Shariah Compliant Solutions for Foreign Bill Discounting

Karachi: State Bank of Pakistan (SBP) in a circular on Thursday instructed the Presidents/Chief Executive Officers, All Islamic Banks and All Conventional Banks having Islamic Banking Branches that in order to standardize Shariah practices of Islamic banking institutions (IBIs) regarding foreign bill discounting, the following instructions are issued which will be applicable with immediate effect:-

i. Salam of foreign currency is not a preferred transaction; however if any IBI is interested in undertaking such transaction, the same shall be executed at ‘the weighted average rate of previous day’s transactions’ executed by the IBI with its clients.

ii. In case ‘Qard-e-Hasanah cum Wakalah’ model is used for bill discounting, it shall be ensured that the agency fee charged for collecting the proceeds of the bill is based on ‘Ujratul Mithl (market fee)’ and shall not be linked to the bill amount and the tenor etc.

iii. IBIs may also use Murabaha, Musawama, Salam and Istisna-cum-Wakalah etc to meet financing needs of their customers independent of foreign bill.

The IBIs are advised to ensure compliance with the instructions in letter and spirit. Failure to comply with the same may invoke penal action under the provisions of Banking Companies Ordinance, 1962.

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