Instructions on Islamic Banking Windows (IBWs) Operations

IFPD Circular Letter No. 02 — June 10, 2026

The Presidents/Chief Executives
All Conventional Banks having Islamic Banking Branches and Microfinance Banks having Islamic Operations

Dear Sir/Madam,

Instructions on Islamic Banking Windows (IBWs) Operations

Please refer to IBD Circular No. 2 of 2020 on the captioned subject.

2. In order to facilitate Banks/Microfinance Banks (MFBs) in conversion of conventional branches into Islamic and enhance facilitation in Islamic banking window operations, it has been decided to amend existing instructions, as under:

3. Banks/MFBs may establish IBWs within conventional branches approved for conversion either under the annual branch conversion plan or through a separate request, without prior SBP approval. Such IBWs may be established for an interim period starting from date of initiation of an individual branch conversion process till its final conversion.

   1. During the branch conversion phase [as permitted under point (i)], banks/MFBs may offer Shariah Compliant products including deposits and all types of financing (funded/non-funded).
   2. Banks/MFBs shall specify their plan for establishing IBWs at the time of seeking SBP's permission for branch conversion under annual branch conversion plan or through a separate request.
   3. No processing or annual fee shall be applicable on IBWs to be opened for the interim period as a part of branch conversion.

4. The requirement related to display of the name of IBW on the sign board of the conventional branch, i.e. ¼th portion of the board, has been relaxed to support banks/MFBs in opening of IBWs. However, banks/MBFs shall ensure existence of appropriate alternate arrangements at the branch entrance and display prominent signage within the branch premises indicating the availability of Islamic banking products and services through windows.

5. To allow banks/MFBs to leverage technology for effective segregation of conventional and Islamic funds, the requirement for real-time connectivity of IBWs with closest Islamic banking branch/hub has been revised to mandate connectivity with the controlling branch/hub/centralized data centre.

6. The existing instructions pertaining to IBWs of conventional banks shall also be applicable to microfinance banks for offering Islamic products and services through IBWs.

7. All banks/MFBs operating IBWs shall continue to submit quarterly data through DAP within seven (7) days after the quarter end using the attached template Annexure-II.

8. The consolidated instructions on IBWs operations incorporating the above changes are enclosed for meticulous compliance with immediate effect.

9. Please acknowledge receipt

Enclosed:

• Annex-1
• Annex-2

Yours sincerely,

Dr. Zahid Ur Rehman Khokher
Director

---

Annexure-II

Annexure-II
Islamic Banking Window (IBW) Operations

Name of the Bank/MFB:
Statement for the Quarter ended:

IBWs Network No. of IBWs

1. IBWs at the beginning of quarter
2. IBWs Opened during the quarter
3. IBWs Closed during the quarter
4. IBWs at the end of quarter

5. IBWs Shifted during the quarter

Deposits/Depositors Total Deposits
(PKR in '000') No. of Depositors
Total Deposit and No. of Depositors at IBWs

Outstanding Islamic Financing by IBWs
Outstanding Financing Total Amount
(PKR in '000')
Total No. of
Customers

1. Corporate/Commercial
2. SME
3. Agriculture
4. Housing
5. Consumer
6. Microfinance
7. Others (Please specify, if any)
   Total

---

Annex-1

Annexure-I
Instructions on
Islamic Banking
Windows
Operations
June 10, 2026
Islamic Finance Policy Department
State Bank of Pakistan

Instructions on Islamic Banking Windows Operations 1 | Page
Table of Contents
A. Objective ................................................................................................................................................2
B. Scope......................................................................................................................................................2
C. IBWs Policy .............................................................................................................................................2
D. Annual IBWs Expansion Plan (AIBWEP)..................................................................................................3
E. Evaluation of AIBWEP.............................................................................................................................3
F. Interim Arrangements for Islamic Banking Windows at Conventional Branches under Conversion .....3
G. Physical set-up and Display ....................................................................................................................4
H. Closure or Shifting of IBWs.....................................................................................................................4
I. Products & Services to be offered by IBWs............................................................................................4
J. Fee Structure for Operations of IBWs ....................................................................................................5
K. Reporting................................................................................................................................................5
Appendix - Process Flow.................................................................................................................................6

