SHARI’AH GOVERNANCE

FRAMEWORK - 2014
SBP-IBD

Presented by
Mufti Ehsan Waquar Ahmad
Shariah Advisor
 Scope of SGF
• Shari’ah Governance framework primarily address the critical
organs of the Bank that have a direct role in ensuring un-
compromised compliance of shari’ah rules and principles
within the institution.
 Critical Organs identified in SGF
• To strengthen the overall Shari’ah compliance environment
within the Bank, SGF has clearly define the roles and
responsibilities of Critical Organs including:
– Board of Directors (BoD)
– Executive Management (EM)
– Shari’ah Board (SB)
– Resident Shari’ah Board Member (RSBM)
– Shari’ah Compliance Department (RSD)
– Internal Shari’ah Audit Unit (ISAU)
– External Shari’ah Audit (ESA)
 Roles of Governing Bodies
Board of Directors
1. Shall be responsible and accountable for Shariah compliance operations
within the Bank (as informed and pointed out by the SB of the Bank).
2. Shall be aware of all risks and its implication in case of any Shari’ah non
compliance.
3. Shall approve and fully abreast of effective Shari’ah compliance
mechanism as recommended by the Shari’ah Board.
4. Shall appoint SB members, approve TORs, & their remuneration.
5. Shall meet the SB at least on half yearly basis to:
a. Review Shari’ah Compliance Environment, identified issues/weaknesses &
recommendations for improvements.
b. Ensure timely and effective enforcement of the SB decisions / observations /
recommendations.
 Roles of Governing Bodies
Executive Management
1. Shall be responsible for timely implementation of SGF.
2. Shall ensure that all the procedure manuals, product programs,
checklist etc. as approved by the SB, is understood by all working
staff in the respective group/ functional area.
3. Shall be responsible for imparting adequate training to IBG staff.

4. Shall be responsible for the implementation of SB decisions/fatwas

in letter and sprit.
 Roles of Governing Bodies
Executive Management
5. Shall show zero tolerance for Shari’ah non-compliance & take
appropriate action against responsible employees including
strong implication on their annual appraisals, promotions,
bonuses etc.
6. Shall submit complete information while referring any matter
to SB for fatwa/opinion/ guidance.
7. In case of disagreement between the SB & EM, the matter
shall be referred to Shari’ah Board, SBP.
 Roles of Governing Bodies
Shari’ah Board
Constitution of the SB and Appointment of SB Members
• Every IBI shall have a Shari’ah Board comprising at least three Shari’ah
Scholars appointed as per the Fit and Proper Criteria (FAPC) notified by
SBP.
• Details of the Shariah Board Constitution
 Constitution of the Shari’ah Board
Constitution 1. At least 3 Shari’ah Scholars as per FAPC.
2. 1 as a Chairperson.
3. Relaxation on FAPC may be granted by
SBP.
Appointment 1. Shall be subject to prior approval by
SBP.
2. Current Shari’ah Advisor shall be
appointed as Chairperson SB/SBM.
Re- 1. The scholars shall be eligible for re-
appointment appointment for another term.
2. IBI to inform SBP 2 months prior to the
expiry of current term.
3. Incase of adverse feed back about
SBMs/CP, SBP may advise the IBG to
reconsider the decision.
Removal or Removal/termination before expiry of term
Termination shall be subject to prior approval by the
SBP.
Experience 1. Chairperson: 05 years of experience as a
Shari’ah Advisor (SA) or a member of
Shari’ah Board of an IBI.
2. Other SBMs: 03 years as an SA or DSA or
member Shariah Team in any IBI.
Tenor of 03 years and renewable
Appointment
Non renewal 1. IBI not offering another term to the
of Contract SBMs/CP SB shall inform SBP 3 months prior
along with rationales/reservations.
2. SBP, if not convinced, may revert back the
decision
Resignation 1. SBM/CP shall submit the resignation to
BOD.
2. The vacant position shall be filled within
three months.
 Roles of Governing Bodies
Role of the Shari’ah Board
1. Shall advise BOD & Executive Management of IBG.
2. Shall be responsible and accountable for all its Shari’ah Decisions.
3. Shall cause to develop a comprehensive Shari’ah Compliance Framework
for all areas of IBG operations.
4. Shall approve all products/services to be offered.
5. Shall ensure all matters are in conformity with Shari’ah rules and
principles.
6. Shall have unhindered access to all records, documents and information.
7. Shall rigorously deliberate on the proposals before giving any
decision/fatwa.
8. Shall prescribe enforcement actions on ISAU & SCD review reports.
9. Shall discuss all significant / unresolved issue with SBP inspection team.
10. Shall specify the process/procedures for changing, modifying or revisiting
fatwa/rulings/guidelines etc. already issued by SB.
 Roles of Governing Bodies
Shari’ah Board Meetings
1. Shall meet at least on quarterly basis and each SBM shall attend at
least 3 meetings during a calendar year.
2. Chairperson (CPSB) may convene SB meetings as and when he
deems it necessary.
3. Meetings shall be chaired by the CPSB and in his absence any of the
SBM shall be elected as acting CPSB.
4. The quorum of SB meeting shall be at least 2 SBMs.
5. In case of disagreements between SBMs, the decision may be taken
through majority vote of SBM.
 Roles of Governing Bodies
Shari’ah Board Meetings
6. May hold maximum 2 of its meetings through video conferencing
subject to recording of proper minutes.
7. SB decision taken through circulation shall be made part of the
minutes of the next SB meeting.
8. Shall ensure that all necessary details of the decisions made / fatwa
issued along with rationales / difference of opinions or dissenting
note must be embedded in the minutes.
9. The minutes shall be submitted to Islamic Banking Department of
SBP within 45 days of the meeting for information and record.
10. The minutes shall be made available to BOD, SBP inspection teams,
internal / external auditors on request.
 Roles of Governing Bodies

