The
Presidents/CEOs
Islamic Banks/
Banks having Islamic Banking Branches,
Dear
Sir/Madam,
Risk
Management Guidelines for Islamic Banking Institutions
The
State Bank of Pakistan has formulated Risk Management (RM)
Guidelines for Islamic Banking Institutions (IBIs) with
a view to further strengthen the regulatory framework in
the area of risk management for IBIs.
2.
These RM Guidelines are based on a ‘Guiding Principles
of Risk Management for Institutions offering Islamic Financial
Services’ issued by Islamic Financial Services Board
(IFSB), which is an international-standard setting body
of regulatory and supervisory agencies and the same have
been tailored keeping in view the regulatory regime of State
Bank of Pakistan. However, these guidelines will be in addition
to the various Risk Management Guidelines issued by SBP
from time to time and IBIs will be required to comply with
both set of guidelines.
3.
These guidelines provide a set of principles of best practice
for establishing and implementing effective risk management
in IBIs. These guidelines set out fifteen principles of
risk management and provide guidance for each category of
risk, drawn from discussion on Islamic Financial Industry
practices. Further, these set of principles are applicable
to the six categories of risks viz: Credit risk, Market
risk, Liquidity risk, Operational risk, Equity investment
risk and Rate of return risk. For each type of risk, Risk
management practices have been discussed giving examples
of specific Islamic banking modes of financing and according
to various roles that an Islamic Banking Institution may
perform.
4.
These guidelines will further complement and enhance the
current Risk Management regime of SBP by identifying and
suggesting technique to manage various types of risks unique
to Islamic Banking Institutions.
5.
Since most of the IBIs in Pakistan are new entrants in the
market, they are encouraged to put in place an effective
risk management strategy right from the start based on the
attached guidelines as well as other guidelines issued by
SBP. These guidelines are flexible in the sense that IBIs
can adapt them in line with the size and complexity of their
business.
6.
Please acknowledge receipt.
Annexure