The State Bank of Pakistan adopts AAOIFI Shariah Standard No. 30 with immediate effect to strengthen Shariah compliance and harmonise Islamic banking practices.

The State Bank of Pakistan (SBP) has adopted the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Shariah Standard No. 30 on Monetisation (Tawarruq), with immediate effect, to strengthen Shariah compliance and harmonise practices across Pakistan’s Islamic banking industry.

In a communication addressed to the presidents and chief executives of all Islamic banks, Islamic banking subsidiaries and conventional banks operating Islamic banking branches, the central bank announced the adoption of the standard, subject to the clarifications and amendments specified in Appendix A.

The SBP has also issued guidelines on the application of Ḥajah (need) in Tawarruq-based transactions. These guidelines accompany the adopted standard and are intended to provide further direction on its application within the Islamic banking framework.

Tawarruq is a financing arrangement involving the purchase and subsequent sale of a commodity to generate liquidity, subject to the applicable Shariah requirements. The adoption of a dedicated standard is part of the SBP’s efforts to promote consistency in Shariah-compliant banking transactions.

The central bank clarified that the standard and accompanying guidelines are additional to the existing regulations, instructions and directives issued by the SBP from time to time.

Banks have been directed to comply with the instructions. The SBP warned that failure to do so may result in penal action under the relevant provisions of the Banking Companies Ordinance, 1962.

The move reinforces the regulatory framework governing Islamic banking in Pakistan and establishes an additional benchmark for the implementation of Tawarruq-based transactions in accordance with the central bank’s requirements.