Table of Content
1.
Challenges and Opportunities............................................................................................................ 2
1.1.
Conditions for offering Islamic financial services: .................................................................. 2
1.1.1.
Challenges:........................................................................................................................... 2
1.1.2.
Opportunities: ..................................................................................................................... 2
1.2.
Shariah-compliant structure and operations: .......................................................................... 2
1.2.1.
Challenges:........................................................................................................................... 2
1.2.2.
Opportunities: ..................................................................................................................... 2
1.3.
Shariah-compliant Product ........................................................................................................ 2
1.3.1.
Challenges:........................................................................................................................... 2
1.3.2.
Opportunities: ..................................................................................................................... 3
1.4.
Disposal of Shariah-noncompliant investments: ...................................................................... 3
1.4.1.
Challenges:........................................................................................................................... 3
1.4.2.
Opportunities: ..................................................................................................................... 3
1.5.
Shariah-compliant investments: ................................................................................................ 3
1.5.1.
Challenges:........................................................................................................................... 3
1.5.2.
Opportunities: ..................................................................................................................... 3
1.6.
Shariah-compliant mobilization of financial resources ........................................................... 4
1.6.1.
Challenges:........................................................................................................................... 4
1.6.2.
Opportunities: ..................................................................................................................... 4
1.7. Conversion of a financial institution into an Islamic financial institution: ................................ 4
1.7.1. Challenges:................................................................................................................................. 4
1.7.2. Opportunities: ........................................................................................................................... 4
1.8.
Islamic windows of conventional financial institutions ........................................................... 4
1.8.1.
Challenges:........................................................................................................................... 4
1.8.2.
Opportunities: ..................................................................................................................... 4
1.9.
Shariah governance framework: ............................................................................................... 5
1.9.1.
Challenges:........................................................................................................................... 5
1.9.2.
Opportunities: ..................................................................................................................... 5
1.10.
1.10.1.
Challenges:........................................................................................................................... 5
1.10.2.
Opportunities: ..................................................................................................................... 5
1.11.
2.
Shariah supervisory board ..................................................................................................... 5
Shariah compliance function.................................................................................................. 5
1.11.1.
Challenges:........................................................................................................................... 5
1.11.2.
Opportunities: ..................................................................................................................... 6
Implications: ........................................................................................................................................ 8
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1. Challenges and Opportunities:
The challenges and opportunities for financial institutions in Pakistan in complying with the
SECP's guidelines on offering Islamic financial services are as follows:
1.1.
Conditions for offering Islamic financial services:
1.1.1. Challenges:
Obtaining the certificate of a shariah-compliant company and the certificate for offing shariacompliant securities is a time-consuming process as it requires the company to ensure that it will
be compliant with shariah principles and Submit an Audit report for taking these steps.
1.1.2. Opportunities:
After obtaining these certificates, the company will be able to gain access to a whole new market
of shariah-compliant financial services.
1.2.
Shariah-compliant structure and operations:
1.2.1. Challenges:
Shariah-compliant structure and operations add a new “to-do list” For the Islamic financial institute
which includes constructing constitutive documents and Policy framework, changing insurance
policy and promotion material requires an additional procedure. For these operations, the
company requires a proper team and labor which can look after this.
1.2.2. Opportunities:
If achieved by following Shariah-compliant principles in its structure and operations, it will help
in gaining the trust of its customers and overall company reputation. Also, it is required to adopt a
takaful insurance policy that offers mutual risk for all participants. This insurance will help the
company in times of need.
1.3.
Shariah-compliant Product
1.3.1. Challenges:
For offering Shariah-compliant products in the financial services market, the company must get
approval from the Shariah Supervisory board and if a deviation from shariah standards is involved,
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Proper Justification is required. It can be very challenging especially when the company is selling
a variety of products.
1.3.2. Opportunities:
On the other hand, If the company is following the above procedure very strictly. It can help the
company in building trust with its customers that the product they are offering is based on Shariah
compliance.
1.4.
Disposal of Shariah-noncompliant investments:
1.4.1. Challenges:
Islamic financial institutes must face some financial losses while disposing of shariahnoncompliant investments. In addition to this, it must ensure that such investments are properly
disposed of and not consumed in any sort of financial activity.
1.4.2. Opportunities:
Such Non-compliant investments can be purified by distributing in the charity process after taking
approval from Shariah supervisory board. It will add a great element to the social responsibility of
the institute and its Reputation towards its customers.
1.5.
Shariah-compliant investments:
1.5.1. Challenges:
Without proper knowledge in this field, identifying which investment is sharia compliant and
which one is not will make the whole process very time-consuming and difficult. If not handled
properly, it can hurt the reputation of the financial institute.
1.5.2. Opportunities:
It will open doors for new investment options for investors which may not be available to nonshariah-compliant Institutions. Stepping into a new Shariah-based market will engage specific
investors to invest without fear and according to their religious beliefs.
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1.6.
Shariah-compliant mobilization of financial resources
1.6.1. Challenges:
The SECP's guidelines also require Islamic financial institutions to obtain approval before
mobilizing financial resources through Shariah-compliant securities, except for Modarabas. This
can add another layer of regulatory procedure that financial institutions need to go through.
1.6.2. Opportunities:
Islamic Financial institutions can earn enough Revenue by investing these Shariah-compliant
securities in Shariah-compliant firms and it will help satisfy their customers that their money is
not going anywhere near non-shariah firms.
1.7. Conversion of a financial institution into an Islamic financial institution:
1.7.1. Challenges:
The conversion process from a financial institute to an Islamic will take a long time and resources
as the firm needs to convince its board of directors, make a conversion plan, make changes in its
current mission statement, Training of employees to follow the new plan, etc.
1.7.2. Opportunities:
This conversion process may lead the financial institutions into new shariah-service-based markets
which can be very beneficial in Pakistan since a huge portion of the population is looking for
interest-free financial services.
1.8. Islamic windows of conventional financial institutions
1.8.1. Challenges:
The establishment of an Islamic window in any financial institution will require a separate
framework, Staff members, Books of account, and funds. In addition to this, Company might need
an internal control system that can monitor these separate functions. For this company may require
a huge amount of Self-funding and investment.
1.8.2. Opportunities:
A separate Islamic window will attract new customers who are interested in Shariah compliance
services. In addition to this, it will help the institute in identifying potential markets of shariah
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compliance without completely stepping into the field. If there is potential, the company can decide
to establish a separate entity or change the existing ones to Islamic financial institutes.
1.9. Shariah governance framework:
1.9.1. Challenges:
The establishment of a proper Shariah governance framework and following its key objectives will
demand the institute extra effort and time. Without this proper framework, the institute may unable
to complete those objectives which will eventually lead to a loss in the reputation of the firm.
1.9.2. Opportunities:
If the institution succeeds in establishing such a Governance framework, it will improve the overall
structure and system in following shariah compliance principles. It will also convince its
shareholders and the public that they are following that principle in an effective manner and leave
any doubt about non-shariah compliant practices.
1.10. Shariah supervisory board
1.10.1.Challenges:
For the Shariah Supervisory board, the institute needs at least two qualified members as shariah
advisors as early as possible. It might be a very difficult task to look for such members who can
be trusted to take such a big responsibility because they will play a key role in applying shariahcompliant principles.
1.10.2.Opportunities:
After the successful appointment of the shariah supervisory board, the institute will be able to gain
the trust of its general public, Shareholders, and investors that their upper offices have qualified
members that can lead the institution in following shariah compliant principles in an effective
manner.
1.11. Shariah compliance function
1.11.1.Challenges:
It’s very important that the shariah compliance unit works properly otherwise it could disrupt the
communication between the shariah advisors and management. In addition to this, finding
experienced staff in the field of Islamic finance might not be an easy task for the institution.
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1.11.2.Opportunities:
Shariah compliance units can play a key role in instructing the management by taking orders from
shariah advisors.
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2.
Implications:
The implications of SECP guidelines for the overall development of Islamic finance in Pakistan
are as follows:

