Daily Times

The State Bank of Pakistan (SBP), on Tuesday, revised the instructions for profit and loss distribution and pool management for Islamic Banking Institutions (IBIs) which now are required to pay profit on their PKR saving deposits equivalent to at least 75 percent of the weighted average gross yield of all pools of an IBI.

Deposits of financial institutions, public sector enterprises and public limited companies are excluded from the above decision that shall be effective from January 01, 2025, said a circular issued by SBP’s Islamic Finance Policy Department to circulate the revised instructions in the regard to the all Islamic Banks and Conventional Banks having Islamic Banking branches.

The banking regulator has elaborated the method for determining the gross yield of each pool outlining, “… the monthly gross earnings of the pool shall be divided by the monthly average assets of the pool (excluding fixed assets).”

However, the pool(s) created by IBIs for Shariah compliant standing ceiling facility and Shariah compliant open market operations (OMOs) will be excluded while calculating weighted average gross yield of pool(s), it added.

The SBP has also revised the Clause 5.2.1 that allowed the IBI to forego up to 60 percent of its Mudarib share as Hiba to meet the market expectation in case of lower than expected/market returns earned by the pool and the clear threshold of 60% has been replaced with a relatively vague phrase, i.e. ‘a part of’.

Another clause regarding across the board distribution of hiba by IBI to all the deposit categories in a pool has been replaced as “If needed, IBIs may give hiba to saving account depositors to meet the requirement of minimum profit rate.”

The central bank had issued Instructions for Profit and Loss Distribution and Pool Management for Islamic Banking Institutions in November 19, 2012, in order to improve transparency and disclosures and bring standardization in Islamic banking institutions’ (IBIs) profit and loss distribution policies and practices.