ISLAMABAD: The government has a “strategic plan” to promote Islamic finance, but banks and other financial institutions should not exploit the situation in the name of “Sharia compliance”.

“We have a financial inclusion strategy that covers all the components needed to create Islamic financing, but the price has to be fair and competitive so that the first target of having Islamic finance products to raise funds can be achieved,” Senator Dar said in his speech at the country’s first international conference on Islamic capital markets on Monday.

The conference was organised jointly by the Securities and Exchange Commission of Pakistan (SECP) and the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

The theme of the one-day conference was “ICM development with ecosystem completion: innovation, growth, and transformation”.

Ishaq Dar lauded the success of Islamic finance in several countries, including non-Muslim ones, but lamented that financial institutions were making Sharia-based products costly in this country.

“The price of a Sharia-compliant product has to be fair _ we faced this in 2016-17 when we decided to launch Sukuk. We eventually got good rates through negotiations, but banks too should fulfil their responsibilities,” the finance minister observed.

He referred to a similar experience faced by his son in Britain after he took out Sharia-compliant mortgage loans whose terms and conditions were harsher than conventional products. He called upon the SECP and the State Bank to jointly develop a sovereign market in the country.

“We need to develop a secondary market to get away from multilateral donors. Islamic financial products have to be launched in this sector too, but the price has to be fair,” Senator Dar said. Socio-economic uplift Sheikh Ebrahim Bin Khalifa Al Khalifa, Chairman of the board of trustees at AAOIFI, said in his keynote address that an Islamic capital market aimed at fostering socio-economic development as well as supporting a sustainable growth.

He reiterated the AAOIFI’s commitment to promoting Islamic finance industry and capital market in the country. Sheikh Khalifa assured of support for ensuring that the highest standards were followed in implementation of the AAOIFI benchmarks.

“This conference will help define the future direction for Islamic capital markets in Pakistan,” Sheikh Khalifa said.

He added that unlike banking which is based on elements of interest and works under a regulatory regime, the capital market is based on equity investments and similar instruments.

“These provide more Sharia-compliant solutions for investments and raising capitals,” the AAOIFI board’s chairman said.

He suggested the governments to launch Sukuk bonds to raise money.

An MoU was signed between the AAOIFI and the SECP under which the former would help the SECP in introducing Sharia-compliant products under standards set by AAOIFI.

State Bank Governor Jameel Ahmed said the central bank was committed to making the financial sector Shariah-compliant.

The governor called for collaboration among regulators, financial institutions, industry players and Shariah scholars to bring about standardisation in Islamic finance.

“The Islamic capital markets are at a nascent stage of development in most jurisdictions. There are gaps in institutional, legal and regulatory frameworks, inefficient price discovery as well as lack of diversity in instruments and investors,” Jameel Ahmed observed.

The other challenges were lack of harmonisation and difference of opinion among scholars, while there was a need to develop confidence among all stakeholders, he added.

Akif Saeed, the SECP chief, called for a calculated approach to make all segments of the financial system Shariah-observant.

He said there was a demand for Islamic finance in the country, but the supply side was slow and more products were needed.