The Adaptation of the AAOIFI Shariah Standard Sharikah (Musharaka) and Modern Corporations in the Islamic Finance Industry of Pakistan: A Qualitative Study

Umar Farooq; Muhammad Bilal Zafar

doi:10.33102/jmifr.638

Authors

Umar Farooq School of Islamic Economics, Banking and Finance, Minhaj University, Lahore 54700, Pakistan. https://orcid.org/0000-0003-0246-9315
Muhammad Bilal Zafar School of Islamic Economics, Banking and Finance, Minhaj University, Lahore 54700, Pakistan.

DOI:

https://doi.org/10.33102/jmifr.638

Keywords:

SBP amendment, AAOIFI shariah standards, Islamic banks, musharaka

Abstract

This research article examines the amendments introduced by the State Bank of Pakistan (SBP) in the adaptation of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Shariah standards, with particular emphasis on conflicting clauses. It incorporates insights from stakeholder interviews to assess the implications for Pakistan’s Islamic banking industry. A key area of analysis is the adaptation of the AAOIFI standard on Sharikah (Musharaka) and its application to modern corporations. The findings reveal significant discrepancies in profit and loss sharing (PLS) arrangements, capital guarantees, management structures and Shariah governance mechanisms. Overall, the study highlights the complexities involved in aligning Shariah-compliant financial products with modern regulatory frameworks. Notably, SBP has amended 12 out of 98 clauses, reflecting an 8.16% deviation from the original standards. The research ultimately underscores the inherent challenges in integrating Shariah principles into a contemporary financial regulation, where practical adaptations may conflict with traditional Islamic finance principles.

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