- Pakistan strengthens Islamic capital market with 38 new Shariah-compliant securities in FY2025
Statistics showed that the Islamic finance market size in present years has grown rapidly. It will grow from $7.99 billion in 2024 to $8.94 billion in 2025 at CAGR (compound annual growth rate) of 11.9 percent. The growth in the historic period can be attributed to demand for Shariah-compliant products and practices, vast oil wealth stimulated fresh interest, the significance of risk-sharing in raising finance, strong investments in halal sectors, and enlarging Islamic banking services.
In the next few years, the Islamic finance market size is expected to see rapid growth. It will grow to $13.89 billion in 2029 at CAGR of 11.6 percent. The growth in the forecast period can be attributed to the expansion of the Islamic finance industry, rise in the Muslim population, socially and ethical responsible investing, government support and regulation, and globalization of Islamic finance.
Key trends in the forecast period include the introduction of electronic modes in all products and services, innovation in financial products, new launches of Islamic exchange-traded funds (ETFs), popularity of ESG-related financial assets, and integration of financial technology. Industry experts recorded that a rise in the Muslim population is expected to propel the growth of the Islamic finance market going forward.
It is said that the Muslim population is growing because of high fertility rates and a relatively young demographic. Furthermore, Muslim populations use Islamic finance to manage their financial needs in accordance with Shariah law, which shows interest and encourages ethical, risk-sharing financial practices, ensuring that their financial activities align with their religious beliefs and values.
In June 2024, as per the Alliance for a New Middle East Peace (ALLMEP), a US-based non-profit organization, Israel’s Muslim population was estimated at 1.782 million at the close of 2023, explaining 18.1 percent of the total residents and marking a rise of 35,000 from 2022. Therefore, the rise in the Muslim population is driving the growth of the Islamic finance market.
In Pakistan, the Islamic finance sector under the regulatory purview of SECP (Securities and Exchange Commission of Pakistan) consist of (a) Islamic institutions such as Modarabas, Takaful operators, Islamic NBFIs, Shariah compliant businesses, and Shariah advisors; and (b) Islamic instruments like Shariah compliant securities, Sukuk, Islamic commercial papers, Islamic mutual funds, Islamic Exchange Traded Funds (ETFs) and Shariah compliant real estate investment trusts.
Statistics released by the government of Pakistan that during July-March FY 2025, SECP issued 38 certificates of Shariah-compliant securities under the Shariah Governance Regulations, 2023, for the development of the Islamic capital market. There has been an increasing trend to issue short term Sukuk for Shariah-compliant resource mobilization by companies to complete their working capital requirements.
During the period, statistics also showed that in the secondary capital market, 288 securities out of a total of 527 listed securities were Shariah-compliant, with a market capitalization of Rs 9,284 billion or $ 33.13 billion out of the total market capitalization of Rs 14,375 billion. During the period under review, 09 new Shariah advisors registered with SECP under the Shariah Governance Regulations, 2023, bringing the total number of registered Shariah advisors to 146. To enhance the standing of Shariah advisory services, the process of certification as Shariah-compliant companies has been completed for 11 Shariah advisory companies that offer Shariah advisory services.
It is said that Modarabas are Shariah-compliant financial entities that operate under a unique partnership model. One partner offers capital, and the other manages the business, with profits/losses shared according to a pre-agreed ratio. This structure permits investors to participate in various business ventures without engaging in interest-based transactions, aligning with Islamic finance principles.
As of December 31, 2024, there are 31 registered Modaraba companies, 20 of which are currently operational and listed on PSX, and 04 of which are in the process of winding up / liquidation. The total assets of the Modaraba sector amounted to Rs 56.8 billion as of December 31, 2024. The first-ever Shariah-compliant green energy fund, Burj Clean Energy Modaraba, was listed on the PSX GEM Board in October 2024.
Way forward
International experts analyzed that the global Islamic financial services industry (IFSI) continued to expand in 2024, registering a robust 14.9 percent year-on-year (YoY) growth to reach USD 3.88 trillion in total assets. While Islamic banking stays the dominant segment, strong YoY growth in the Sukūk (25.6 percent) and Islamic insurance (16.9 percent) sectors underscore the growing momentum of non-bank segments within the IFSI.
However, growth continues to be uneven and structurally concentrated in the banking sector and in specific regions, underscoring the importance of developing non-bank segments and fostering market development in emerging and frontier jurisdictions. Islamic banking continued to anchor the IFSI in 2024 with strong balance sheet growth and broad-based expansion, though structural limitations and evolving risk dynamics call for targeted policy responses.
On the other hand, the Islamic insurance sector saw strong growth in 2024, though regional disparities and structural gaps highlight the need for strengthening regulatory and institutional frameworks. In 2024, statistics showed that the Islamic insurance assets and gross written contributions increased by 16.9 percent and 15.4 percent, respectively The Islamic capital markets delivered strong performance in 2024, driven mainly by a surge in Sukūk issuance. Global Sukūk issuances grew by 25.6 percent to reach USD 230.40 billion, reflecting favourable financing conditions and growing demand from both sovereign and corporate issuers.