Complying with the principles of Shari’ah as enshrined in the Holy Quran and the Sunnah of
the Prophet (peace be upon him) is the essence and raison d’être of Islamic banking industry.
A sound and effective Shari’ah compliance framework is thus critically important to give
confidence to the general public about Shari’ah conformity of Islamic Banking Institutions’
(IBIs’) products and services. State Bank of Pakistan (SBP) endeavors to ensure that the
operations of IBIs remain in conformity with the rules and principles of Shari’ah. Accordingly,
it has been issuing regulations, instructions and guidelines on Shari’ah compliance since the
re-launch of Islamic banking in 2001.
In 2008, SBP issued detailed set of instructions and guidelines for Shari’ah compliance vide
IBD Circular No. 2 of 2008. However, keeping in view the developments taking place in the
Islamic banking industry over the recent years, some of the instructions and guidelines have
been revisited and a comprehensive Shari’ah Governance Framework (‘SGF or Framework’)
was developed in 2015, which has now been further reviewed. The Framework shall be
applicable to all IBIs i.e. full-fledged Islamic banks, Islamic banking subsidiaries and Islamic
banking divisions of conventional banks. The primary objective of the Framework is to
strengthen the overall Shari’ah compliance environment of IBIs and explicitly define the roles
and responsibilities of various organs of IBIs including the Board of Directors (BOD), Executive
Management (EM), Shari’ah Board (SB), Shari’ah Compliance Department (SCD), Product
Development (PD), internal auditors and external auditors towards Shari’ah compliance.
The SGF of an IBI shall, at the minimum, cover the following:

1. An effective mechanism for the BOD’s oversight of the IBI’s Shari’ah compliance
   environment.
2. Accountability of management and staff of the IBI in implementation of the
   Framework.
3. An independent and effective SB appointed as per Fit and Proper Criteria (FAPC) set
   out in Annexure-A of this Framework, with one of its Shari’ah scholar members
   working as Resident Shari’ah Board Member (RSBM) to oversee the procedures and
   processes to be adopted for implementation of the SB’s fatawa, resolutions and
   guidelines and provide clarification thereon.
4. A SCD to assist SB and to serve as a conduit between the SB and the management of
   an IBI.
5. Shari’ah compliance review mechanism to assess operative effectiveness of Shari’ah
   governance and compliance framework devised by the SB and BOD of the IBI.
6. An independent Internal Shari’ah Audit Unit (ISAU) which may be a part of internal
   audit department or an independent unit depending on the size of the IBI.
7. A product development (PD) department / unit responsible for development of new
   and innovative products and services.
8. External Shari’ah Audit to be undertaken along with the annual audit of the IBI.