March 28 Pakistan's central bank has updated
guidance on sharia governance for Islamic finance institutions,
expanding the scope of external audits to help mitigate
conflicts of interest and increase transparency.
There are growing calls across the Islamic finance industry
to strengthen the certification process of Islamic banks and
their products to improve the consumer appeal of the sector.
Religious scholars who members of an Islamic bank's sharia
board are now barred from serving in any external audit firm,
the State Bank of Pakistan said in a circular that complements
original guidance from 2015.
External sharia audits, which review operations to determine
whether Islamic banks are operating in accordance with Islamic
principles, would also have to cover pool-management practices
and technology systems.
This includes the way Islamic banks calculate distribution
of profit and loss to depositors, the tracking of assets, and
the allocation of income and expenses.
The move is designed to separate the verification of profit
and loss distribution between the banks and the external
auditors, in contrast to the joint verification that was allowed
under earlier guidance.
Fit and proper criteria must also be applied to scholars
serving as part of an external audit, the central bank said.
While Pakistan is the world's second most populous Muslim
nation, its Islamic finance sector is struggling to gain market
share from conventional peers despite double digit growth.
The sector includes five full-fledged Islamic banks and 16
conventional banks offering Islamic financial products, which
held a combined 1.85 trillion rupees ($17.7 billion) of total
banking assets as of December, reflecting an annual growth rate
of 15.1 percent.
This gave Islamic finance a market share of 11.7 percent of
total banking assets versus the 11.4 percent the sector held a
($1 = 104.6500 Pakistani rupees)
(Reporting by Bernardo Vizcaino; Editing by Eric Meijer)