Pakistan allows savings to be placed in infrastructure funds

Facing a 2028 constitutional deadline for Pakistan to have a fully Shariah compliant financial system, its local authorities have become more accepting of creative ideas – including the channeling of long-term savings to help fund national infrastructural developments.

The Securities and Exchange Commission of Pakistan (SECP) has introduced a new ‘Infrastructure Scheme’ category of mutual funds as collective investment offerings – citing an urgent need to expand and modernize the national infrastructure, with financing needs estimated at nearly US$15 billion annually.

Current infrastructure spending remains significantly below international benchmarks, amounting to just 2.1% of GDP compared to the global standard of 8-10%, the SECP noted.

With this new category, which should be Shariah compliant as the funds will be asset-backed, the SECP “seeks to provide stronger visibility to infrastructure-focused mutual funds, while offering investors a transparent and well-structured avenue for participation in projects of national significance.”

Given this huge capital need, chances are that among the investors being targeted by the latest SECP regulations are pension funds in Pakistan, which have largely been limited to investing Sukuk and fixed income securities.

The fund sizes must exceed PKR100 million (US$352,435) – applicable especially when subscriptions end for close-ended schemes, with at least PKR25 million (US$88,120) in such schemes with maturities longer than three years. Such schemes may offer periodic subscription and redemption windows after one year of operation.

Both closed-ended and perpetual fund offerings must maintain at least 70% of net assets invested in infrastructure securities on a quarterly basis, with any shortfall to be regularized within three months.

Asset managers can offer these infrastructure schemes as equity, debt or hybrid funds – depending on their investment focus. Eligible sectors include energy, transport, logistics, water, sanitation and communications plus a wide range of social and commercial infrastructure such as hospitals, educational institutions, industrial parks, affordable housing and tourism facilities.

Management fees are capped at 3% per annum for equity schemes and 1.5% for debt schemes, while hybrid schemes will follow a weighted average based on asset allocation.

“No sales load will be permitted, though contingent load may apply in the case of early redemption under closed-end schemes,” the SECP emphasized.