17) vi. The meetings of the SB vi. The meetings of the SB may be held
shall be held by physical in person, virtual/online or hybrid
presence of the members. mode (physical and through video
However, in appropriate conferencing) as determined by the
circumstances to be Chairperson of the SB.
determined by the
Chairman of the SB,
meeting(s) may be held
through video conferencing
subject to recording of
proper minutes of the
meeting.
18) x. The approved / x. The approved/confirmed minutes of
confirmed minutes of meetings of the SB shall be submitted
meetings of the SB shall be to SBP within 15 days of its
submitted to IBDSBP within approval/confirmation forinformation
15 days of its approval / and record. Further, the minutes shall
confirmation for be made available to the BOD, SBP,
information and record. internal auditors and external auditors
Further, the minutes shall on request, enabling them to appreciate
be made available to the and understand the rationale and
BOD, SBP inspection teams, background of the SB rulings, decisions
internal 6 auditors and and fatawa. Further, the secretary SB
external auditors on shall circulate minutes of the SB
request, enabling them to meeting prior to the next SB meeting
appreciate and understand for timely approval of the same
the rationale and
background of the SB
 rulings, decisions and
fatawa.
19) 4. Resident Shari’ah Board Resident Shariah Board Member
Member (RSBM) (RSBM)

The SB of an IBI shall, in The RSBM shall oversee the procedures

consultation with the to be adopted for implementation of
management, designate one the resolutions, pronouncements and
of the SB members other fatawa of the SB and provide guidance
than the Chairperson as thereon.
RSBM. The RSBM shall
oversee the procedures to
be adopted for
implementation of the
resolutions,
pronouncements and
fatawa of the SB and
provide guidance thereon
5.a. Shari’ah Compliance Shariah Compliance Department
Department (SCD) (SCD)

The SCD shall have at least The SCD shall have at least two
one qualified Shari’ah qualified Shariah experts (other than
expert (other than RSBM) RSBM) from different schools of
who shall meet the criteria thought, who shall meet the criteria of
of “Academic “Academic Qualifications” as prescribed
Qualifications” as in Annexure-A of the SGF.
prescribed in Annexure-A
of this Framework
20) i. Secretariat of Shari’ah A. Secretariat of Shariah Board
Board
It shall serve as the Secretariat to the
It shall serve as the SB with the responsibility to provide all
Secretariat to the SB with the necessary secretarial support to the
the responsibility to provide SB including timely provision of
 all the necessary secretarial meetings’ agenda, proposals, and
support to the SB including working papers. It shall also maintain
timely provision of proper record of agenda items, minutes
meetings’ agenda, of the SB meetings and fatawa issued
proposals, and working by the SB along with their rationale.
papers. It shall also Further, training related to secretarial
maintain proper record of functions shall be provided to SCD
agenda items, minutes of employees to ensure smooth secretarial
the SB meetings and fatawa functions of SB.
issued by the SB along with
their rationale.
21) 6 Product Development Product Development

Every IBI shall have a Every IBI shall have a Product

Product Development (PD) Development (PD) Department/Unit
Department / Unit which which may be part of the Business
may be part of the Business units or an independent
units or an independent department/unit. PD shall be
department / unit. PD shall responsible for research and
be responsible for research development of new and innovative
and development of new products and services keeping in view
and innovative products the business needs of the IBI and
and services keeping in considering international
view the business needs of developments/practices. The IBI shall
the IBI and considering ensure providing of adequate qualified
international developments and trained staff to PD to perform its
/ practices. The IBI shall duties.
ensure providing of
adequate qualified and
trained staff to PD to
perform its duties. The IBI
shall be encouraged to
engage at least two
individuals, who shall meet
 the criteria of “Academic
Qualifications” as
prescribed in Annexure-A
of this Framework. Thus
the PD shall be able to seek
guidance and support on
Shari’ah aspects of new
products / ideas during the
product development
process.
22) 7. Internal Shari’ah Audit Internal Shariah Audit

ii. The IBI shall be ii. The IBI shall ensure to provide
encouraged to engage at adequate, qualified and trained staff in
least one individual in the the IAD or ISAU.
Internal Audit Department
or ISAU, who shall meet the
criteria of “Academic
Qualification” as prescribed
in Annexure-A of this
Framework.

23) 10. Competence of the Organs Competence of the Organs Dealing

Dealing with Shari’ah with Shari’ah Governance
Governance Framework Framework

ii. Similarly, members of ii. Similarly, members of the SB of an

the SB of an IBI shall also IBI shall also be provided opportunity
be required to undergo and to attend trainings/conferences etc. to
attend training sessions and enhance/update their knowledge and
orientation programs understanding of banking & finance.
related to the applicable
legal and regulatory
framework, banking,
 finance, treasury operations
etc. to improve their
understanding of such
matters in the context of an
IBI. The IBI shall take
appropriate measures to
ensure that SB members
are abreast with the
developments
internationally. For the said
purpose, IBI’s are
encouraged to provide
opportunity to SB members
to attend / participate in
domestic and international
forums.
24) Over Some abbreviations were Are now replaced with
all used i.e
I. SBP
I. IBD-SBP II. SBP assessment
II. SBP inspection III. SAC of SBP
III. Shari’ah Advisory IV. SGF
Committee of SBP
IV. Framework
V.

25) Note: Some of the changes are also made in the annexures of this
framework.

Prepared by:

Syed Muhammad Umer Amaduddin

(RSBM, Emaan Islamic Banking, Silkbank Ltd)

November 22nd, 2024