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Mr. Tahir Khurshid Head Of Audit & Inspection Group Bank Alfalah Limited Audit & Risk Review Function in Banks - Rising Expectations & Challenges Islamic Banking and Shariah audit 3 rd Pakistan Internal Audit Summit
1. Islamic Banking Preamble 2. Islamic Finance Global view 3. Islamic Banking in Pakistan 4. Shariah Audit 5. Key challenges to Islamic Banking
ISLAMIC BANKING AN OVERVIEW Islamic Banking is based on Shariah Laws. The governing principles are:- The absence of interest-based (riba ) transactions Avoidance of speculations (gharar) Avoidance of oppression (zulm) Promotion of socio-economic justice via Islamic tax (zakat) No production of haram goods and services (ethical business)
Understanding the difference Conventional Vs. Islamic Banking Three levels Conceptual & Socio-religious level Business model & Governing framework Product Level Implementation
Global View of Islamic Finance
Global Market Share Islamic Vs Conventional
Islamic Banking Growth Pakistan Three types of institutional models Full-fledged Islamic banks [ 5banks] Stand alone Islamic banking branches of conventional banks. [16 banks ] Islamic banking subsidiaries of conventional banks [21 banking institutions and more than 2,300 branches]
Islamic Banking Growth Pakistan (June 2017) Assets Share : 11.6% Deposits Share: 13.7% Profit after tax : Rs. 8.8 billion Return of Assets: 0.9% Return of Equity: 13.8%
Financing and Related Assets (net)
Shariah Governance Framework issued by State Bank of Pakistan (SBP) The primary objective of the framework is to strengthen the overall Shari ah compliance environment in the IBIs and explicitly define the roles and responsibilities of various organs of IBIs towards Shari ah compliance. including the; Board of Directors (BOD), Executive management, Shari ah Board (SB), Shari ah compliance department Internal auditors External auditors
Shariah Audit Definition Shariah audit refers to; Periodical assessment to provide an independent assessment and objective assurance Designed to add value and improve the degree of compliance Ensuring a sound and effective internal control system for Shariah compliance
Objective of Shariah Audit Shariah audit can be Independent or part of the internal audit department; to examine and evaluate the extent of compliance with; Islamic Shariah rules and principles, Fatwas, Guidelines/instructions issued by the IFIs Shariah committee/ Shariah Board to ensure that the management of IFI discharge their responsibilities in relation to the implementation of the Shariah rules and principles as determined by the IFIs Shariah committee/shariah Board
Internal Shari ah Audit Shariah Governance Framework Every IBI shall have an Internal Shari ah Audit Unit (ISAU) Shari ah audit staff shall be dedicated to Shari ah audit only Scope, methodology, checklists/work programs, Shari ah audit manual and format of internal Shari ah audit report reviewed and approved by the SB. Separate Shari ah audit plan reviewed by SB approved by the BAC Submission of Shariah Audit Report along with the enforcement/corrective actions to BAC
Outcomes of Shariah Audit exceptions 1. Transfer of Branch/unit Income to Charity Fund 2. Transfer of Branch/unit Income to Head office 3. Restriction on execution of further transactions 4. Simple rectification of exception
Charity Fund and its utilization BAFL IBG Charity Fund Opening Balance Additions during the period 2016 2015 Rs. 000
Charity Fund and its utilization Meezan Bank Limited Charity Fund Opening Balance Additions during the period 2016 2015 Rs. 000
Key drivers impacting growth PWC-Islamic Finance Capability Report
New Challenges for the Industry Lack of awareness Shortage of trained Human Resource Limited number of Shariah Scholars New Product Development & Research Enhanced Financial Returns and Performances Separate Regulatory, Legal & Risk Management framework Advancement in Information Technology
The ethical principles on which Islamic Finance is based may bring banks closer to other clients and to the true spirit which should mark every financial service. The Vatican, March 2009