SBP Makes Collateral Pledging Mandatory for Islamic Banks Under Mudarabah-Based Facilities

The State Bank of Pakistan (SBP) made it mandatory for Islamic banking Institutions (IBIs) to pledge collateral for availing Sharia-compliant Mudarabah-based Standing Ceiling Facility and Open Market Operations (OMO –Injections) using GIS(CDC). The IBIs shall pledge the collateral in favor of SBP in the Central Depository System (CDS) of CD based on the allotted codes 2025-30 for the ceiling facility and 2025-29 for OMO injection. The market value of collateral provided by IBI to avail MFF must be at least equivalent to the sum of financing amount availed from SBP, the expected profit on MFF, and the applicable haircut on the market value of the security offered as collateral in line with the collateral requirements notified by SBP from time to time. The market value of GIS(CDC) used as collateral will be determined using their respective revaluation rates published by FMAP, as on the last working day before the day on which the facilities are requested. Collateral pledged in favor of SBP for availing the said facilities will cease to be unencumbered and will not be counted toward the SLR of the IBIs during the period of the facility. After receipt of deal confirmation from the IBI and confirmation of the pledge of collateral in CDS in favor of SBP, the funds will be transferred to IBI’s current account at SBP. On the settlement/maturity date of each financing transaction under MFF, SBP will debit the current account of the IBI maintained with SBP to recover the amount of financing and the profit (as per the expected profit rate) and release the pledged securities in CDS. All IBIs availing MFF against eligible collateral are advised to henceforth submit the deal confirmation letter, duly signed by the authorized signatories, to the Chief Manager, SBP (BSC) Karachi Office. All other instructions on the subject will remain unchanged. Last year, SBP introduced its Mudarabah-based Shariah Compliant Standing Ceiling Facility and Open Market Operations (OMO –Injections), respectively, for eligible Islamic Banking Institutions (IBIs). SBP will create the Group ID on CDS for pledging of GIS (CDC).