Conversion of Conventional Banks into Islamic: State Bank of Pakistan (SBP) Rules and AAOIFI Sharī’ah Standards : A Critical Legal Analysis from the Perspective of Islamic Commercial Law

Abstract

Islam as complete code of life, among other dimensions of life, gives commercial blueprint, introducing Ribā-free banking unlike the conventional banks. For the conversion of conventional bank AAOIFI put forward standard No. 6, internationally, and, domestically, SBP’s ‘Guidelines for Conversion of a Conventional Bank into an Islamic Bank’ came to light. The current research endeavor tends to see necessity, on one hand, and on the other hand, eligibility criteria and necessary measures given in SBP’s aforesaid guideline; it is also critically analysed. While investigating this issue, content analysis of available secondary data has been made as of qualitative research. During analysis, it was known that necessity of conversion was religious, political and commercial in nature. The bank to be called converted must have IBD or IBB, in default, approval be sought. All the requirements must be fulfilled: MCR, CAR etc., including, CAMELS and CAELS rating fair be minimal. The finding was the red tapism be reduced so that less time and energy be consumed on it. In all operational matters, including cut-off dates, along with BODs, operational level officers be also engaged. The six-month time for initiation of conversion may be reduced to fifty days and in default cogent reason must be shown for leniency from SBP. The overall time of conversion should be lessened from three years to twelve months. Akin to that, four weeks’ time should be increased to four months for public awareness. All the products will be made Sharī’ah Compliant. The trainer must be well acquainted with Sharī’ah and trainees should qualify the exam, and, exemplary action be taken who earn profit after cut-off dates.