KARACHI: Pakistan’s government can potentially raise as much as Rs4 trillion ($14.3 billion) a year in climate resilience funding through the issuance of green and infrastructure sukuk, a senior member of the finance ministry’s advisory team said on Friday, adding the move may help the country transition toward an interest-free financial system.
Green Sukuk are Shariah-compliant financial instruments, specifically designed to fund environmentally sustainable projects, such as renewable energy, clean transportation and climate-resilient infrastructure by merging Islamic finance principles with environmental objectives.
The financial instrument not only offers returns derived from tangible, eco-friendly assets but also contributes to global efforts to combat climate change, and is emerging as a key tool for mobilizing capital toward the green transition in both Muslim-majority and global markets.
Ahmed Ali Siddiqui, who heads consumer finance at Pakistan’s largest Shariah-complaint Meezan Bank and is a member of the government’s financial advisory team, believes Pakistan’s capital market can help raise the funds needed to mitigate the devastating effects of climate change.
“The market would potentially invest in as much as Rs4 trillion ($14.3 billion) sukuk if the government started issuing this much of the Sharah-compliant bonds every year,” he told Arab News.
“Be that green sukuk or infrastructure or conventional sukuk.”
The government of Pakistan, one of the most climate-vulnerable nations, had to knock the door of the International Monetary Fund (IMF) after record floods killed more than 1,700 people, displaced millions and damaged crops and infrastructure estimated at $30 billion in 2022. In May this year, the international lender approved $1.4 billion Resilience and Sustainability Facility (RSF) loan for the cash-strapped country to support reforms. The IMF’s executive board will meet on Dec. 8 to decide on the release of first RSF tranche of around $200 million.
Also in May, Pakistan issued the inaugural Shariah-compliant Green Sukuk bonds worth Rs30 billion ($106 million) as part of Islamabad’s plans to launch innovative “funding products” for local and foreign investors.
The bond has been structured to support projects aligned with environmental sustainability, including renewable energy and green infrastructure initiatives.
Pakistan’s finance adviser Khurram Schehzad and finance ministry spokesperson Qamar Sarwar Abbasi did not respond to requests seeking their comments.
Siddiqui recently co-authored a case study about Pakistan’s first sovereign Green Sukuk, which was published in the Global Sukuk Report 2025 by Bahrain’s International Islamic Financial Market (IIFM).
Citing official data, the study says that losses from 2022 floods were roughly 4.8 percent of Pakistan’s gross domestic product, while projections suggested that Pakistan’s GDP could decline by 18 percent to 20 percent by 2050 due to various climate-related risks.
Pakistan would require an estimated $348 billion to effectively take climate response initiatives by 2030, with $200 billion specifically needed for implementing its Nationally Determined Contributions (NDCs), it says.
“Conventional financing products alone will not suffice to meet these pressing demands, underscoring the need to explore alternative, ethical, and sustainable funding modes, such as green sukuk, to foster a climate-resilient and greener Pakistan,” the study says.
Siddiqui dubbed the launching of a sovereign green sukuk in May this year as a strategic move as the government chases a Dec. 2027 target to render Pakistan’s financial system interest-free, in line with a Federal Shariat Court (FSC) order of April 2022.
Pakistan’s rollout of green sukuk in May to fund renewable energy, clean transportation and climate-resilient projects was oversubscribed 10 times, according to Siddiqui.
“At this point in time, we are facing a big shortage of sukuk and good Shariah-compliant investment opportunities in our market,” he said. “People (institutional investors) do have the money but there is little or no investment opportunities available for them.”
Pakistan’s Islamic banking industry assets surged 27 percent to Rs12.3 trillion ($44 billion), while the deposits increased 30 percent to Rs9.5 trillion ($33.9 billion) in April-June 2025, according to the State Bank of Pakistan (SBP) data.
In terms of market positioning, Islamic banking assets accounted for 21 percent of the overall banking industry, while deposits captured a higher share of 26 percent. The sector’s contribution to total financing stood at 31 percent, with investments making up 15.8 percent of the total banking system.
“This performance indicates a rising demand for Shariah-compliant financing and investment opportunities, enhancing the sector’s financial depth,” Pakistan’s central bank said in its latest report on Islamic banking.
With banking investors holding this huge amount of liquidity, the government has been issuing various sukuks valuing less than Rs2 trillion in recent years.
According to Meezan Bank data, the finance ministry issued Rs736 billion ($2.6 billion) in 2021, Rs1.35 trillion ($4.8 billion) in 2022, Rs1.7 trillion ($6 billion) in 2023, Rs1.92 trillion ($6.8 billion) in 2024 and Rs1.8 trillion ($6.4 billion) so far this year.
“Our (Pakistan’s) current run-rate for the past two years has been about Rs2 trillion per annum,” Siddiqui said, adding the government could easily sell as much as Rs250 billion ($891 million) sukuk on a monthly basis.
“If the government issues Rs500 billion ($1.8 billion) the market has the capacity to invest even $1 billion in the Shariah-compliant bonds.”
