Islamic Fund Management
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The SECP issued Shariah Advisors Regulations 2017 to regulate the appointment of Shariah
advisors, who are appointed by the AMC, 11 to approve any Shariah-compliant fund. The SECP
also issued Draft Shariah Governance Regulation 2018, which is applicable to all Shariah-
compliant securities, Shariah-compliant companies and Islamic financial institutions, all of
which are required to obtain certificates of Shariah compliance from the SECP. The Draft also
introduces centralised Shariah screening criteria, which are aligned with the AAOIFI Shariah
screening methodology, to determine a company’s Shariah-compliant status. This will
strengthen the existing Shariah screening process, which is jointly undertaken by the PSX and
Al Meezan Investment to launch Shariah-compliant indices, i.e. the KMI-30 Index and the PSX-
KMI All Shares Index. The initiative will enhance market confidence in Shariah-compliant
stocks.
Market Infrastructure
To facilitate secondary trading and investment, Pakistan has developed a wide range of capital
market infrastructure institutions or SROs, such as stock and commodities exchanges (the PSX
and PMEX, custody and depository companies (the CDC), and clearing and settlement houses
(NCCPL). Nonetheless, these entities have not been performing in the capacity of full-fledged
SROs. They will need to assume greater responsibility by taking on the duties of full-fledged
SROs, whereby they will be required to perform these tasks: rule-making, supervision and
enforcement of the applicable laws by market participants/intermediaries. The CMDP 2016-
2018 emphasises that ‘SROs must focus on enhancing their supervision and enforcement
capabilities by putting in place mechanisms for risk management, real-time monitoring of
market information and use of technology to benefit from automation and reduce their cost of
compliance’ (SECP, 2016, p. 13).
Although the stock market’s performance has improved after the integration of the Karachi,
Lahore and Islamabad stock exchanges under one umbrella, i.e. the PSX, more efforts should be
expanded to broaden the universe of listed companies, to particularly include SMEs. As at end-
1Q 2018, the PSX played host to 559 listed companies, of which 250 were Shariah-compliant.
The market capitalisation of the PSX has expanded in the last 5 years (2014-1Q 2018), as
illustrated in although such growth has not been stable from year to year. The
introduction of the PSX-KMI All Shares Index in November 2015 is aimed at further boosting
the Islamic capital market and Islamic funds.
11 Other Islamic financial institutions or companied that are governed by the SECP must also appoint Shariah advisors to
approve any Shariah-compliant products.