Conversion of public debt into Shariah-compliant instruments a big challenge: SBP governor

KARACHI: The central bank’s governor on Monday said the conversion of public debt into Shariah-compliant instruments remains the biggest challenge, a statement said. The lack of adequate sovereign assets has remained a major impediment to regular issuance of asset-based Sukuk until recently, the governor State Bank of Pakistan Jameel Ahmad said at the International Conference on Islamic Capital Markets, which was organised by the Accounting and Auditing Organisation for Islamic Financial Institutions and Securities and

Exchange Commission of Pakistan.

He highlighted the challenges pertaining to the development of Islamic capital markets, particularly of the Islamic debt market. He informed the audience that the SBP has constituted a high-level working group to develop practical solutions for alternate Sharia-compliant structures, especially asset-light Sukuk structures. Ahmad said that collaboration among regulators, financial institutions, industry players, and Shariah scholars is essential for bringing standardization of Islamic financial contracts and simplifying the processes. The governor noted that Islamic finance as a global industry has crossed the $3 trillion mark and the Islamic capital markets account for around 31 percent share of this growing pie. He, however, noted that Islamic capital markets are in the nascent stages of development in most jurisdictions. He attributed this to gaps in institutional, legal and regulatory frameworks, inefficient price discovery and lack of diversity in instruments and investors. The governor expressed satisfaction that Islamic banking has grown into a systemically important sector in the country both in terms of assets base and current market share. For building a robust Islamic corporate debt market, Jameel Ahmad emphasised the need for developing coordinated and sustained efforts on multiple fronts to provide an enabling tax, regulatory and policy environment.