Circulars/Notifications - Islamic Banking Department  
 IBD Circular No. 01
January 02, 2008

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.


Yours faithfully,


(Pervez Said)

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