The SECP guidelines provide a clear framework for shariah-compliant financial
institutions to provide their services and sell their product to Muslim consumers of Pakistan
according to shariah principles. With the passage of time, the institute can be able to gain
the trust of consumers that the services they are providing are shariah compliant and leave
any doubt of non-shariah compliant elements. This trust is the very source that leads to the
overall development of Islamic finance in Pakistan.

The SECP guidelines also clearly explain to use only those sources of investment which
are shariah compliant. There are many investors in Pakistan who want to invest in shariah
based firms and want to make sure to do it in a Halal way (Such as Musharakah). SECP
guidelines allow Islamic financial firms to take those investments and if there is a nonshariah compliant investment, the firm must purify it such as by means of charity. This
engages the investor community in the overall development of Islamic finance in Pakistan.

The SECP guidelines have also introduced the Islamic window concept which can be used
by any financial institution that wants to step into the field of Islamic finance and to try to
engage new consumers in Pakistan who wants shariah-based services or product. If Islamic
window works for them, they may think to make a separate entity that can provide those
services. Establishing Islamic windows will certainly give a boost to the overall
development of Islamic finance in Pakistan.

The SECP guidelines also focus on building Shariah supervisory and Shariah compliance
functions. Their function is to regulate and keep a check on the management if they are
working according to sharia principles or not. This Corporate structure is the very
foundation of Islamic finance in firms.
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