SBP implements major reforms in Islamic Banking regulations

ISLAMABAD: The State Bank of Pakistan (SBP) has announced significant amendments to the Minimum Profit Rate (MPR) requirements and guidelines for Islamic banking. Effective January 1, 2025, the MPR will not apply to financial institutions, public sector enterprises, and public limited companies.

Furthermore, Islamic Banking Institutions (IBIs) will now be required to pay at least 75% of the weighted average gross yield from their investment pools as profit on PKR savings deposits.

Earlier, banks were mandated to pay an MPR on all Pak Rupee savings deposits, which is set at 50 basis points above the current SBP repo rate. This change has been viewed positively by industry experts, as it is expected to reduce deposit costs for banks.

These amendments will particularly benefit banks with a high proportion of corporate deposits, enabling them to negotiate rates directly with corporate clients.

The State Bank has also revised the profit-sharing framework for IBIs. The new guidelines mandate that IBIs should calculate profits on their PKR savings deposits based on the average gross yield of their investment pool, excluding certain assets. The adjustment is aimed at enhancing transparency and ensuring competitive profit sharing for depositors.

These changes reflect the State Bank’s commitment to strengthening the Islamic banking framework and promoting ethical finance in Pakistan.