How are Shariah compliance disputes resolved under a banking facility?

A dispute alleging that a Pakistani banking facility is inconsistent with Shariah must be approached as both a question of the bank's approved product governance and a question of enforceable legal rights. It is not enough for a customer to state that the amount payable resembles interest, nor is it sufficient for the institution to produce a certificate describing the product as Islamic. The outcome depends on the precise mode of finance, the standards adopted by the State Bank of Pakistan, the product approved by the institution's Shariah governance function, and what the parties actually did when implementing the contract.

Resolution can involve the bank's internal complaint mechanisms, review by its Shariah compliance personnel, the State Bank's supervisory processes, the Banking Mohtasib where jurisdiction exists, or proceedings before a competent court or agreed arbitral forum. These pathways have different powers. A customer should not assume that an internal Shariah opinion automatically invalidates a debt or that the Banking Mohtasib can determine every question arising from a complex financing contract.

First identify the specific product and disputed transaction

Islamic finance is not one contract form. Murabaha involves a purchase and resale of goods at a disclosed cost and profit. Ijarah is a lease arrangement. Diminishing Musharakah may involve co-ownership, rent and successive purchases. Salam and Istisna address different sale and manufacturing circumstances. A valid complaint must identify which arrangement was agreed.

The legal team should assemble the signed master agreements, transaction notices, purchase orders, agency appointments, invoices, delivery evidence, lease documents, payment schedule and security instruments. In a Murabaha complaint, the sequence of actual acquisition and resale may be central. In an Ijarah case, ownership and allocation of loss may matter more than a dispute over initial purchase documents.

Distinguish a Shariah objection from an ordinary banking dispute

A customer might object to the bank charging a rate described as interest, failing to acquire an asset before resale, imposing an unauthorised default charge or promising ownership while passing every ownership risk to the customer. These allegations require analysis of the structure's operative standards and factual execution.

Other disagreements concern incorrect instalments, disputed payments, unlawful disclosure, delay in account closure or service charges. Such disputes can arise at an Islamic bank without necessarily being Shariah-compliance issues. Classifying them correctly helps determine the documents needed and the available forum.

The State Bank's Shariah Governance Framework

The State Bank revised its Shariah Governance Framework through IFPD Circular No. 08 of 2024, effective 1 January 2025. The framework requires Islamic Banking Institutions to maintain appropriate Shariah governance arrangements and comply with prescribed institutional responsibilities. These include the institution's internal Shariah oversight and control functions, which should be consulted in assessing an allegation concerning the approved mode of finance.

The framework is a supervisory instrument, not a statement that every customer grievance receives an automatic ruling in the customer's favour. The bank should identify the approved product documents, the applicable standards and the transaction-level records demonstrating compliance. A product approved in principle may still be implemented incorrectly in an individual case.

The relevance of SBP-adopted Shariah standards

Pakistan's regulatory framework includes Shariah standards adopted through State Bank directions, including relevant AAOIFI standards. Those standards must be applied with attention to their actual adoption, effective dates and any applicable national regulatory qualifications. Not every international commentary on Islamic finance is automatically binding on every Pakistani institution.

A well-founded complaint should specify the relevant standard and the alleged deviation. For instance, where a bank allegedly resold inventory before acquiring possession or risk, the issue should be examined against the approved sale structure and actual documentation rather than a general assertion about Islamic banking being indistinguishable from conventional banking.

Approach the bank's Complaint Management Unit first

SBP's consumer-protection guidance identifies the relevant bank's Complaint Management Unit as the primary route for customer grievances. The complainant should provide account details, the finance-product description, the specific transaction complained of, the relevant dates and copies of supporting instruments. Original documents should generally be retained.

The request should seek a reasoned reconciliation, not merely a statement that the bank is Shariah compliant. It can ask the institution to identify the applicable approved mode, explain the challenged calculation and refer the matter for appropriate Shariah review. A written complaint and acknowledgement also establish a useful procedural chronology.

Internal Shariah review is distinct from judicial adjudication

The bank's Shariah Board and related compliance functions have important roles within the regulated institution. They may consider whether a product or transaction has been implemented in accordance with approved requirements and whether corrective action or treatment of non-compliant income is appropriate.

However, an internal Shariah assessment does not by itself settle every contested fact, ownership dispute or question of damages. A customer may deny that a purchase occurred; the bank may produce records said to establish acquisition. Evaluating authenticity, contractual liability and the appropriate remedy may require a competent dispute forum.

