SECP Boosts Islamic Finance: The Dawn of Shariah-Compliant Economy in Pakistan

SECP Boosts Islamic Finance: The Dawn of Shariah-Compliant Economy in Pakistan

The SECP’s Move to Islamic Finance

The Securities and Exchange Commission of Pakistan (SECP) has recently taken a significant step towards Islamizing the country’s economy by providing legal backing to Islamic financial institutions, including Shariah-compliant companies and securities. This move aligns with the constitutional goal of eliminating Riba (usury), a concept that is integral to Islamic finance.

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The SECP has issued Shariah Governance Regulations, 2023, to facilitate this transition. Under these regulations, any company claiming to be Shariah-compliant must obtain a Shariah compliance certificate from the SECP. The application for this certificate must be accompanied by various documents and a non-refundable processing fee, ensuring that only genuinely committed businesses can adopt this model.

The Implications of Shariah Compliance

Once a company is declared Shariah-compliant, it must adhere to the principles of Islamic finance. This means that the company agrees that raising loans with interest is forbidden, and it must aim to settle any interest-bearing loans as soon as possible. Furthermore, the company must not take any further interest-based loans in the course of normal business. However, in case of dire need, such loans can be raised with the approval of the Shariah supervisory board or the Shariah advisor.

The company must also acknowledge that any interest-based investment is prohibited. It is expected to dispose of such investments and make concerted efforts to eliminate any prohibited elements from its income, operations, assets, and liabilities.

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Shariah Compliance for Securities

For a security to be declared as Shariah-compliant, it must also undergo a similar process. It must obtain a declaration in the form of a Shariah compliance certificate through the prescribed process. The SECP has defined the minimum Shariah screening criteria for Shariah-compliant companies and securities, which prohibits involvement in any non-Shariah permissible business activities.

The SECP may also require a Shariah-compliant company or an Islamic financial institution to form, appoint, or engage a Shariah supervisory board within a specified period. This board must include at least two people who meet the criteria of a Shariah scholar member and other requirements as outlined in the regulations.

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Conclusion: A Paradigm Shift in Pakistan’s Economy

The SECP’s move to support Islamic financial institutions marks a significant shift in Pakistan’s economic structure, bringing it more in line with Islamic principles. It is a clear indication of the government’s resolve to eliminate Riba from the economy and Islamize the financial sector. This development has far-reaching implications not just for the country’s economy, but also for its socio-cultural fabric, as it brings the financial practices of businesses in line with the religious beliefs of the majority of the population.