ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) is formulating laws to convert all non-banking financial services, including the capital market, insurance sector, leasing and savings funds, to Sharia-compliant mode.

However, a weak understanding of tax authorities and banking channels is one of the key impediments in this regard to meeting the Federal Shariat Court’s directive of converting all kinds and types of banking and financial services to the Islamic system by 2027.

While the entire banking system is the domain of the State Bank of Pakistan (SBP), the other financing including insurance, leasing, capital markets, modarabas, etc are under the jurisdiction of the SECP.

Media was informed at a capacity-building workshop on Thursday that the popularity of Sharia-complaint products was increasing globally but the Muslim countries lagged in this regard.

Giving an overview of Islamic finance, Tariq Naseem, head of the Islamic Finance Department of SECP, highlighted its basic principles and informed the participants about the regulator’s efforts in developing a local Islamic financial ecosystem.

He added that as the government was striving for the complete implementation of Sharia-compliant financial products all the solutions will be eventually subjected to the test of Shariah.

However, he added Malaysia ranked 33 out of 150 countries that follow the principles of Sharia in their financial sector whereas Pakistan stood at 145.

The top slots were occupied by the Scandinavian countries.

The Islamic finance industry has been implemented in more than 57 countries and was worth around $3.06 trillion by the end of 2021, showed the figures compiled by international bodies.

Mr Naseem added that Islamic finance was gaining public acceptance in the Pakistan Stock Exchange.

Mr Naseem added that the concept of an Islamic finance system, not just Islamic banking, was introduced in Pakistan in the 1973 Constitution. Later in 1985, the government decided to implement non-riba-based banking but the matter remained under litigation in the 1990s.

The first Islamic bank licence was awarded in 2002 and the Islamic finance department was established in the SECP in 2015.

The target to accelerate the growth of Islamic finance in regulated sectors includes implementing the proposal of Islamic stock trading, re-activate commodities, murabaha facility at PMEX, ensure the availability of retail sukuk [Islamic bonds].

Amina Aziz, SECP Director, informed the participants of the regulatory sandbox initiative, which allows for live testing of new products, services, or business models not covered under existing laws.

This programme, launched in 2020, is now entering its fourth cohort, inviting applications covering both Islamic financing and conventional financing, with preference given to Shariah-compliant digital finance models.

Published in Dawn, May 19th, 2023