Amir Khan

The Securities and the Exchange Commission of Pakistan's initiative to develop the short-term sukuk market is a strategic move to bolster Pakistan’s financial market, particularly in Shariah-compliant finance. The issuance of sukuk instruments offers a viable alternative to conventional bonds, attracting a broader spectrum of investors, who seek compliance with Islamic principles. SECP has recently released two concept papers to stimulate the growth of the short-term listed sukuk (Islamic bonds) market. Talking to WealthPK, Imran Inayat Butt, an executive director at SECP, stated that these papers were intended to foster public consultation on critical issues and propose tailored regulatory measures to enhance the listing of short-term sovereign and corporate sukuk instruments. He added that Pakistan's capital market offered Shariah-compliant borrowing solutions to both the government and the corporate sector.

“A dynamic short-term sukuk market could provide various Shariah-compliant financial solutions that better meet the demands of both issuers and investors. The growing popularity of short-term sukuk among capital market investors is notable. However, despite this interest, corporations often opt to structure these short-term instruments as privately placed and unlisted, which restricts their ability to access a broader investor base.” Butt said the SECP’s concept paper on short-term corporate sukuk advocates for making listing these sukuk more attractive by improving efficiency, reducing procedural hurdles and lowering costs. He said the paper also highlights that globally, most short-term sovereign sukuk are based on structures that are not tradeable, such as Murabaha, Salam, and Istisna. “This highlights the need for structural innovation to introduce tradeable short-term sovereign sukuk.”

Since December 2023, Pakistan has been actively generating funds through the issuance of sovereign Ijara sukuk instruments. The government has raised approximately Rs713 billion through 11 auctions, issuing various types of sovereign Ijara sukuk with maturities ranging from one to five years via the Pakistan Stock Exchange. In its initial phase, the government might consider issuing non-tradeable short-term sukuk, with auctions facilitated through the PSX, Central Depository Company, and the National Clearing Company of Pakistan Limited. The infrastructure required for auctioning government sukuk is already in place. It could be clearly communicated prior to the auction that such sukuk will not be tradeable and can only be redeemed upon maturity.

Talking to WealthPK, Khalida Habib, head of the Specialised Company Division at SECP, highlighted that the concept paper on listing short-term corporate sukuk recommends simplifying the issuance and listing process to make it more cost-effective and efficient, in light of the growing corporate interest in sukuk. She pointed out that the growing interest in short-term sukuk indicates vigorous demand for such instruments, yet the current practice of structuring them as privately placed and unlisted limits their market potential. “By addressing these challenges through streamlined processes and cost-effective measures, the SECP can significantly enhance market liquidity and accessibility.” “Moreover, the emphasis on structural innovation, especially in making short-term sovereign sukuk tradeable, is crucial. Tradeable sukuk would not only broaden the investor base but also promote the secondary market, fostering greater financial stability,” she added.

Credit: INP-WealthPk