Pakistan’s Islamic private markets shift toward cash flow resilience

Pakistan’s high-interest rate environment is pushing Shariah compliant private markets into a more selective phase, with investors increasingly focused on assets that can withstand inflationary pressures and currency volatility while offering stable returns.

The current interest rate environment has created challenges for leveraged transactions, although the issue is not simply the cost of borrowing.

Imtiaz Gadar, CEO of Al Meezan Investment Management, tells IFN Investor: “High interest rates in Pakistan are not per se a deterrent but it is the floating nature of loans and the volatility in rates that can be considered a larger consideration in leveraged buyouts.” He added that banks are becoming less willing to finance a large portion of acquisition costs, requiring investors to contribute more equity and affecting overall returns.

“Institutional capital is moving toward specific Shariah compliant private market assets, with a preference for sectors that offer relatively predictable cash flows, and ability to pass on or withstand inflation and/or devaluation pressures,” Imtiaz explains.

Several sectors have emerged as areas of focus. Energy transition and renewable energy projects are gaining traction as rising grid electricity costs accelerate demand for private solar infrastructure. Infrastructure assets including logistics, warehousing, industrial facilities, utilities and digital infrastructure, are also attracting interest due to their essential nature and long-term revenue potential. Meanwhile, industrial manufacturing, particularly import-substitution industries, continues to benefit from efforts to conserve foreign exchange.

Within technology, investor appetite has become more targeted. While interest in strong technology businesses remains, investors are placing greater importance on business fundamentals, profitability and sustainable earnings rather than growth indicators such as turnover or gross merchandise value.

This shift is supporting opportunities in logistics, Halal consumer goods and digital infrastructure. Data centers have become a notable theme, with Imtiaz describing them as “a perfect bridge between real estate and technology,” allowing investors to participate in tangible infrastructure assets supported by long-term lease arrangements.

To navigate market uncertainty, investors are turning to structures such as exchangeable or convertible bonds, KPI-linked valuation adjustments, clawback provisions and enhanced protections around cash flows and reserve accounts.

Looking ahead, Imtiaz identifies several areas likely to shape Shariah compliant deployment over the next 12 to 24 months. These include Special Economic Zones supporting export-oriented manufacturing, export-focused IT and services businesses generating US dollar revenues as well as agri-tech and corporate farming initiatives aimed at improving productivity and food security.