SBP mandates 75% profit on PKR savings
The State Bank of Pakistan (SBP mandates 75% profit on PKR savings) has introduced new regulations for Islamic Banking Institutions (IBIs) to ensure fair profit distribution. IBIs are now required to pay at least 75% of the weighted average gross yield of all pools on their PKR saving deposits. This includes deposits from financial institutions, public sector enterprises, and public limited companies.
Profit Calculation Methodology
To calculate the gross yield of each pool, IBIs must divide the pool’s monthly gross earnings by its monthly average assets, excluding fixed assets. Notably, Shariah-compliant standing ceiling facilities and open market operations (OMOs) will be excluded when calculating the weighted average gross yield.
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Revisions in Profit & Loss Distribution
Several amendments have been made to the Instructions for Profit & Loss Distribution and Pool Management for IBIs:
- Clause 4.2.3 has been deleted.
- Clause 5.2.1 now states that IBIs may forego part of their Mudarib share as hiba (gift) to align with market expectations in case of lower-than-expected returns. However, if IBIs maintain a Profit Equalization Reserve (PER), they will only reduce their Mudarib share if the PER is insufficient to improve profit payouts.
- Clause 5.2.2 has been revised to allow IBIs to provide hiba to saving account depositors if necessary to meet the minimum profit rate requirement.
These changes will take effect from January 1, 2025, ensuring sufficient time for IBIs to adjust their operations.
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Impact on Deposit Holders
These new guidelines aim to ensure that deposit holders receive a fair share of the profits while maintaining the Shariah-compliant nature of Islamic banking operations. This move is expected to increase confidence in IBIs, fostering growth in the Islamic banking sector.
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FAQs
- What is the purpose of these new regulations by SBP?
The primary objective is to ensure fair profit distribution among deposit holders while maintaining Shariah compliance in Islamic banking operations. - Which deposits are affected by these changes?
The new profit-sharing rule applies to deposits from financial institutions, public sector enterprises, and public limited companies. - When will these new rules be implemented?
The regulations will come into effect on January 1, 2025. - What is the role of hiba in profit distribution?
Hiba allows IBIs to forego part of their Mudarib share to ensure depositors receive competitive profit rates, especially when returns are lower than market expectations. - Are all pools included in the profit calculation?
No, pools created for Shariah-compliant standing ceiling facilities and OMOs are excluded from the weighted average gross yield calculation.
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Final Thoughts
These updates reflect SBP’s commitment to enhancing transparency and fairness in the Islamic banking sector. By implementing these measures, deposit holders can expect more equitable profit sharing, which is crucial for sustaining confidence and growth in the industry.
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