The confluence of several domestic developments will spur an upsurge in Islamic investment activities within Pakistan from 2025 onward, Lucky Investment Management CEO Mohammad Shoaib shared with IFN Investor.
Foremost would be the 26th Constitutional Amendment Bill passed by the Pakistan Senate in October 2024, to eliminate Riba transactions by the 1st January 2028, cementing the five-year mandate set down by a 2022 Federal Shariat Court ruling for Pakistan to fully implement an Islamic banking system.
“That is a big trigger. All the money which is in the conventional funds or in the conventional banks will need to find a channel to be invested in an Islamic manner. Also right now, people have a tendency to leave their money in the bank where they earn a very low rate of return.”
Mohammad Shoaib observed that about 42% of all banking deposits, a total close to PKR30 trillion (US$107.87 billion), is parked in current accounts – which are non-remunerative. “It is better to invest in mutual funds where the fees are nominal. Even if you go for Sukuk, you can at least cover for inflation.”
Islamic conversion opportunity also applies to government debt. “We have a lot of assets available. Total debt is about PKR47 trillion (US$169.07 billion) and roughly PKR5 trillion (US$17.98 billion) or 11% is Shariah compliant. Upon converting them to Sukuk, they become instruments that you can invest in.”
Adding to this potential is a conversion process for investment assets that is well under way – with about 70% of stocks in the Karachi Stock Exchange KSE-100 Index already Shariah compliant.
Mohammad Shoaib said the progressive lowering of interest rates by the State Bank of Pakistan in H2 2024 will further spur capital markets – especially for corporate Sukuk issuance, which was depressed by high rates previously.
“There will be a boost in business expansions as everybody knows that there’s a lot of demand for Islamic instruments and the demand is more than the supply. They will find it cheaper in terms of cost as well.”
From an investor standpoint, Mohammad Shoaib said the available domestic market is relatively untapped – total investors in Pakistan mutual funds is currently just 650,000 – due to the low penetration of the formal banking system among the 250 million plus Pakistan population.
The 2021 launch of Pakistan’s instant digital payment platform Raast is addressing this hurdle and Mohammad Shoaib is confident the interlinking of all financial entities in Pakistan by Q3 2025 via Raast will boost retail investments.
“The process becomes much simpler then. When you get the salary, you need to authorize just one time to automatically invest a portion of it and that will continue monthly. That is going to be a game changer.”
With the industry seeing younger people as having more of an appetite for high-risk and long-term investments, Mohammad Shoaib was optimistic as about 65% of the population is under 30 years of age and roughly 80 million smartphones are active within Pakistan.
For the institutional segment, Mohammad Shoaib pointed to ongoing changes in Pakistan’s pension management regulations – away from the defined-benefit plan, where the government guarantees income-for-life after an employee’s retirement.
As new civil servant hiring is shifting to defined-contribution plans, where returns are based on investment of pooled contributions, Mohammad Shoaib said there is a huge potential to manage such pension funds – both in the public and private sectors.
The lure of these vast opportunities drew Mohammad Shoaib to become CEO of Lucky Investment Management with the YB Brothers Group, with plans to launch three funds in coming weeks and taking advantage of digital outreach.
“One will be an equity fund. Another is a medium-term income fund, which predominantly invests in fixed-rate instruments and securities with two-, three- and five-year maturities. Then there will be a pure equity fund. In the next phase, we will be starting a pension fund and also coming up with index fund.”