Instructions on Islamic Banking Windows Operations 2 | Page A. Objective The objective of instructions on Islamic Banking Windows (IBWs) is to enhance the share and outreach of Shariah compliant banking products & services to the general public and contribute in overall financial inclusion in the country. B. Scope
i. Applicable to all Conventional banks and Microfinance Banks (MFBs) having Islamic
operations.
ii. The instructions cover operations of IBWs like opening, shifting and closure of their
business.
C. IBWs Policy
Banks and MFBs operating or intending to start IBWs shall develop a Policy (or revise existing one, if any) containing details on functioning of IBWs duly approved by their Shariah Board (SB)/ Shariah Advisor (SA) and Board of Directors (BoD) before approaching SBP for permission. The IBWs Policy shall at least cover the following:
i. Objective: The objective of IBWs operations Policy.
ii. Systems & Controls: Systems and controls in place like segregation of funds, duly approved
procedure manual, real time connectivity of IBW with its hub/controlling branch/ centralized data centre, and allied activities etc.
iii. Standard Operating Procedures (SOPs): SOPs for overall arrangements with concerned
group/division of the bank/MFB for use of Conventional Banking branches.
iv. Service Level Agreement (SLA) & Transfer Pricing Mechanism: SLAs with regard to support
functions/arrangements between the Islamic Banking/Microfinance Division (IBD/IMD) & relevant departments/divisions of the bank/MFB to ensure smooth functioning of IBWs. Moreover, transfer-pricing mechanism with regard to the functions/services required from other departments/divisions of the bank/MFB (conventional side) shall be specified.
v. HR/Staff Arrangements: Staff/HR arrangements (e.g. dedicated IBW Staff or staff of
conventional branches under SOP/SLA) to provide Islamic banking services through IBWs. Further, transfer/posting mechanism of staff from/to an IBW shall also be covered.
vi. Plan for Training & Capacity Building: Islamic banking trainings and capacity building
arrangements covering enhanced Shariah compliant operations at IBWs with regard to designated/posted/transferred staff of the proposed IBWs in line with SBP instructions/ guidelines issued from time to time.
vii. Marketing/Sales Arrangements: Marketing/sales arrangements (e.g. separate marketing
/sales staff or staff of conventional branches under SOP/SLA).
viii. Shariah Compliance: Shariah compliance environment of IBWs shall be ensured keeping
in view the products and services to be offered through IBWs in line with SBP relevant instructions issued for banks/MFBs from time to time.
ix. Branch Conversion through enhanced scope of operations at IBWs: Those banks/MFBs
which intend to enhance the scope of operations at their IBWs (i.e. offering both deposits & financing products – funded and non-funded) shall seek SBP’s prior permission and after grant of permission the host conventional branch(es) (where IBWs situated) shall be required to convert into Islamic banking branch(es) within three years from the date of

Instructions on Islamic Banking Windows Operations 3 | Page start of the enhanced operations. The conversion process of the branch(es) shall be in line with the instructions issued vide IFPD Circular No. 05 of 2024 and as amended from time to time. D. Annual IBWs Expansion Plan (AIBWEP) Following information shall be submitted to SBP for seeking permission to operate IBWs:
i. Banks/MFBs shall submit to BPRD consolidated Annual Plan incorporating details of
required number of IBWs/branches/sub-branches etc. to be opened, and conversions to be made during a particular year in line with the requirements specified with regard to Annual Branch Conversion Plan (ABCP), Annual Branch Expansion Plan (ABEP), and instructions on IBWs operations amended from time to time.
ii. Banks/MFBs shall specify details like business location, address, city, district etc. Further,
the plan shall specify/identify the said places as either deposit only IBWs or both deposit& financing IBWs.
iii. The consolidated Annual Plan along with requisite information shall be submitted to the
Director – BPRD with a copy to Director – Islamic Finance Policy Department (IFPD) for consideration and approval by 31 stOctober of each preceding calendar year.
iv. Banks/MFBs shall submit SB’s/SA’s opinion/certificate with regard to sufficiency of HR
capacity and the overall systems/arrangements in place for the operations of proposed IBW(s).
v. Details of products & services to be offered by banks/MFBs through proposed IBWs.
vi. A business plan showing at least three years business projections for the proposed IBWs
along with necessary/basic assumptions in respect of the projections. Further, an assessment of the areas to be served by the proposed IBWs should be made part of the plan. E. Evaluation of AIBWEP
i. The AIBWEP shall be evaluated keeping in view the needs of the Islamic Banking System
and other requisite information/documents in line with applicable instructions.
ii. Whether the bank/MFB has provided comprehensive Islamic Banking training to
designated/nominated Staff, Operation Manager, Branch Manager and related marketing/sales staff of the proposed IBW at the host conventional branch in line with applicable instructions.
iii. The permission for operations of IBWs shall be made only on annual basis. However, the
requests of banks/MFBs may be considered in exceptional cases, if the same is received with the objective of promoting Islamic banking, expansion in predominantly rural/remote areas and places where dire need of banking facilities exists.
iv. SBP shall take final decision on bank’s/MFB’s request after taking into account all other
factors in terms of IBW Policy of a bank/MFB and other applicable SBP instructions issued from time to time. F. Interim Arrangements for Islamic Banking Windows at Conventional Branches under Conversion Banks/MFBs may establish IBWs within conventional branches approved for conversion either under the annual branch conversion plan or through a separate request, without prior SBP

