Key Points
- First Shariah-compliant credit risk-sharing product approved to support underserved sectors
- Mechanism enables financial institutions to share risk through pooled contributions
- Expected to expand access to finance for small businesses and agriculture
- Initiative supports transition towards an interest-free financial system
ISLAMABAD: The Securities and Exchange Commission of Pakistan has approved the country’s first Shariah-compliant credit risk-sharing product, aimed at expanding access to finance for small businesses, farmers, and other underserved sectors.
The National Credit Guarantee Company Limited has developed the financial product.
It is designed to reduce credit risk for financial institutions through a structured risk-sharing arrangement that complies with Islamic financial principles.
Under the model, participating institutions contribute to a pooled fund on a donation basis, known in Islamic finance as Tabarruʿ.
The fund management company acts as an agent under a Wakalah arrangement.
Losses arising from eligible defaults are covered from the pool, ensuring genuine risk sharing without any guaranteed returns.
The regulator’s Shariah Advisory Committee reviewed the structure before approving the fund. It aligns with core Islamic finance principles, according to the SECP Committee.
The committee also called for stronger governance frameworks and documentation to ensure smooth implementation.
The new mechanism offers an alternative to conventional credit guarantees.
Pakistan’s corporate watchdog expects the product to improve financing flows to micro, small, and medium enterprises as well as the agriculture sector, both of which face persistent barriers in accessing formal credit.
The initiative would promote financial inclusion, encourage responsible lending, and strengthen the country’s Islamic finance ecosystem, according to the SECP statement.
The Commission has been focusing on reforms to expand Islamic finance in line with the directives of the Supreme Court of Pakistan.
The regulator’s efforts are also in line with the government’s objective of transitioning to an interest-free financial system, ensuring stability and sustainable economic growth.
