Regulatory and Legal Framework
This domain maps the Pakistani legal and regulatory architecture governing Islamic banking, and tests who approves what.
Statutory base
The State Bank of Pakistan Act 1956 gives the SBP its powers; the Banking Companies Ordinance 1962 governs licensing and prudential conduct. The Islamic Banking Policy 2001 allowed full-fledged Islamic banks and Islamic banking branches/windows of conventional banks, and the SBP's Islamic Banking Department supervises them. The Shariah Governance Framework requires each institution to have a Shariah Board and a functioning compliance and audit chain. Modarabas are separate: they are registered with SECP under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance 1980, and takaful operators fall under SECP's takaful rules.
Operational requirements
An Islamic window must maintain separate books, a separate pool, segregated funds and distinct reporting from the conventional parent, and must not cross-subsidise from interest-based funds. Consumer protection and grievance redress run through the bank's complaint mechanism and the Banking Mohtasib. AML/CFT obligations apply equally, with additional screening for prohibited sectors.
Worked example
A conventional bank wants an Islamic window. It needs SBP approval for the branch or window, a Shariah Board constituted under the fit-and-proper criteria, Shariah-approved products, separate accounting and profit distribution, staff training and Shariah audit. Opening the branch without a Shariah Board or while sharing the interest-based pool fails the framework regardless of customer demand.
Traps
Assuming SECP regulates Islamic banks; assuming the central Shariah body replaces the bank's own Shariah Board; confusing a modaraba with a mudarabah contract; assuming window funds may be commingled with the parent's.