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Conversion process of conventional banks to Islamic Banks

Conversion process of conventional banks to Islamic Banks

State Bank of Pakistan (SBP) has been actively engaged in development and promotion of Islamic banking in the country through various policy and regulatory initiatives. In continuation of earlier efforts to augment the industry’s progress, State Bank of Pakistan has developed detailed guidelines for conversion of existing conventional banks into full-fledged Islamic banks.

Eligibility criteria

The eligibility criteria for conversion of conventional bank into Islamic bank shall be as follows:

  1. All banks having Islamic banking division/branches can apply for conversion into full-fledged Islamic bank.
  2. The bank which has not yet been granted approval by SBP for Islamic banking division shall first obtain the approval for opening Islamic banking division before applying for conversion into full-fledged Islamic bank.
  3. The bank shall have minimum CAMELS rating ‘Fair’ in the last On-site inspection and/or minimum CAMELS rating ‘Fair’ in the last Off-site report, with no major adverse findings against the bank.
  4. The applicant bank shall be compliant with Minimum Capital Requirements (MCR), Capital Adequacy Ratio (CAR) and all other requirements as applicable on full-fledged Islamic banks, from time to time.
Necessary measures




The Conversion process shall consist of three steps:

A. In-principle approval from SBP for initiating full-fledged conversion of the conventional bank into an Islamic Bank;

B. Conversion of conventional banking branches into Islamic banking branches; and

C. Issuance of Islamic Bank license.

In order to obtain in-principle approval from SBP for the conversion process, banks shall submit a comprehensive Conversion Plan duly approved by bank’s BoD and Shariah Board, containing essentials such as Business Plan, position and treatment of Shariah impermissible items, training and capacity building, policies and procedures, systems and controls, audit review, marketing arrangements and public notices and information on banks’ subsidiaries etc.

[box type=”note” align=”” class=”” width=””]The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan[/box]

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