KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has approved the country’s first Shariah-compliant credit risk-sharing product that will enable Islamic financial institutions to expand financing to underserved sectors such as micro, small and medium enterprises (MSMEs) and agriculture, the SECP said on Saturday.
The product, developed by National Credit Guarantee Company Limited (NCGCL), reduces credit risk through a risk-sharing mechanism, while enabling greater access to finance and ensuring compliance with Shariah principles, according to the SECP.
It provides an alternate to existing conventional credit guarantees through a Shariah-compliant model.
“Under this structure, participating institutions contribute to a pooled fund on a donation (Tabarruʿ) basis, managed by NCGCL as an agent (Wakeel) under a Wakalah arrangement,” the SECP said.
“Losses from eligible defaults are covered from this pool, ensuring genuine risk sharing without guaranteed returns.”
When asked about the name of the product, the SECP said it has no specific name yet, but it is a “Takaful-based credit guarantee structured on the principles of tabaru.”
“Among other things, it has been recommended to the company to give it a brand name and also consider setting up an Islamic window to offer such products,” it said.
Pakistan’s Federal Shariat Court (FSC) directed the government in April 2022 to eliminate interest and align the country’s entire banking system with Islamic principles by 2027.
Following the order, the government and the State Bank have taken several measures ranging from changing laws to issuing sukuk Islamic bonds to replace interest-based treasury bills and investment bonds.
The SECP’s Shariah Advisory Committee reviewed and approved structure for the new product, noting that it aligns with key principles. It also recommended strengthening governance and documentation for effective implementation.
“This initiative is expected to increase access to financing for MSMEs, agriculture, and other priority sectors,” the regulator said. “It will support financial inclusion and responsible lending and strengthen Pakistan’s Islamic finance ecosystem.”
