Pakistan has approved its first Shariah-compliant credit risk-sharing product, marking an important milestone in the country’s efforts to strengthen Islamic finance and expand access to funding for underserved sectors. The initiative, announced by the Securities and Exchange Commission of Pakistan (SECP), is expected to support micro, small and medium enterprises (MSMEs) as well as the agriculture sector.
The product has been developed by the National Credit Guarantee Company Limited (NCGCL) and is designed to reduce credit risk through a risk-sharing mechanism that complies with Islamic principles. It offers an alternative to conventional credit guarantee systems by eliminating interest-based structures and introducing a Shariah-compliant model.
Under this structure, participating financial institutions contribute to a pooled fund on a donation (Tabarruʿ) basis. The fund is managed by NCGCL, which acts as an agent (Wakeel) under a Wakalah arrangement. Any losses arising from eligible defaults are covered through this shared pool, ensuring genuine risk-sharing without guaranteed returns.
The SECP stated that the product is based on Takaful principles and represents a significant step forward in aligning financial solutions with Shariah requirements. Although the product has not yet been given an official name, regulators have recommended assigning it a brand identity and possibly establishing an Islamic window to further promote such offerings.
This development comes as part of Pakistan’s broader transition toward an Islamic financial system. In April 2022, the Federal Shariat Court directed the government to eliminate interest-based banking and fully align the country’s financial system with Islamic principles by 2027. Since then, authorities have introduced several reforms, including legal amendments and the promotion of sukuk as an alternative to conventional financial instruments.
The SECP’s Shariah Advisory Committee reviewed and approved the product’s structure, confirming its compliance with key Islamic finance principles. The committee also highlighted the importance of strong governance and proper documentation to ensure effective implementation.
Overall, the initiative is expected to improve financial inclusion, encourage responsible lending, and strengthen Pakistan’s Islamic finance ecosystem. By reducing credit risk and increasing access to finance, it has the potential to support sustainable growth in key sectors of the economy.