AAOIFI and Pakistan Join Forces to Advance Shariah-Compliant Capital Market

The recent collaboration between AAOIFI and Pakistan has joined tremendous excitement and potential in the realm of Islamic finance, as AAOIFI and Pakistan join forces to open doors to new opportunities and advancements.
The Accounting & Auditing Organization for Islamic Financial Institutions (AAOIFI), a leading international non-profit institution based in Bahrain, has expressed its intention to intensify its partnership with Pakistan. The key focus of this collaboration is to advance the Islamic capital market within the South Asian nation. This information comes directly from the Pakistani finance ministry, following the recently held inaugural Islamic Capital Markets (ICM) Conference in Islamabad.

This milestone event was a collaborative effort between the Securities and Exchange Commission of Pakistan (SECP) and AAOIFI. The latter, a significant player from Bahrain, is widely recognized for its role in establishing and implementing standards in Shariah, accounting, auditing, ethics, and governance for the international Islamic finance sector.

As a part of this strategic alliance, Sheikh Ebrahim Bin Khalifa Al-Khalifa, the Chairman of AAOIFI’s Board of Trustees, engaged in a discussion with Pakistan’s Finance Minister, Ishaq Dar. The meeting, held in Islamabad, served as a platform to explore opportunities for enhancing cooperation, particularly within social welfare, business, finance, and in the promotion of the Islamic finance industry and capital market in Pakistan.

Pakistan, home to the second-largest Muslim population worldwide and characterized by low banking penetration, is committed to increasing financial inclusion. It aims to achieve this by promoting Islamic finance, a strategy that is embedded within the National Financial Inclusion Strategy. According to the World Bank, as of 2017, a mere 21% of the Pakistani adult population had a bank account, with religious beliefs being cited as the primary reason for not having an account of 13% of adults.

A landmark agreement was also signed during the ICM Conference between the SECP and AAOIFI, stipulating cooperation in areas of mutual interest. This collaboration is set to bolster the development of the Islamic banking and finance industry within the region.

In line with its growth objectives, the Pakistani government has set an ambitious target: to elevate the share of Shariah-compliant instruments in government securities to a minimum of 10% by the end of the fiscal year 2022-2023. With 22 Islamic banking institutions currently operating in the country, the industry’s infrastructure is already well-established.

Furthermore, during the ICM Conference, Finance Minister Dar announced that Pakistan’s Islamic banking industry had seen substantial growth. He revealed that the industry’s assets had grown by an impressive 29% year-on-year in fiscal year 2022. With AAOIFI and Pakistan joining forces, the Islamic finance landscape is set to witness significant growth, innovation, and strengthened regulatory frameworks, ensuring a more robust and prosperous future for the industry.