JS Investments sees possible solution to Pakistan’s Shariah assets dilemma

In Pakistan’s Islamic finance landscape, the challenge is no longer just about creating Shariah compliant products, it’s more on finding enough assets to invest in, said JS Investments CEO Iffat Mankani, articulating the dilemma that many local asset managers now face.  

“We need a more liquid market of Islamic sovereigns, and that is a major challenge from a liquidity perspective. Unless that market becomes liquid enough, our fund sizes cannot be significantly enhanced.” 

Speaking from the perspective of being among Pakistan’s oldest asset managers, operational since 1995, Iffat said the demand side is very high. The mutual funds industry has grown from PKR1 trillion (US$3.53 billion) to PKR4 trillion (US$14.15 billion), “but Islamic mutual funds have grown at a much faster rate than conventional mutual funds”. 

With the scarcity of investable domestic assets, Iffat said turning to overseas markets comes with its own complications – creating macroeconomic pressure on the already fragile Pakistani national economy and potentially amplifying vulnerabilities lingering from the pandemic downturn. 

Iffat suggested this appropriate asset availability crunch could be addressed through private or corporate credit participants entering this space – for example, banks could create more private credit deals, which then transitions into public debt instruments.  

Through initial structuring, appropriate contracts and the inherent risk mitigation strategies of these instruments, JS is of the view that overall, asset management companies will ultimately benefit. “We need conformity and national-level consensus building.  We need to avoid being too competitive. If it becomes too brand-driven, none of us succeed.” 

Amid ongoing constraints, JS Investments works closely with regulators, industry stakeholders and its internal Shariah board to ensure that the transition to fully Shariah compliant offerings is sustainable.  

“As asset managers, we also carry a fiduciary responsibility. We cannot afford a transition that undermines return profiles, risk integrity or liquidity buffers. So, while our intent is really aligned, we believe we must pace this transition carefully,” Iffat emphasized. 

Looking ahead, JS Investments plans to go beyond conventional funds, focusing on real estate, hospitality and infrastructure REITs.  

Iffat explained that REITs could become flagship Islamic products because they naturally solve the asset-backing requirement, with rental yields and related structures which naturally fall into place as an investment offering.