SBP Adopts Pledging Collateral for Islamic Banks to Receive Mudarabah Facilities
The State Bank of Pakistan (SBP) recently introduced fresh guidelines for Islamic Banking Institutions (IBIs), whereby they shall need to pledge collateral to acquire Sharia-compliant Mudarabah-based Standing Ceiling Facilities as well as Open Market Operations (OMO – Injections) using GIS (Central Depository System or CDS).
Under the new guidelines, IBIs will have to pledge the collateral in favor of SBP via the CDS on codes 2025-30 for the ceiling facility and 2025-29 for OMO injections. The market value of the collateral shall be at least equal to the amount of financing, the profit expected on the financing, and any haircut applicable as defined by SBP’s collateral requirements.
Market value of the collateral will be arrived at using revaluation rates brought out by the Financial Market and Advisory Panel (FMAP) on the last working day prior to availing the facilities. After pledging collateral, it will not be free and cannot be included as part of the Statutory Liquidity Ratio (SLR) of the IBIs during the tenure of the facility.
Process for Collateral Pledge and Fund Transfer
Once the Islamic bank confirms the deal and pledges the collateral in the CDS, the funds will be transferred to the IBI’s current account at SBP. On the settlement date, SBP will debit the IBI’s account to recover the financing amount and the profit, according to the agreed profit rate. After this, the pledged collateral will be released.
To access the Mudarabah-based facilities, IBIs will now have to provide a confirmation letter of deal, signed by authorized signatories, to SBP’s Chief Manager Karachi Office. The other instructions for the facilities are not altered.
A Recap of Last Year’s Mudarabah-Based Facilities
SBP launched Mudarabah-based Sharia-compliant Standing Ceiling Facilities and Open Market Operations (OMO – Injections) for the eligible Islamic banks last year. These facilities are intended to facilitate Islamic banking operations by providing short-term financing opportunities in a Sharia-compliant mode. SBP will also continue to generate Group IDs on CDS for pledging.
This new requirement of pledging collateral ensures a secure and transparent transaction process of Islamic banking that complies with SBP’s regulatory framework.