Complaint escalation and the Banking Mohtasib

If the bank does not resolve a complaint within the applicable period or the customer remains dissatisfied, SBP guidance identifies the Banking Mohtasib Pakistan as a potential avenue for qualifying commercial-bank grievances. The ordinary framework provides for escalation after the bank has been approached, subject to current timing and statutory limits. SBP's Sunwai complaint portal facilitates routing to relevant bodies.

The Banking Mohtasib does not have unlimited jurisdiction. Its published eligibility criteria exclude various matters involving product pricing, bank risk policies or certain contractual issues, and it does not generally entertain complaints against microfinance banks and other excluded institution types. A pure dispute requiring an authoritative declaration on the construction of complex Shariah financing documents may therefore require a different forum.

The role of SBP supervision

The State Bank can exercise supervisory powers in relation to compliance with its regulatory directions and conduct rules. Reporting a systematic failure in an Islamic bank's product governance may raise concerns extending beyond one account. Nevertheless, a regulatory complaint is not necessarily a substitute for a civil claim seeking repayment, damages or adjudication of a disputed debt.

SBP also states that it generally does not intervene in matters sub judice before a competent court. Parties should consider existing proceedings before filing overlapping complaints. Regulatory correspondence and litigation submissions must remain factually consistent, particularly where an account has already reached recovery proceedings.

Banking courts, arbitration and contractual remedies

A financing dispute may fall under the Financial Institutions (Recovery of Finances) Ordinance, 2001 where the parties and statutory requirements bring it within the competent banking forum. The court will need to address the lawful financing obligation, pleaded defences, evidence and the relief available under the governing law.

A contractual arbitration or other dispute-resolution clause may also be relevant, subject to its scope and enforceability. The parties should not assume that labelling a dispute 'Shariah compliance' displaces every court procedure, nor that agreeing to arbitration permits avoidance of mandatory banking legislation. Jurisdiction requires separate analysis.

Preserve a reliable transaction-level evidentiary record

A useful evidence bundle includes the sanctioned facility, asset descriptions, supplier invoices, payment instructions, agency declarations, delivery documents, instalment ledgers, charges, correspondence and prior complaints. Where a product involves ownership, relevant property or title records should be included.

The chronology should identify which obligations arose at which stage. For a cost-plus sale, the date of bank acquisition and resale may decide the allegation. For an Ijarah, the date the asset became usable and the treatment of ownership risk may matter. A generic loan statement alone may not resolve those questions.

Calculate the remedy separately from the alleged defect

Even where some practice is found inconsistent with an applicable standard, it does not follow automatically that a customer must keep the financed asset without any obligation or that the whole contractual relationship is void. The competent authority must determine the legal consequences of the proven defect and the proper treatment of any financing or income received.

Possible issues include correction of an account, remission or adjustment of an unauthorised charge, restitution, damages or other legally available relief. The result depends on the actual cause of action and statutory framework. An unsupported request to cancel all outstanding finance may undermine an otherwise legitimate complaint.

Practical example involving a disputed Murabaha

Suppose a trading company alleges that an Islamic bank never actually acquired the goods said to have been sold through a Murabaha facility, and that the bank merely disbursed cash followed by a markup schedule. The bank produces agency, invoice and declaration documents, but the customer contests their timing. Proper analysis requires examination of acquisition, possession, risk and execution, not merely the word 'Murabaha' printed in the agreement.

The company should request an internal explanation and preserve its records. If the dispute concerns significant enforceable liability and the parties cannot resolve the facts, the matter may need adjudication by a competent forum; an internal policy response cannot conclusively determine disputed documentary authenticity.

Opinion and recommended course

A Shariah-compliance complaint should identify the precise product, applicable adopted standard, factual deviation and remedy sought. Begin with a reasoned written complaint to the bank, seek appropriate internal Shariah review, then assess whether the Banking Mohtasib, SBP supervisory process, agreed ADR or competent court has the powers needed for the actual dispute.

The most reliable approach is to separate three questions: was the product approved under the applicable standards, was this transaction implemented accordingly, and what enforceable remedy follows from any proven departure? That method protects the customer's contractual rights without treating an Islamic product label as either conclusive compliance or automatic invalidity.

Principal authorities and official sources: SBP Shariah Governance Framework, IFPD Circular No. 08 of 2024, https://www.sbp.org.pk/ifpd/2024/C8.htm; SBP consumer-protection complaint procedures, https://www.sbp.org.pk/our-operations/consumer-protection; SBP Sunwai portal, https://sunwai.sbp.org.pk; Banking Mohtasib Pakistan, https://www.bankingmohtasib.gov.pk; Financial Institutions (Recovery of Finances) Ordinance, 2001; executed Islamic financing contracts and adopted Shariah standards.