Independence of Shari’ah Board

1. The SB shall discharge its duties independently and objectively.
2. SB shall assess their relationship with IBG to identify any situation
where independence of SB may deemed to be compromised.
3. BOD shall ensure that SB is not subject to any undue influence /
pressures or conflicting interests of the management and/or its own
members.
Report of Shari’ah Board
4. SB shall prepare a report on IBI’s Shari’ah Compliance environment
and conditions based on the work of Internal and external Shari’ah
Auditors .
 Execution Road Map of SGF at NBP-
Aitemaad
• We at NBP have developed a role Matrix
defining the Role and Responsibilities and the
road map for achieving those mile stones.
 Role Description Matrix
STAKE
S. No ROLE DESCRIPTION
HOLDERS
Will be responsible and
accountable for ensuring full
conformity of IBI’s operations
1 BOD
with Shariah principles (as
informed and pointed out by
the SB of the Bank)
The BOD should be fully
aware of their responsibility
particularly towards the
Investment Account
BOD/ necessary mechanism and risk Automation of Profit Distribution and Pool Management System
Holders/Profit and Loss
2 RMG/IT/ management system to
Sharing depositors (IAHs/PLS
FCD
depositors). BoD to ensure
Shari’ah conformity of the
returns etc. being paid to
them.
GOAL/OBJECTIVE ACTION PLAN /ROAD MAP
1. Training of the BOD in order to provide them a fair
understanding about Islamic Finance & Banking. This session
The BOD needs to be fully may be held off-sight that may help generating some interest for
cognizant of Shari’ah non- the BOD conducted by the Shariah.
compliance risk and its 2. Regular initiatives for orienting and sensitizing the BOD and the
potential implications on the key executives about the business utility and importance of an
reputation and business of the enabling Shari’ah compliance environment and distinguishing
IBI as pointed out by the SB of features of Islamic finance products should be arranged by the
the Bank. SB.
1. As a part of the compliance mechanism, a Control Compliance
Committee (CCC) should be formed in order to address Shariah
non-compliance issue periodically thus avoiding surprises in
Need to introduce diligent Shariah Audit and SB Report.
oversight over the functioning 2. The committee shall include representative from Compliance
of the framework and Group, Shariah Compliance Dept. (SCD), Internal Shariah Audit
compliance with the fatawa, Unit (ISAU), RMG and SB Chairman where SBC chairs the
instructions, and guidelines of committee.
the SB. 3. This committee shall report to the Board/IBC on periodic basis. 
Frequent Meetings with the SB to keep them posted
Development of a proper risk managmenet Framework is required
that shall be introduced and an MIS/Report on the same shall be
submitted to the BOD periodically
The BOD is to introduce
that is duly certified by the Shariah
safeguard the interest of the
IAHs
 Role Description Matrix
STAKE
S. No ROLE DESCRIPTION
HOLDERS
The BOD shall meet the SB
at least on half yearly basis
3 to discuss where at least two BOD
Shariah Scholar members
are present
Constitution of the SB and
4 BOD/HR
Appointment of SB Members
Independence of Shari’ah
5 SB/BOD
Board (SB)
GOAL/OBJECTIVE
For BOD Information
IBI shall have a Shari’ah Board
comprising at least three Shari’ah
Scholars appointed as per the Fit and
Proper Criteria (FAPC) notified by SBP.
To appoint a Shariah Board (SB) and
approve the Terms of Reference (TOR)
of the SB and fix remuneration of the SB
members.
The BOD shall ensure that the SB is
not subject to any undue influence
and pressures of conflicting interests
of the management and/or its own
members
ACTION PLAN /ROAD MAP
Preferably meet quarterly
Currently we need to hire two scholars one on
retainership acting as MSB and another on full
time basis who shall serve as a Resident Shariah
Board Member and draw their respective TOR that is
duly approved by the BOD. This RSBM may also serve
as HSCD (Head Shriah Compliance Department).
Frequent Meetings with the BoD shall remove gaps
and develop close interaction. The frequent access
shall help avoiding any undue influences of conflicting
interests. Further there should be no administrative
reporting line that will influence the independence of
the SB.
 Role Description Matrix
ROLE STAKE
S. No GOAL/OBJECTIVE ACTION PLAN /ROAD MAP
DESCRIPTION HOLDERS
IBI shall have a Shari’ah Compliance A full time resource to Head the Department at least AVP/VP
Department (SCD) which shall be headed level. This can also be the RSBM as discussed above. The
by a full-time suitably qualified, trained and direct reporting line of SCD shall be to the SB without and
experienced officer recommended by the SB admisnistrative reporting line as defined in the SGF.

