Page 26 - CMA Journal (Mar-Apr 2025)

Exclusive Interview

ICMA: What steps have been taken to improve the
regulatory framework for Islamic financial services in
Pakistan? Sukuk are contributing to
Tariq Naseem: In my view, a regulatory framework is the sustainable development due to
key for the development of Islamic finance in Pakistan.
We noted that Pakistan's non-bank financial sector has their alignment with ethical and
undergone a legal and regulatory overhaul in recent sustainable principles enshrined in
years, but it mainly covers the conventional market.
Therefore, there is great need to focus more on the Shariah structures. Green and
development of clear, comprehensive and effective
regulations for Islamic financial services. Further, the Social Sukuk are also being used
growth and potential of Islamic financial institutions, to finance environmentally
assets, and services in the non-bank sector indicate the
need for better regulations. friendly projects, renewable
The 26th constitutional amendment inter alia requires energy initiatives, and social
complete elimination of Riba by January 1, 2028, and
earlier, the Federal Shariat Court of Pakistan (FSC) has infrastructure
already declared challenged laws have no effect and has
directed the government to amend laws by December
2027. In order to comply with the constitution and the ICMA: How can Sukuk contribute to sustainable
FSC judgement, we have already revamped our Shariah development, particularly in infrastructure and
Governance Regulations in 2023 and are now working to social sectors?
make a dedicated law for all financial services, excluding
those regulated by the SBP. For Islamic banking, SBP has Tariq Naseem: Sukuk are the most important and
already rolled out a comprehensive transformation plan essential financial instruments for corporates and
that includes legal and regulatory developments. It is governments alike to raise capital for sustainable
expected that the proposed law will establish a structure development. We have seen major developments and
for the Islamisation of financial markets, institutions, progress in Pakistan’s sukuk market, in terms of both
products, and services within the regulatory ambit of the sovereign sukuk issuances and corporate sukuk
SECP. This initiative also aims to introduce a primary issuances. The Government of Pakistan and companies
balance between legal rigour, Shariah compliance, and are now issuing both sovereign and corporate sukuk,
market realities. The process for the development of this respectively, using various Shariah structures based on
law prioritises alignment with Shariah, collaboration the issuer's needs, objectives, and business plans. As of
among stakeholders, growth, financial stability, investor December 2024, the sovereign sukuk market is around
protection, transparency, accountability, innovation, PKR 7.6 trillion, while the corporate sukuk market is
harmonisation with national and international legal around PKR 870 billion.
requirements, and effective fiduciary responsibility. The
Existing sovereign sukuk in Pakistan are structured using
proposed law will also cover all aspects of Islamic
the Ijarah concept, a sale and leaseback structure. For the
financial services, products, markets, and intermediaries,
last year, the sovereign sukuk have now been issued and
with detailed provisions covered through subsidiary
listed through the Pakistan Stock Exchange, expanding
legislation. The 'principle of proportionality' aims to
the investor universe and enabling ordinary individual
strike a balance between risk, cost, and efficiency in
investors to participate in the sovereign sukuk market.
conducting business.
Pakistan’s sovereign sukuk are really important for
In November last year, we published a comprehensive infrastructure, as multiple such sukuk have already been
concept paper following many consultative sessions issued for the construction of dams and power projects.
with stakeholders, and now we have started drafting a In the corporate sector, a number of companies are now
new primary law. The proposed law will consolidate all issuing short-term sukuk using the Shirkat-ul-Aqad
the relevant provisions into one piece of legislation while structure to fund working capital needs. These sukuks
serving as a reference point for the development of case are privately placed with institutional investors, with
laws in the judicial system. It will reduce legal risk for repeat multiple issuances after redemption every six
Islamic financial services and enable standardisation in months. These kinds of sukuk are popular among Islamic
Shariah-related matters across all regulated sectors in income funds and Islamic money market funds due to
the Islamic financial services industry. their tradability and transferability features.

24 ICMA’s Chartered Management Accountant, Mar-Apr 2025