Pakistan Decides To Facilitate Islamic Banking Industry

To support liquidity management within the Islamic banking industry, the government has introduced a framework allowing for the outright purchase of Government Ijara Sukuk (GIS) on a deferred payment basis (Bai-Muajjal) and their subsequent sale on a ready payment basis through a competitive bidding auction. These transactions will be conducted in line with the approval of the State Bank of Pakistan (SBP) Shariah Board.

Participation in these auctions is restricted to Islamic banks and Islamic banking branches. The SBP will notify participants of the auction details through Reuters or Bloomberg one day before the auction date. The Government of Pakistan (GOP) will determine the cut-off price and retains the right to reject any or all bids without explanation. If the deferred payment date coincides with a public or unscheduled holiday, the settlement will automatically extend to the next business day without affecting the deferred payment price.

The GOP may accept bids on a ‘pro-rata volume’ basis, as outlined in DMMD Circular No. 02 of 2007. The SBP will announce the auction results on the same day through Reuters or Bloomberg, and successful bidders must provide contracts to the SBP Banking Services Corporation (BSC) for confirmation and settlement. Transfers of GIS purchased on a deferred payment basis will move from the bidder’s Specialized Government Ledger Account (SGLA) to the GOP’s SGLA on the settlement date, with payment occurring on the deferred date. Conversely, GIS sold to the GOP on deferred payment terms will no longer count toward the bank’s Statutory Liquidity Requirement (SLR) calculations from the settlement date. However, the deferred payment obligation from the GOP will qualify as an SLR-eligible security under the applicable Gazette notification.

Contracts cannot be terminated before the deferred payment date. Annexures (E for Bai-Muajjal transactions and F for ready payment transactions) provide further details and guidelines. This initiative is designed to enhance liquidity management for Islamic banks while maintaining compliance with Shariah principles and regulatory frameworks.