Instructions on Islamic Banking Windows Operations 4 | Page approval. Such IBWs may be established for an interim period starting from date of initiation of an individual branch conversion process till its final conversion.
i. During the branch conversion phase, banks/MFBs may offer Shariah Compliant products
including deposits and all types of financing (funded and non-funded).
ii. Banks/MFBs shall specify their plan for establishing IBWs at the time of seeking SBP’s
permission for branch conversion under annual branch conversion plan or through a separate request.
iii. There will be no processing fee/annual fee for opening of IBWs for interim period specified
above.
G. Physical set-up and Display
i. The Bank/MFB shall ensure that the words “Islamic Banking Window” are prominently
displayed outside the branch either on the main signboard or any other appropriate signage in a manner that ensures adequate visibility.
ii. The branch shall also display a prominent notice on entrance stating, “Islamic banking
services also available (both in English or Urdu)” indicating clear nature of branch and place prominent signs inside the branch showing availability of Islamic banking services to customers.
iii. The bank/MFB shall also provide details/updated list of its Islamic banking windows on its
website.
H. Closure or Shifting of IBWs
i. In general, all instructions (as a place of business) on shifting/closure of IBWs shall be
applicable on banks/MFBs operating IBWs, issued vide BPRD Circular No. 4 of 2016 as amended from time to time. However, the IBWs hosting branches offering both deposits and financing products (tagged for conversion into Islamic banking branches) shall not be closed without prior approval of SBP.
ii. IBWs (deposit only or both deposits & financing) may be shifted with prior permission from
SBP, however, this would be subject to reasonable explanations necessitating the shifting. Further, the processing and annual fee for shifting an IBW shall be equal to fee required for opening of an IBW.
iii. While shifting an IBW, the bank/MFB shall ensure that existing customers have a choice of a
nearby Islamic banking branch or an IBW or the shift is within a radius of 10 KM.
I. Products & Services to be offered by IBWs
i. IBWs can either offer Shariah compliant deposit products (only) or both deposits & all types
of funded and non-funded financing products and services in line with their approved IBWs Policy.
ii. No third-party products and services shall be offered by IBWs without prior approval of SBP.
iii. Banks/MFBs are encouraged to offer Shariah compliant program-based financing products
and one-window operation products with a view to reduce turnaround time (TAT) & quick access to finance especially the financing needs of farmers and SMEs.
iv. All products & services offered by IBWs shall be in line with applicable prudential regulations
and other guidelines/instructions issued by SBP from time to time.

Instructions on Islamic Banking Windows Operations 5 | Page
v. Banks/MFBs shall ensure that SB/SA approved product brochure/Key Facts Sheet with
regard to the products & services is available at IBWs for customers. Further, product manuals/SOPs of all financing products and deposit schemes being offered by an IBW are available/accessible to the concerned staff for any reference and use. J. Fee Structure for Operations of IBWs The processing, shifting, annual fee structure and its payment timelines/procedures for IBWs operations shall be in line with specifications given in these instructions and Chapter-9 on ‘Processing, Annual & Shifting Fee’ issued vide BPRD Circular No. 4 of 2016 amended from time to time.

K. Reporting
i. Banks/MFBs shall intimate BPRD with a copy to IFPD (IFPD.Reporting@sbp.org.pk) within
seven (7) days about commencement of IBW operations after completion of all requirements given in these instructions.
ii. Banks/MFBs operating IBWs shall also submit consolidated information on quarterly basis
within seven (7) days after the quarter end through DAP as per enclosed Annexure-II.

Instructions on Islamic Banking Windows Operations 6 | Page
Appendix - Process Flow
Following will be the process flow with regard to operations of IBWs:

1. Preparation by
   Banks/MFBs

• Preparation of IBW Policy
• Approval of IBW Policy by SB/ SA & BOD
• Aligning Systems, Controls and Procedures for permissible activities
• Preparation of AIBWEP Plan
• Other requirements

2. Submission of
   Requisite
   Information by
   Banks/MFBs

• Submission of the approved IBW Policy to SBP
• Submission of other requisite information
• Following specified timelines for submission

3. Evaluation of
   Request by SBP

• Evaluation of the submitted Plan & other information/documents
• Seeking missing/additional Information, if required
• Permission or otherwise by SBP

Communication to Banks/MFBs

• Communicating SBP decision to commence operations or otherwise