Resources for Basel II Capital Accord (Basel II)

IBIs allowed investment in shares, hedging in forex

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State Bank of Pakistan on Monday allowed Islamic Banking Institutions (IBIs) to invest in share markets of the country on the basis of two financial instruments -Mudarabah and Musharakah.The central bank also allowed IBIs to enter into “cross-border transactions” which means Pakistani IBIs now can go to overseas. IBIs are also allowed hedging of foreign currencies but keeping the Sharia compliant principles.The set guideline said, “IBIs exposure in general FX spot rate, changes in cross-border transactions, foreign currency receivables and payables may be hedged using Sharia Compliant methods.”The commodity and seasonal financing, for cotton, rice, wheat will be conducted under “Salam Contracts”. The manufacturing sector and building sector (construction industry) will be financed under “Istisna contract”.

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