The Securities and Exchange Commission of Pakistan has approved Pakistan’s first Shariah-compliant credit risk sharing product, marking an important step toward expanding financial access in the country. This initiative is expected to benefit micro, small, and medium enterprises (MSMEs) as well as the agriculture sector, which often struggle to secure financing through traditional banking systems.
The product has been developed by National Credit Guarantee Company Limited and is designed to reduce credit risk through a Shariah-compliant risk-sharing model. Unlike conventional credit guarantees that often involve fixed returns or interest-based mechanisms, this new structure follows Islamic financial principles, ensuring compliance with a riba-free system.
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At the core of this model is a pooled fund based on Tabarruʿ (donation). Participating financial institutions contribute to this pool voluntarily, creating a shared safety net. Instead of guaranteeing profits, the system focuses on mutual support and shared responsibility, where losses from eligible defaults are covered collectively.
The pool will be managed by NCGCL under a Wakalah (agency) model, where the company acts as an agent on behalf of contributors. This ensures transparency and proper fund management while maintaining Shariah compliance. Importantly, the model promotes genuine risk sharing, meaning that no party is promised fixed returns, aligning fully with Islamic financial ethics.
The framework has been carefully reviewed and approved by the SECP’s Shariah Advisory Committee, which also recommended strengthening governance and documentation standards. These measures are intended to ensure smooth implementation and build trust among participating institutions.
This initiative is expected to improve access to financing for underserved sectors, especially small businesses and farmers who often face difficulties in obtaining loans. By reducing risk for lenders, it encourages more institutions to extend credit, ultimately supporting economic growth.
Overall, this move reflects Pakistan’s commitment to expanding Islamic finance and transitioning toward a more inclusive, interest-free financial system that aligns with both economic and ethical principles.
