Pakistan approves first Shariah-compliant credit guarantee

Pakistan’s Securities and Exchange Commission (SECP) has approved the country’s first Shariah-compliant credit risk-sharing product, aimed at improving access to financing for micro, small and medium enterprises (MSMEs) and the agriculture sector, the regulator said on Saturday.

The product, developed by the National Credit Guarantee Company Limited (NCGCL), introduces a risk-sharing mechanism designed to reduce credit exposure for financial institutions while remaining aligned with Islamic finance principles. It offers an alternative to conventional credit guarantees, which are typically interest-based.

According to the regulator, the product, which has not yet been formally named, is structured as a Takaful-based credit guarantee built on the principle of tabarru. It has also advised NCGCL to introduce a brand identity and consider establishing an Islamic window to offer similar solutions.

The SECP’s Shariah Advisory Committee reviewed and approved the structure, confirming its compliance with key Islamic finance principles, while recommending stronger governance and documentation frameworks to support implementation.

The approval comes as Pakistan accelerates efforts to transition its financial system toward Shariah compliance, following a 2022 directive by the Federal Shariat Court to eliminate interest-based banking by 2027. Authorities have since introduced reforms, including legal amendments and the expansion of sukuk issuances to replace conventional government debt instruments.

According to the SECP, the new product is expected to support financial inclusion and responsible lending by enabling banks and financial institutions to extend financing to underserved segments of the economy.