The Securities and Exchange Commission of Pakistan (SECP) will implement a series of measures to stimulate its Islamic capital market in line with the Republic’s endeavor to convert its financial system to comply with Shariah.
Outlining its plan in its 2024-2026 strategic plan for the non-bank financial sector, the overall focus is on promulgating a dedicated primary law for the sector by providing a comprehensive and tailored regulatory environment, plus tax incentives, which the SECP anticipates will be achieved by June 2026.
The Modaraba Ordinance 1980 will be updated and “an alternate dispute resolution mechanism will be introduced by June 2026 for Islamic finance contracts, providing a more efficient and Shariah compliant approach to resolving disputes”.
Further, the concept of Tier I and Tier II capital will be introduced by June 2025 for all Islamic non-bank financial institutions (NBFIs) to enhance their financial resilience. The SECP said these proposals are in line with the April 2022 decision by the Federal Shariat Court for the entire Pakistan economy to be fully Islamic by December 2027.
Specifically, the SECP is urging more listed companies to obtain Shariah compliant declarations, with these certifications to hit 300 by December 2025 – compared to 253 (48%) of such stocks out of total of 524 listed securities at the Pakistan Stock Exchange (PSX) as at the 30th June 2023.
Also forecast is a 20% annual increase for issuance of Shariah compliant securities, which the SECP will foster with the average approval turnaround time cut to three business days by December 2024 plus strengthening the Shariah stock screening process and the construction of Islamic indices by June 2025.
Apart from promoting sovereign and corporate Sukuk issuances and listings at the PSX, with some pitched at retail investors, and including allowing asset-light Sukuk structures by the end of this year, the SECP will foster more Shariah compliant trading at PSX by duly licensing more of such-certified brokers by June 2025.
Mechanisms and systems for instant settlement of trades in Shariah compliant securities will be introduced by December 2025 and the SECP is looking to create an Islamic liquidity market through commodities Murabahah platform by June 2026.
With assets under management (AuM) of Shariah compliant mutual funds valued at PKR721.67 billion (US$2.59 billion) – representing 43% of the industry total as at the 30th June 2023 – the SECP is aiming for 15% growth in the share of Islamic mutual funds by December 2026.
Among initiatives being undertaken include the development of Shariah compliant digital financing products and platforms by the end of this year, together with the promotion of Waqf and venture investments next year and allowing crowdfunding from June 2026.
Taking note that Shariah compliant pension fund schemes’ AuM stood at PKR232.62 billion (US$834.24 million), comprising 65% of the total industry, as at the 30th June 2023, the SECP will be promoting more Islamic collective investment schemes for underserved segments by December 2025.
Other initiatives being pursued include the issuance of Shariah compliant products by other NBFIs and to also foster growth in the Takaful sector, said the SECP.
