KARACHI: The State Bank of Pakistan (SBP) on Tuesday issued revised criteria for converting conventional banking branches into Islamic banking branches, in a move to accelerate the process of eliminating interest from the country’s financial system.
“The time period for informing the general public and account holders about the conversion of conventional branches has been reduced from three and a half months to two months,” the SBP said in a circular.
“The time interval for the issuance of two notices for conversion of current accounts on a deemed acceptance basis has been reduced from 30 days to 15 days,” it added.Pakistan’s target is the complete elimination of ‘riba’ (interest) from the financial system by January 1, 2028, as mandated by the Federal Shariat Court and enshrined in the 26th constitutional amendment.
The central bank said that all conventional banks with Islamic operations, or those intending to start Islamic banking, are eligible to apply for converting their existing conventional branches into Islamic branches. According to the updated guidelines, no licensing fee will be required for this conversion.
To submit an application, banks must provide their annual branch conversion plan in alignment with their overall conversion strategy, along with a specific request for in-principle approval. This submission should be directed to the Banking Policy & Regulations Department, with a copy sent to the Islamic Finance Policy Department, by October 31st of each preceding calendar year.
Additionally, banks are required to seek consent from account holders for the conversion of their accounts. This can be done through various channels, including letters, emails, SMS, telephone calls, or any digital mode. Banks must give account holders at least thirty (30) days to respond with their consent or dissent regarding the conversion.
“The bank shall ensure that the account holders are fully informed of new terms and conditions and any change in fee or paid services provided by the bank after conversion from conventional accounts to Islamic accounts,” the SBP said.
“The bank shall ensure that account holders are fully informed about alternative Islamic banking products, including their features, while providing an option for conversion,” it added.“The bank shall provide clear information regarding expected profit rate(s) on each category of remunerative Islamic deposits.”
In case of consent by account holders, the accounts will be converted from conventional to Islamic, whereas in case of dissent, the bank may either allow the transfer of their accounts to another conventional banking branch or close the accounts as per the choice of the account holders. If no response is received from the account holders, the bank may convert such current accounts based on the deemed consent; however, the savings/fixed accounts where no response is received from the customer shall either be parked in the virtual cost centre or transferred to the nearest conventional branch under intimation to the customer.
To further facilitate and accelerate the conversion of branches, banks may establish virtual conventional cost centres temporarily to park unconvertible deposits and the asset portfolio of converted branches, with the approval of the bank’s Shariah Board.The SBP said that all updated requirements will also be applicable to the microfinance banks for the purpose of converting their branches from conventional to Islamic.