The department shall have dedicated
adequate staff as per the advice of the
SB, enabling it to discharge its
responsibilities in a proper manner.
a. May comprise of 22 persons staff in Phases. Initially this
may comprise of 9 persons and upon 50 branches will
reach upto 22 to manage the over all compliance, training,
enforcement of Shariah Audit findings and business
facilitation including Product Polcy Manuals and SOPs PD
Matters and to laison with SBP-IBD.

Details of Staff Needed

Shari’ah
6 Compliance HR a)1 Staff as Head Shari’ah Compliance Department/RSBM
Department b) 2 staff members for Secretariat Shari’ah Board (SSB)
c) 4 members for Management Facilitation Unit (MFU)
d) 4 members for Shari’ah Compliance Unit (SCU)
e) 3 member for Policy Development Unit (PDU)
f) 3 for Research, Training & Development Unit (RTDU)
g) 3 Staff for Audit & SBP Co-ordination Unit (ASCU)
h) 2 support staff members as rider & peon.

Further, SCD shall work under the overall Enclosed organogram / organizational structure revision.
guidance and supervision of the SB and
its Head shall report to the SB and his/her
performance appraisal etc shall be finalized
by the SB.
 Role Description Matrix
STAKE
S. No ROLE DESCRIPTION
HOLDERS
The Bank shall have an
Internal Shari’ah Audit Unit
(ISAU) which may be a part
of internal audit department
or an independent unit
depending on the size of the
bank where the Head of
ISAU shall report to Head of
Internal Audit or Board Audit
Committee (BAC) in case of
independent unit.
7 A&IG
GOAL/OBJECTIVE
Need to form a unit dedicated
for the assignment.
ACTION PLAN /ROAD MAP
1- This unit can be form at HO that takes pan Pakistan
assignments or can form sub units for each region with the
main unit at HO.
2 - The staff of ISAU must have appropriate qualification and
training to perform their duties.
3 - Develop the following that must be reviewed and approved
by SB:
a. The scope
b. Methodology
c. Checklists/work programs
d. Shari’ah audit manual
4 - ISAU shall prepare a separate Shari’ah audit plan which,
after review by the SB, shall be approved by the Board Audit
Committee.

Shari’ah audit staff shall be The Shari’ah Audit Report finalised by IAU shall be submitted
dedicated to Shari’ah audit only; to SB for prescribing appropriate enforcement actions.
however, Shari’ah and regular The final report along with the enforcement/corrective actions
audit of a branch or a function prescribed by SB shall be sent to the BAC for information and
can be performed ensuring compliance with the SB directives on the report
simultaneously.

STAKE
S. No ROLE DESCRIPTION
HOLDERS
The executive
management of the IBI
shall be responsible for
implementing the
framework.
Every group Head and
executive shall also be
8 accountable and
responsible for
implementation of the SB
decisions/ fatawa relating
to his group/ functional
area.
 
