AAOIFI-SECP Islamic Capital Markets Conference

29 May 2023

Serena Hotel, Islamabad

Preamble:

The unprecedented growth of Islamic finance globally has made it a $3.06 trillion industry. The share of Islamic banking is around 69 per cent while Islamic capital markets accounts of 30 per cent and Takaful holds less than 1 per cent market share. Within the capital markets, Sukuk accounts for more than 25 per cent of the market share and remains the most developed and active sector. However, there are other products within the Islamic capital markets that need to be further developed, in particular the Islamic equity market (some of which have been introduced in some countries), which can play an important role in the overall development of the Islamic finance industry globally.

The size of the Islamic finance industry in Pakistan is also estimated to have surpassed $42 billion at the end of 1Q22. The exponential growth of Islamic finance in Pakistan has posed, among other challenges, capacity-building and awareness-creation challenges for the financial market regulators.

The Islamic capital market in Pakistan is witnessing renewed interest in Sukuk issuances and the growth of Islamic mutual funds, pension funds, and REITs. Non-banking institutions like Modarabas, Housing Finance Companies, Microfinance Companies, and other companies offering Islamic financial services, including Takaful and window takaful operators, are making inroads in the Islamic financial services industry in Pakistan. Collectively, these are completing the required Islamic finance system in the country, thereby paving the way for the Islamization of the economy.

Furthermore, in the recent judgement of the Federal Shariat Court of Pakistan (FSC), it has been held that “Riba or interest is prohibited in Islam, including relating to banking transactions,” and it has been directed that the Federal and Provincial Governments complete the necessary legislative amendments in the impugned laws in order to bring such laws or provisions of the laws into conformity with the injunctions of Islam by December 31, 2027. The Government of Pakistan has also constituted a Steering Committee for providing strategic guidance regarding the implementation of the FSC’s judgement.

Recently, SECP has launched a comprehensive diagnostic report on non-bank Islamic finance in Pakistan, and as a result, a comprehensive action plan has been formulated to address key issues, take strategically important steps, and pave the way for the transformation of the Islamic financial system in the country in light of the constitutional requirement and the above-referred FSC’s judgment.

 ICM Conference:

In this backdrop and given the increased need for the development of Islamic capital markets globally, AAOIFI will be organising a dedicated annual conference on Islamic capital markets (ICM). The first of these conferences will be organized in collaboration with and hosted by the Securities and Exchange Commission of Pakistan (SECP) in Islamabad in May 2023. The theme of the first conference is “ICM development with ecosystem completion: innovation, growth, and transformation.” The conference shall have local partners including Pakistan Stock Exchange, National Clearing Company, Central Depository Company, AI Meezan Investments, IBA-CEIF, and other Islamic fund managers, Takaful operators, Modaraba institutions, the corporate sector, and non-banking financial institutions.

It has been envisaged to invite dignitaries from both the public and private sectors, including the State Bank of Pakistan (SBP) and the Ministry of Finance, the Board of Investment, Islamic banking institutions, the Islamic capital market, and the Takaful industry, apart from country representatives from the Asian Development Bank (ADB), the World Bank, and the International Monetary Fund (IMF). From the global arena, participation of delegates from the AAOIFI, the Islamic Financial Services Board (IFSB), SC Malaysia, BNM Malaysia, INCEIF, IsDB, ISRA, CMB Turkey, SEO Iran, etc., may also be invited.