Conversion process of conventional banks to Islamic Banks.

Byline: Ahsan Nisar

State Bank of Pakistan (SBP) has been actively engaged in development and promotion of Islamic banking in the country through various policy and regulatory initiatives. In continuation of earlier efforts to augment the industry's progress, State Bank of Pakistan has developed detailed guidelines for conversion of existing conventional banks into full-fledged Islamic banks.

Eligibility criteria

The eligibility criteria for conversion of conventional bank into Islamic bank shall be as follows:

1. All banks having Islamic banking division/branches can apply for conversion into full-fledged Islamic bank.

2. The bank which has not yet been granted approval by SBP for Islamic banking division shall first obtain the approval for opening Islamic banking division before applying for conversion into full-fledged Islamic bank.

3. The bank shall have minimum CAMELS rating 'Fair' in the last On-site inspection and/or minimum CAMELS rating 'Fair' in the last Off-site report, with no major adverse findings against the bank.

4. The applicant bank shall be compliant with Minimum Capital Requirements (MCR), Capital Adequacy Ratio (CAR) and all other requirements as applicable on full-fledged Islamic banks, from time to time.

Necessary measures

* The bank shall develop a comprehensive conversion strategy with clear milestones and defined timelines for conversion duly approved by bank's Board of Directors (BOD).

* The bank shall start conversion process in line with Shariah rules and principles within six months from the grant of in-principle approval, failure to do so will lead to revocation of the in-principle approval.

* The bank shall complete the conversion process within a maximum period of three years from the date of in-principle approval. In case of delay, the bank shall justify extension request with reasons and evidence, duly approved by its Shariah Board and Board of Directors.

* The bank shall notify the plan of conversion to the public at least four weeks before the initiation of conversion process.

* The bank shall set up all necessary procedures, create the required tools, and explore alternatives to Shariah non-permissible products and services, operations and arrangements.

* The...