Islamic Fund Management
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government bonds stood at PKR4,237.1 billion, of which Pakistan Investment Bonds (PIBs)
dominated the market with PKR3850.8 billion while the Government of Pakistan (GoP) ijarah
sukuk was 10 times lower, i.e. PKR385.4 billion only (SBP, n.d.). While PIBs are issued for
tenures ranging from 3 to 20 years, GoP ijarah sukuk have not been issued except for 3 years
tenure. In addition, the government has not been issuing enough GoP ijarah sukuk in
comparison to PIBs which are auctioned monthly. Infrequent issuance of sukuk is a result of
existing issues regarding documentation, titles of assets and taxation, among others. The lack
of sukuk issuance from the government has led to a demand and supply mismatch which has
resulted in lower cut-off yields in Islamic instrument auctions, compared to similar
conventional instruments.
Modaraba―a unique financing model that represents the first step towards Islamisation of
Pakistan’s economy―has not been performing well. Such entities face difficulties in accessing
the sources of appropriate funds due to a lack of investor confidence. As such, Islamic funds do
not invest much in modaraba companies (i.e. Modarabas).13
Lack of secondary trading in sukuk: The majority of GoP ijarah sukuk have been issued at a
fixed rate. In a monetary tightening environment, this has resulted in a lack of secondary
trading in these instruments as no one wants to hold a fixed-rate instrument while the market
rates are continuously rising. Hence, there is a dire need for the government to issue Islamic
floating-rate instruments so that the same can remain competitive in the market.
4.3.5 Country-Specific Recommendations
Based on the various issues and challenges faced by Pakistan in developing its Islamic fund
management industry summarises its current position, taking into consideration
the principal critical success factors outlined in the development-stage matrix. Although
Pakistan has advanced in many aspects that are required for the development of an Islamic
fund management market, more concerted efforts must be made to improve other vital areas
where it has moderate scores such as diversification of products and investible assets, and the
overall growth of Islamic finance assets. Of paramount importance is the improvement of
macroeconomic conditions, which would attract foreign investors and foreign AMCs to invest
and set up their businesses in the country.
13 However, it is noted that Modarabas have recently improved their quality of management and corporate governance,
owing to better monitoring and surveillance methods instituted by the SECP. In 2012, the SECP introduced the Shariah
Compliance and Shariah Audit Mechanism (SCSAM) to help modaraba sector in the image building. Enhanced disclosure and
improved compliance with Prudential Regulations have also assisted the sector to be more transparent; hence able to regain
confidence of investors. As at May-2018, the total assets of modaraba sector stood at PKR51,500 milliion.