| DMMD Circular
No. 24 of 2021
|| December 29, 2021
The Presidents/Chief Executive Officers
All Islamic Banks / Islamic Banking Branches of Conventional Banks/
DFIs (having Shariah Compliant Operations)
Dear Sirs/ Madams,
| Shariah Compliant Standing Ceiling Facility- Mudarabah based Financing Facility (MFF)
In exercise of the powers conferred under Section 18 of SBP Act 1956, State Bank of Pakistan has decided to introduce Shariah Compliant Standing Ceiling Facility- Mudarabah based Financing Facility (MFF) with a view to provide liquidity management framework for Islamic Banking Institutions (IBI) and enhance the effectiveness of monetary policy implementation.
The Shariah Compliant Standing Ceiling Facility - Mudarabah based Financing Facility shall have the following structure, terms and conditions:
- Shariah Structure of MFF:
Under the Mudarabah based Financing Facility (MFF), SBP (as Rab-ul-Maal), will provide financing to eligible IBIs on an overnight basis against eligible collateral. The transaction will be governed by the terms & conditions embodied in Master Mudarabah Financing Facility (MFF) Agreement attached as Annexure-A (to be signed one-time between SBP & respective IBI availing the facility). IBIs (as Mudarib) shall place the funds in a special pool, consisting of high quality assets (defined in MFF Agreement). The MFF will be offered at an ‘Expected Rate’- equivalent to conventional overnight reverse repo (Ceiling) rate - based on a Profit Sharing Ratio (PSR) agreed between Mudarib and Rab-ul-Maal at the onset of the transaction.
- Eligible Institutions:
Islamic Banks, Islamic Banking Branches of conventional banks and DFIs having Shariah Compliant operations (hereinafter referred as Islamic Banking Institutions (IBIs)) shall be eligible to avail Shariah compliant Ceiling facility from SBP.
- Tenor and Amount:
MFF shall be available as a standing facility on overnight basis. The minimum amount for the MFF will be PKR 100 million, and in multiples of PKR 50 million thereof.
- The rate of MFF:
The Expected Rate of return on MFF will be equal to SBP’s Overnight Reverse Repo (Ceiling) Rate under Interest Rate Corridor Framework, prevailing on the day the facility is availed.
- Eligible Collateral:
1. IBIs can obtain MFF against (i) Government of Pakistan Ijara Sukuk (GIS); (ii) Obligations of GOP arising from Bai-Muajjal transactions (GOP Bai-Muajjal); (iii) Obligations of SBP arising from Bai-Muajjal transactions (SBP Bai-Muajjal); and (iv) any other Shariah Compliant SLR eligible security notified by SBP for the purpose, from time to time.
2. For availing MFF, the collateral will be transferred to SBP account except in case of non-transferable security (such as Bai-Muajjal) for which lien will be marked in favor of SBP. Accordingly, the security/ instrument held as collateral under MFF will cease to be un-encumbered and will not be counted towards SLR of the IBIs, during the period of facility.
3. The market value of collateral provided by IBI to avail MFF must be at least equivalent to sum of financing amount availed from SBP and the expected profit on MFF. Market value of marketable GOP securities used as collateral will be determined using the PKISRV rates published on the last working day. For Bai-Muajjal, the value will be equivalent to sum of first price (Sukuk price at the time of sale) plus profit to the extent accrued.
4. SBP may also decide to apply haircut, if any, on the eligible collateral.
5. The securities classified by the eligible participants under Held to Maturity category cannot be used as collateral in MFF.
- Procedure for availing MFF:
1. IBI in need of funds may approach Domestic Markets & Monetary Management Department (DMMD) of SBP to obtain MFF. The time for intimating amount to SBP by IBIs desirous of availing MFF will be the same as announced by SBP for conventional standing facilities as per DMMD Circular Letter No. 02 of 2020 or as amended by SBP from time to time.
2. On receiving request from IBI, SBP (as Rab-ul-Maal) will place funds (equivalent to amount requested) with IBI (Mudarib) as per the terms of Master MFF Agreement.
3. IBI will confirm security to be offered as collateral and its pricing with DMMD. The market value of security must be equivalent to sum of financing to be availed from SBP and the expected profit/return on the financing amount plus haircut, if any.
4. IBI availing MFF will submit the deal confirmation letter as per format [Annexure B], (via Data Acquisition Portal -DAP), duly signed by the authorized signatories, to Chief Manager, SBP (BSC) Karachi Office.
5. After deal confirmation from the IBI, the funds will be transferred to IBI’s current account at SBP with simultaneous transfer of the collateral to SBP account, except in case of non-transferable security such as Bai-Muajjal for which lien will be marked in favor of SBP.
6. If any MFF transaction is maturing on a public/bank holiday then maturity of such transaction will be extended to the next business day and actual return calculation will incorporate this extended period. The expected rate of return will remain the same for extended period as used in original contract.
7. IBI shall be required to maintain the record of the MFF and its special pool appropriately, for submission to SBP, as and when required, and for regular on-site inspection to check the accuracy of the returns earned on special pools.
8. Shariah Compliance Department (SCD) of respective IBI will be responsible to verify Shariah compliance of each MFF transaction with SBP. On maturity date, SCD will submit Shariah compliance report of the transactions to its Resident Shariah Board Member.
- Settlement of MFF on Maturity:
1. On settlement/maturity date of each financing transaction under MFF, SBP will debit the current account of the IBI maintained with SBP to recover the amount of financing and the profit (as per the expected profit rate), and release collateralized/ pledged/lien marked securities.
2. On maturity of the MFF transaction; the IBI will liquidate the pool and shall determine SBP’s share of profit in accordance with Profit Sharing Ratio (as per Mudarabah deal confirmation) in respect of each financing transaction, and intimate the actual profit (amount and rate) to SBP (BSC) Karachi Office. In case of any difference between the actual profit and expected profit, the same shall be adjusted accordingly.
Annexure A - Master Mudarabah Financing Facility (MFF) Agreement
Annexure B - Mudarabah Deal Confirmation Letter
Dr. Mahmood ul Hasan Khan
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