The Presidents/Chief Executives of Islamic Banks and
Conventional Banks having Islamic Banking Branches

Dear Sir/Madam,

Adoption of Shariah Standards Issued by Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)

                   Please refer to Para F ’Essentials of Islamic Modes of Financing’, Annexure-I –Instructions for Shariah Compliance, notified through IBD Circular No. 2 dated March 25, 2008, wherein essentials prescribed for Islamic modes of financing are given as ‘minimum requirements’ for Shariah compliance for Islamic Banking institutions (IBIs). For the Islamic modes for which essentials have not been prescribed, AAOIFI Shariah standards may be used as guidelines by IBIs in consultation with their Shariah Advisor (SA).

2. To harmonize and standardize the Shariah practices and procedures of IBIs as per internationally recognized standards, it has been decided that AAOIFI Shariah Standards will be adopted in gradual manner, after a detailed review, keeping in view the local environment and needs of Islamic Banking Industry in Pakistan.

3. In the first phase, AAOIFI’s Shariah Standards No.3 (Default in Payment by a Debtor), No.8 (Murabaha to the Purchase Orderer), No.9 (Ijarah & Ijarah Muntahia Bittamleek) and No.13 (Mudaraba) have been reviewed and are hereby adopted for IBIs in Pakistan. The adoption of these Standards shall, however, be subject to certain clarifications and amendments as given in the attached Appendix- A. IBIs are also advised to be prepared for adoption of other AAOIFI’s Shariah Standards in next phases.

4. It may be noted that adoption of the AAOIFI Shariah Standards for IBIs is in addition to current Prudential Regulations, guidelines and other circulars and directives issued by different SBP departments from time to time and are not replacing them by any means. Further, in case of any conflict with the Shariah Standards adopted vide this circular; Para F ‘Essentials of Islamic Modes of Financing’, Annexure-I –Instructions for Shariah Compliance of IBD Circular No. 2 dated March 25, 2008 shall prevail.

5. To provide ample time and a level of comfort to IBIs for preparation, it has been decided that these standards shall be implemented w.e.f July 01, 2010; however, failure to comply with these instructions may invoke penal action under the provisions of Banking Companies Ordinance, 1962.


Please acknowledge receipt.

Encl: Appendix-A