SECP Unveils Comprehensive Plan to Enhance Islamic Finance Ecosystem in Pakistan – Fintech News Pakistan

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has announced a strategic initiative aimed at developing a robust Islamic finance ecosystem within the country’s securities and futures markets. This significant move, outlined in a report issued on Wednesday, is focused on addressing the growing need for standardization, harmonization, and governance of Shariah practices within Islamic financial institutions.

According to the SECP report, the credibility of Islamic financial institutions is deeply tied to their strict adherence to Shariah principles. With the increasing globalization of Islamic finance, there is a pressing need to establish standardized and integrated frameworks for Shariah compliance, accounting treatments, and governance practices across the globe.

Currently, the standardization process in Islamic finance largely revolves around the selective adoption of Shariah standards. However, the SECP noted that this approach has proven to be insufficient and marginally effective. The existing strategy, which focuses primarily on Shariah standards, overlooks the crucial integration of governance and accounting standards necessary for the credible functioning of Islamic financial institutions.

The SECP emphasized the importance of a more comprehensive and proactive approach to the adoption of global Islamic finance standards. “Consistency in Shariah practices and their accounting treatments is instrumental in strengthening public trust and fostering positive perceptions of Islamic financial institutions,” the report stated.

A Paradigm Shift in Strategy

The SECP highlighted the need for a paradigm shift in the strategy for adopting global standards. The current approach, which is seen as passive and less interactive, does not fully engage the industry in the standardization process. This lack of engagement, coupled with limited feedback mechanisms, has hampered the industry’s ability to achieve its full potential for standardization.

To address these shortcomings, the SECP has proposed a holistic approach that integrates Shariah, accounting, and governance standards in line with global best practices. This integrated framework will be gradually implemented to ensure the smooth functioning of Islamic financial institutions with greater confidence and credibility.

Given the maturity level of Pakistan’s Islamic finance industry, the SECP plans to introduce a phased approach to adopting global standards. This staggered implementation will address practical challenges and ensure that the industry is ready for the transition.

Adopting AAOIFI and IFSB Standards

Central to the SECP’s plan is the adoption of standards set by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the Islamic Financial Services Board (IFSB). The report emphasizes that these global standards will be critical in enhancing the consistency and credibility of Islamic finance practices in Pakistan.

The SECP’s roadmap includes exploring options for adopting suitable accounting and auditing standards for Islamic financial transactions. In addition, the development of sample Shariah-compliant structures and agreements for the issuance of Islamic securities will be prioritized.

Building Market Capacity

To support this transition, the SECP also aims to enhance the capacity of the market to understand and implement AAOIFI’s Shariah standards and IFSB principles. This effort will involve promoting best practices and consistency across the Islamic financial industry, ensuring that institutions are well-equipped to meet global standards.

The SECP’s comprehensive strategy is expected to pave the way for greater standardization in the Islamic finance sector, boosting the credibility of Islamic financial institutions and enhancing public trust in their operations.

This ambitious plan reflects Pakistan’s commitment to positioning itself as a key player in the global Islamic finance market, aligning its practices with international standards while fostering innovation and growth in the sector.