Role Description Matrix
GOAL/OBJECTIVE ACTION PLAN /ROAD MAP
Every executive shall ensure that all the The SCD with its facilitation resource shall facilitate the business
procedure manuals, product programs, in this regard.
checklist etc as approved by the SB, are
made available to and understood by
everyone working in his/her respective
group/ functional area.
Every executive is responsible for IBIs should arrange trainings and orientation programs on
imparting adequate training to his/her Islamic banking and finance for the senior executives. A
group employees in coordination with trianing Schedule for all year long should be developed so it
Training Department and Shari’ah becomes a routine practice for the staff duly approved and
Compliance Department supervised by SB.
Executive management needs to show Issue an inter Office Circular:
zero tolerance for the Shari’ah non- Any Shari’ah non-compliance instances shall have strong
compliance and take appropriate actions bearing on their performance appraisals, promotions,
against the employees who failed to bonuses etc. of the Staff
ensure compliance with the Shari’ah rules
EM and principles in their respective area of
responsibility
Whenever the management refers a Fatwa/decision of SB is binding on the IBI Management. Any
matter to SB for fatwa/ opinion/ guidance, disagreement to / conflict of interest may be resolved through
it shall ensure that complete information is conflict resolution mechanism.
submitted to the SB enabling it to give
opinion based on complete information
and understanding of the
proposal/product.
Other Functions
The Management will ensure that IBG web page incldue the
following details:
1. Brief Introduction of SB members.
2. Disclosures required by SB.
3. Product Fatwas
4. Key features of all the products offered.
5. FAQs.
6. Contact details of the department.
 Establishment of SCD in Phases
Phase – I The BoD
Until 50 Branches are National Bank of Pakistan
Converted into Islamic

Shari'ah Board
Mufti Ehsan Waquar
Ahmad Chairman SB

SB member / SB
RSBM Member

Head, SCD

M. Makhdoom Team Leader Team Leader Research,

Team Leader
Shari'ah Compliance & Training & Dev. Support
Secretary Products Facilitation & Unit
Audit/SBP Co-ordination
Shari'ah Board Policies/SOP Dev. Unit
Unit (Vacant) (Vacant)

Officer, Policies & SOP Officer, Audit & SBP Co-

M. Farooq Khan
Development Unit ordination Unit Research Officer
SSB Officer
(Vacant) (Vacant)
 Establishment of SCD in Phases
The BoD
Phase – II National Bank of Pakistan
Once 50 branches are converted
The next phase of hiring would start
Shari'ah Board
Mufti Ehsan Waquar
Ahmad Chairman SB

SB member / SB
RSBM Member

Head, SCD

M. Makhdoom Team Leader Team Leader

Team Leader Team Leader Policies Team Leader Audit &
Research, Training &
Secretary Products Facilitation Shari'ah Compliance Dev. Support Unit & SOP Development SBP Co-ordination Unit
Shari'ah Board Unit Unit (Vacant) Unit (Vacant) (Vacant)
(Vacant)

M. Farooq Khan Asset Products Shari'ah Compliance Officer, Policies & Officer, Audit & SBP Co-
SSB Officer Facilitation Officer Officer Research Officer SOP Development ordination Unit
(Vacant) (Vacant) Unit (Vacant) (Vacant)

Training & Officer, Policies & Officer, Audit & SBP

Liability Products Shari'ah Compliance Development Co-ordination Unit
Officer SOP Development
Facilitation Officer Officer (Vacant) Unit (Vacant) (Vacant)
(Vacant) (Vacant)

Treasury Products Shari'ah Compliance

Facilitation Officer Officer
(Vacant) (Vacant)
 Resolution
Shari’ah Board Meetings
• RESOLVED THAT the proposal contained in the Islamic Banking
Group’s Agenda no _____/14 dated July ______2014 seeking
approval of the Role Description Matrix (RDM) and the defined roles,
action plans and road maps as contained in annexure ‘A’ of agenda
paper be and is hereby approved.
• It is further resolved that the constitution of Shari’ah Compliance
Department in two (2) phases as contained in annexure ‘B’ - i & ii of
agenda paper be and is hereby approved.
• It is further resolved that the Job Description, respective qualification
& experience of Shari’ah Compliance Department Staff as contained
in annexure ‘C’ of agenda paper be and is hereby approved.
 Resolution
Shari’ah Board Meetings
• It is further resolved that the constitution of Shari’ah Board
and its reporting line as contained in annexure ‘D’ of
agenda paper be and is hereby approved.
• It is further resolved that the current Shari’ah Advisor Mufti
Ehsan Waquar Ahmad would be the chairman of the
Shari’ah Board with revised Contract.
• It is further resolved that the Shari’ah Board Job
Description, qualification and required experience as
contained in annexure ‘E’ of agenda paper be and is hereby
approved.
Jazak Allah

Thank You