Adaption of the Shariah Standards of AAOIFI in the Islamic Finance Industry of Pakistan: An Exploratory Study
DOI:
https://doi.org/10.62019/j28k6r77Abstract
This study analyses the clarifications and amendments made by the State Bank of Pakistan (SBP) to the AAOIFI Shariah Standards, particularly on Shariah Standard 19: Loan (s). Interviews were conducted with Shariah Board members, academics, and industry experts to assess these amendments' need for and impact. Most of the changes introduced by the SBP are to simplify the language, improve terminology, and align the standards with Pakistan's local market and legal framework. Some significant amendments have been made, such as requiring a return to the original currency or asset to repay the loan and prohibiting any financial benefit for the lender beyond the original amount. The SBP has also introduced relaxation or waiver options for loan repayment in sync with humanitarian traditions. However, these amendments have been criticized, with concerns about complications and ambiguity in practical application. Specific terms such as "locker services" and Hiba (gift) issues have raised questions about transparency and clarity. The SBP, as a critical player, often makes these amendments to adapt global Shariah standards to local financial realities, striking a balance between Shariah compliance and the practical challenges of the Pakistani financial system. Research has also highlighted the need for the SBP to provide detailed explanations and background on these amendments and clarifications. This need is crucial as it ensures that these amendments can be better understood and applied uniformly, promoting transparency and understanding in the industry. The study emphasizes the significant role of local regulatory bodies, in collaboration with the SBP, in interpreting and implementing Shariah standards. This collaboration provides reassurance and confidence in the system, ensuring that the principles of Shariah are upheld in the Pakistani financial system and that the system is robust and reliable. The study recommends that scholars and financial experts regularly consult on Shariah principles and provide clear explanations in Urdu and English.
Keywords: Islamic banking, AAOIFI Shariah Standards, SBP amendment, Loan.