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Reading: SECP Introduces Sukuk Ijarah to Boost Islamic Finance in Pakistan
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Pakistan Sukuk Ijarah bonds
PhotoNews Pakistan > Business > SECP Introduces Sukuk Ijarah to Boost Islamic Finance in Pakistan
Business

SECP Introduces Sukuk Ijarah to Boost Islamic Finance in Pakistan

Web Desk
By Web Desk Published August 24, 2024 3 Min Read
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The Securities and Exchange Commission of Pakistan (SECP) has unveiled a strategic plan to bolster Islamic finance by introducing Sukuk Ijarah as a robust alternative to traditional bonds.

The Sukuk Ijarah is part of a broader effort to cultivate a market for short-term Sukuk to expand Pakistan’s Shariah-compliant financial offerings. Sukuk issuance is poised to attract a broader spectrum of investors seeking adherence to Islamic financial principles.

Imran Inayat Butt, Executive Director at SECP, shared with WealthPK that SECP has recently released two discussion papers designed to engage the public and outline regulatory enhancements for the listing of both sovereign and corporate short-term Sukuk. He noted the Pakistani capital market’s success in providing Shariah-compliant borrowing options for the government and corporate entities. A vibrant short-term Sukuk market could provide diverse Shariah-compliant financial solutions, aligning with the needs of issuers and investors alike. Butt remarked on the trend of corporations opting for private placements of Sukuk, which constrains their reach to a wider investor base.

Pakistan International Bond & Sukuk Yields pic.twitter.com/Q2FZGPbaF9

— Topline Securities (@toplinesec) August 24, 2024

Butt also detailed SECP’s proposal to make short-term corporate Sukuk more appealing by streamlining processes, minimizing procedural hurdles, and reducing costs. The discussion paper also points out that globally, most short-term sovereign Sukuk is based on non-tradable structures like Murabaha, Salam, and Istisna, underscoring the necessity for innovative structures to facilitate tradable short-term sovereign Sukuk. Since December 2023, the government has actively mobilized funds by issuing sovereign Ijarah Sukuk, raising approximately Rs. 713 billion through 11 auctions, with maturities ranging from one to five years via the Pakistan Stock Exchange.

In the initial phases, the government could issue non-tradable short-term Sukuk through the Central Depository Company and the National Clearing Company of Pakistan Limited, leveraging existing infrastructure for government Sukuk auctions. These instruments would be marked as non-tradable and only redeemable at maturity.

Pakistan International Bonds and SUKUKs@GovtofPakistan @Financegovpk#Pakistan #Economy #AHL pic.twitter.com/hmMlaRaUNb

— Arif Habib Limited (@ArifHabibLtd) August 23, 2024

Khalida Habib, Head of SECP’s Specialized Companies Division, discussed a concept paper that proposes simplifying the issuance and listing process for short-term corporate Sukuk to enhance cost-effectiveness and efficiency amid rising interest rates. She highlighted the significant demand for short-term Sukuk, noting that the prevalent practice of privately placing and not listing these structures curtails their market potential. By streamlining issuance procedures and introducing cost-saving measures, SECP aims to improve market liquidity and accessibility significantly.

Habib stressed the importance of structural innovation, particularly in making short-term sovereign Sukuk tradable. Such tradable instruments would broaden the investor base and invigorate the secondary market, fostering greater financial stability.

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