Sharia compliance key to sustainable crypto regulation in Pakistan: BankIslami

KARACHI: Pakistan’s efforts to regulate cryptocurrencies is a key step in modernising its financial landscape, says the chief executive of BankIslami Pakistan Limited, but, he warns, these digital assets present challenges from a Sharia perspective due to their nature and lack of an asset base.

In March, the country launched the Pakistan Crypto Council (PCC) to foster innovation in the sector and establish a regulatory framework that protects investors and the financial system. Recently, Islamabad introduced its strategy to regulate virtual assets, aligning with the Financial Action Task Force’s guidelines.

“At BankIslami, we recognise the transformative potential of blockchain technology in creating transparent, efficient, and secure financial systems,” President and CEO Rizwan Ata told The News in an interview.

“This is an important step, but we also need to approach and manage with caution,” Ata said. Strong cybersecurity frameworks must also be developed to safeguard against any potential threats. Efforts should be made to communicate effectively with people to ensure they are fully aware of both risks and benefits, he added.

“There are also unique challenges, particularly from a Sharia perspective. Islamic finance is governed by principles that prohibit speculative activities, and transactions must be backed by tangible assets,” he said.

“Cryptocurrencies, due to their nature and lack of asset base, could be a challenge on this front. For now, this will be a watch-and-see space for us,” he added. Pakistan ranks among the leading nations globally in cryptocurrency adoption, boasting around 20 million users. Pakistan and Malaysia have joined forces to create a Sharia-compliant framework for digital assets amid ongoing debates as to whether cryptocurrencies can be considered Sharia-compliant. Critics argue that the volatile nature of cryptocurrencies encourages speculative trading, which closely resembles gambling. Virtual asset transactions can also be used for illicit activities, such as money laundering.

Focused on sustainable Sharia-compliant financial practices

BankIslami, an independent Islamic banking subsidiary of JS Bank Limited, strongly believes in the power of sustainable finance and is deeply committed to upholding ethical and sustainable financial practices that align with the core values of Sharia-compliant finance.

According to Ata, this approach has guided the Islamic lender to invest in areas such as clean energy, sustainable agriculture, and green infrastructure, which are vital for the long-term sustainability of Pakistan and beyond. The federal cabinet has approved the sustainable investment sukuk framework, paving the way for the issuance of Pakistan's first listed green sukuk. The potential size of the sukuk may be around Rs30 billion, with a tenure of three years. The funds raised will be used to finance three clean energy projects. The sukuk is expected to be issued next month. Meezan Bank Limited, Dubai Islamic Bank Pakistan Limited, BankIslami Pakistan Limited, and Bank Alfalah Islamic are acting as joint financial advisors to the government for the issuance of the green sukuk.

The bank’s CEO views the government’s decision to issue green sukuk bonds as a positive development, as it provides an avenue for both public and private sector players to raise capital for critical environmental initiatives. “We see this as an opportunity to harness the growing interest in responsible investment, particularly among global investors who are looking for Sharia-compliant, environmentally-conscious financial instruments. The issuance of green sukuk bonds by the government could play a pivotal role in channelling the necessary funding to accelerate the transition to a more sustainable economy in Pakistan,” he said.

Is there potential for issuing Islamic Panda bonds?

Finance Minister Muhammad Aurangzeb mentioned last month that the government plans to launch yuan-denominated Panda bonds this year. When asked about the possibility of issuing Islamic panda bonds, Ata responded that these bonds provide a unique and innovative opportunity for Pakistan. Given the increasing global interest in Islamic finance, Islamic Panda bonds could play a crucial role in financing green infrastructure. These sukuk could fill a significant gap in funding for projects that adhere to Sharia principles and global sustainability goals. By issuing Sharia-compliant Chinese bonds, Pakistan could attract capital from a global pool of Islamic investors, particularly those who value ethical and Sharia-compliant investments, he said.

Aims to spur growth by increasing physical footprint, improving digital capabilities

In 2024, BankIslami opened 100 new branches across Pakistan, expanding its network to over 540 branches nationwide. The bank is establishing digital banking centres that are equipped to provide fast, technology-enabled services. It also launched ‘aik’, Pakistan’s first fully digital Islamic banking experience. With aik, users can open accounts, manage funds, and access essential services entirely through their phones, eliminating the need to visit a branch.

According to Ata, the bank aims to drive growth by expanding its physical presence, enhancing digital capabilities and forming strategic partnerships. It is also developing innovative products for sectors such as agriculture and small and medium enterprises. Innovation is a key component of the bank’s ambitions, with a strong focus on digital transformation. The bank is gradually integrating artificial intelligence into its operations at all levels, including customer service, product development, marketing and more.