National and Global Islamic Financial Architecture:
Prolems and Possible Solutions for the OIC Member Countries
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extensively in recent years to issue secondary legislation, rules, regulations, and other
directives to banks on consumer protection matters.
Further, SBP monitors consumer protection practices on an ongoing basis and also receives
consumer complaints directly from the public, occasionally leading to issuance of further
clarifications of regulations in force and standards expected of the financial sector. SBP
regularly engages in consumer awareness campaigns in collaboration with foreign and local
partners. Banks also undertake such activities according to their own business plans and
programs. In the case of branchless banking, the draft guidelines outline minimum
requirements for consumer awareness to be conducted by banks.
The Office of the Banking Mohtasib, or banking ombudsman, is an independent statutory body
established by law to resolve disputes between consumers and banks. It is the first authority
where a consumer, if not satisfied with a bank’s decision, can lodge a complaint. It also collects,
analyzes, and publishes data on consumer protection inquiries and disputes. The services
performed by the ombudsman are free of charge. As is the case in some other countries, banks
share the costs of the institution, with the cost to each bank determined by the central bank.
The SECP has a strong statutory mandate to protect investor and consumer rights and interests
in the insurance and securities sectors, but needs to step up its supervisory and enforcement
capacity to deal with noncompliance and malpractices in both market segments. There is a
need to establish an effective coordination mechanism among regulators and the other key
stakeholders, including the Competition Commission of Pakistan (CCP), industry associations,
ombudsmen, and provincial consumer protection councils to define strategic priorities and
clarify roles and responsibilities. With regard to the Banca takaful, SBP’s BPRD Circular No. 11
dated August 1, 2006 requires banks to obtain prior consent from the existing or prospective
customers for availing any insurance or other product or service. Furthermore, the
Competition Act 2007, Section 3, prohibits tie-ins when they prevent, restrict, reduce, or
distort competition.
Lately, both regulators have recognized the importance of financial education and have
initiated programs to address the gaps. While the SBP is running special move to enhance
awareness and education about Islamic banking and finance, the SECP has initiated ‘Jama
Poonji” a program to educate investors about safe investments in the capital markets.
According to the WB report (2014), however, the judicial system in Pakistan does not currently
ensure affordable, timely, and professional resolution of consumer protection disputes. The
institutional framework for financial consumer protection is fragmented, and has important
gaps and overlaps that have to be addressed either by the financial sector itself or through the
establishment of a common financial ombudsman.
Deposit Insurance/Protection
No special law on deposit insurance exists in Pakistan. A draft law establishing an explicit
deposit protection scheme (DPS) to provide protection to small depositors was drafted some
time ago but has not been submitted to parliament (WB 2014, p.43). Under the Banks
(Nationalization) Act, 1974, all bank deposits are protected by the government. However, the
provision is no longer appropriate in a system that is largely privately owned except for the