ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has set a target to increase the share of Shariah-compliant instruments in Pakistan’s debt market from 13 percent to 20 percent by 2028, as part of a broader strategy to deepen and modernize the country’s capital markets.
The objective was outlined in a white paper issued after the first International Capital Markets Conference (ICMC), where regulators, policymakers, and industry experts explored pathways for expanding both equity and debt participation. Discussions centered on revitalizing the corporate debt market by reducing issuance costs, strengthening regulatory infrastructure, and broadening the availability of Shariah-compliant financial products.
At present, Islamic debt instruments account for only a modest portion of Pakistan’s overall debt market, despite often being priced more competitively than conventional bank financing. Participants noted that reducing intermediation and frictional costs is critical to expanding the segment. They also highlighted the absence of corporate bond swaps in the local market, identifying their introduction as a potential step toward improving liquidity and risk management.
Despite initiatives to encourage more frequent listings, Pakistan averages approximately five corporate debt issuances annually—well below the market’s capacity. While the corporate debt market was more active prior to 2008, it is now widely viewed as more complex and riskier than bank-based financing. Panelists stressed the importance of improving incentives, clearly articulating the value proposition of corporate debt, and addressing the crowding-out effect created by heavy government borrowing through sovereign securities.
Experts emphasized that investor appetite exists, but the supply of suitable, well-structured instruments remains limited. Attracting long-term institutional capital will depend on modern market infrastructure, robust regulatory frameworks, increased investor awareness, and clear pathways for preparing listing-ready companies. Tailored debt funds and structured products were identified as particularly important for insurers and other institutional investors seeking stable, long-term returns.
International examples were presented as practical reference points. Indonesia’s sukuk program was cited as a successful model for scaling Islamic debt markets, while China’s derivatives ecosystem—including specialized futures exchanges and innovative insurance-linked products—was highlighted as offering valuable lessons for market development and risk diversification. Fintech-enabled retail participation in India and ETF-driven liquidity enhancements in Morocco were also discussed as adaptable strategies.
The white paper further underscored the importance of expanding derivatives markets to attract foreign investment, alongside strengthening regulatory oversight, enhancing financial literacy, and leveraging AI-enabled investor outreach. Through these combined reforms, the SECP aims to not only raise the share of Shariah-compliant debt to 20 percent by 2028 but also to foster a more dynamic, diversified, and globally competitive capital market in Pakistan.