SBP updates Mudarabah-based Financing framework for Islamic Banks

KARACHI: March 6, 2025– TheState Bank of Pakistan (SBP)has introduced an updated mechanism for Mudarabah-based Financing Facilities (MFF), including Shariah-compliant Standing Ceiling Facility and Open Market Operations (OMO) injections, for Islamic Banking Institutions (IBIs). According to a notification issued by the central bank, these financing facilities will now be available against Government of Pakistan (GoP) Ijara Sukuk (GIS), held in the Central Depository Company (CDC). This move aims to streamline collateralized liquidity management for Islamic banks. Under the revised framework, IBIs must pledge GIS (CDC) as collateral in favor of SBP through the Central Depository System (CDS) using designated Group IDs. The central bank has introduced two classifications for these facilities: To access financing, IBIs must ensure that the market value of pledged collateral matches the financing amount, expected profit, and an applicable haircut determined by SBP. The valuation of GIS (CDC) will be based on Financial Market Association of Pakistan (FMA) revaluation rates from the last working day before the request. For the duration of the facility, the pledged collateral will be excluded from IBIs’ Statutory Liquidity Requirement (SLR). Once afinancing dealis confirmed, SBP will transfer funds directly into the IBIs’ accounts. Upon maturity, SBP will recover the financing amount along with profit before releasing the pledged securities. Furthermore, SBP has mandated that IBIs availing MFF under the updated guidelines must submit a revised deal confirmation letter (Annexure A), duly signed by authorized signatories, to the Chief Manager atSBP Banking Services Corporation(BSC), Karachi Office. The initiative is part of SBP’s broader strategy to enhance Shariah-compliant liquidity solutions, ensuring smooth operations in the Islamic banking and financial markets. The updated guidelines align withDMMD Circular No. 9 of 2024, reinforcing regulatory measures forIslamic banking institutions. This latest development marks another step bySBP in fostering the growth of Islamic financein Pakistan, providing structured liquidity support to IBIs while maintaining adherence to Shariah principles.