Pakistan’s central bank will phase in new capital adequacy rules for Islamic banking subsidiaries and trade sharia-compliant government debt in the open market, addressing a lack of liquidity management tools in the sector.
The initiatives are part of an ambitious five-year plan by the regulator to promote Islamic finance through an array of proposed legislative changes, product incentives and instructions to market participants.
In April, the central bank said it was working on such tools as part of efforts to ensure a level playing field for Islamic banks in the majority-Muslim nation.
The central bank has revised the minimum paid-up capital requirement for Islamic bank subsidiaries to 6 billion rupees ($58.4 million), giving them a five-year period to raise it. The minimum paid-up capital requirement required for all other banks is 10 billion rupees.
The move would encourage conventional banks to establish subsidiaries rather than operate Islamic windows, a practice that allows lenders to offer Islamic financial services provided client money is segregated from the rest of the bank.
In a separate circular, the central bank said it would trade government-issued Islamic bonds (sukuk) with Islamic banks on a competitive basis, serving as a money market instrument and a monetary policy tool.
The central bank previously said such a facility would have an asset base of between 200 billion and 300 billion rupees. (1 US dollar = 102.7000 Pakistani rupee)
*This article was originally published on Reuters on 19 October 2014. Read the original article here.