ISLAMABAD: In order to develop the Islamic capital market, the Securities and Exchange Commission of Pakistan (SECP) is amending the 2015 Issue of Sukuk Regulations to facilitate issuers, reducing the cost of issue and easing the regulatory burden.

The proposed amendments include waiving mandatory underwriting where the purpose of the issue is to repay its existing debts, reducing the minimum number of underwriters from two to one.

The amendments includes specifying the fit and proper standards for a Sharia Advisor and essential elements of Sharia pronouncement, disclosing expenses specific to Sharia compliance and audit.

Under the proposed changes, the issuance of sukuk must be aligned with the definition of sukuk with the definition given by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

These amendments were initiated by the SECP following a discussion in the Islamic Capital Market Subcommittee, chaired by SECP Chairman Zafar Hijazi.

The committee, together with three other committees on awareness, policymaking, and taxation, is working on developing Islamic finance in Pakistan.

Based on the recommendation of the Islamic Capital Market Subcommittee, the SECP organised a detailed consultation session with sukuk issuers and intermediaries, leading to these amendments. Representatives of State Bank of Pakistan (SBP) and Pakistan Stock Exchange (PSX) also participated in this discussion session, which was held in Karachi in February 2017.

The SECP has also advised PSX to submit proposals to reduce the cost of market maker for sukuk, rationalise the minimum size of public offer portion to reduce the cost of issue, and organise a seminar with potential issuers to widen awareness regarding sukuk. These measures shall further facilities the issuers, reducing their cost and hassle.

In Pakistan, sukuk market has been performing below its potential, while demand is substantial, supply remains short. Sukuk are issued as a Sharia-compliant instrument under the Sukuk Regulations read with Section 120 of the 1984 Companies Ordinance, through public offer and private placements.

The sukuk issued through public offerings are listed on the PSX for trading and quotation of their market prices.

The major investors in sukuk include mutual and pension funds, banks, commercial banks, NBFCs however the retail individual too invest in the sukuk bonds.

The comments over the proposed amendments at Sukuk Regulations can be filed even by the general public at the SECP’s website.

Published in Dawn, April 11th, 2017