KARACHI: Pakistan is seeking to attract more foreign investment into its Islamic bond market as Sukuk issuance has more than doubled this year, Finance Minister Muhammad Aurangzeb said on Thursday, acknowledging that overseas participation remained weak despite rapid growth in Shariah-compliant financing.

The push comes as Pakistan seeks to diversify its borrowing instruments, broaden its investor base and develop domestic debt markets amid persistent financing pressures. Sukuk, which are structured to comply with Islamic principles prohibiting interest, have become an increasingly important source of government financing.

Speaking at an event marking a cumulative Sukuk issuance milestone of approximately Rs10 trillion ($35.8 billion), Aurangzeb said issuance had reached Rs4.4 trillion ($15.8 billion) in 2026, compared with approximately Rs2 trillion ($7.2 billion) last year, representing a 113 percent increase.

“If I look at the foreign investment that has come in through SCRA over the past few months, both in T-bills and PIBs, that is positive,” the minister said, referring to foreign portfolio investment through special convertible rupee accounts in Treasury bills and Pakistan Investment Bonds.

“However, quite frankly, foreign investment in Sukuk remains underwhelming,” he added. “Therefore, there is a need to highlight and actively promote Sukuk among international investors and diversify foreign portfolio investment into Shariah-compliant instruments.”

Pakistan has been working to expand its Islamic financial system, with the government and regulators seeking to develop Shariah-compliant alternatives to conventional banking and debt instruments.

Aurangzeb said Sukuk issuance had grown significantly from approximately Rs761 billion ($2.7 billion) in 2020, with a compound annual growth rate of around 22 percent over five years.

He highlighted the introduction of hybrid government Sukuk, developed in coordination with the State Bank of Pakistan, which combine different Shariah-compliant structures and allow greater flexibility in using government-owned assets to raise financing.

The government has also introduced shorter-tenure Sukuk, including three- and six-month instruments, to address gaps in the Islamic debt market and develop a credible yield curve across different maturities.

The minister called for greater coordination among the Securities and Exchange Commission of Pakistan, State Bank, Pakistan Stock Exchange, Central Depository Company, banks and brokers to develop a deeper Islamic capital market.

“As far as the Ministry of Finance and the government are concerned, we are absolutely committed to developing a deep, diversified and liquid Islamic capital market,” he said.

He also called for continued scholarship, dialogue and informed reasoning in Islamic finance to address emerging economic challenges, saying the sector’s development required cooperation among religious scholars, financial institutions, regulators and policymakers.