SHARIAH-COMPLIANT SOLUTIONS: GOVERNMENT MUST DEVISE ISLAMIC FINANCE STRATEGY TO ATTRACT INVESTMENT

Shariah Compliant

At the recently concluded World Islamic Economic Forum in London (October 29-31), a Pakistani delegation headed by Finance Minister Ishaq Dar and Punjab Chief Minister Shahbaz Sharif presented investment opportunities in Pakistan, especially in the power sector in the province of Punjab.

The technical presentation presented by the delegates was impressive and there was some obvious interest from the representatives of different business and financial groups present on the occasion.

There is no doubt that the energy sector in Pakistan provides an excellent opportunity to local and foreign investors to invest in the power deficit sector. Most of the projects identified by the Pakistani delegation offer a return on equity of 17-20%, with adequate guarantees against different types of risks, including foreign exchange risk in the wake of fast depreciating Pakistan rupee.

Dr Abdulaziz Al Hinai, Vice President of Islamic Development Bank (IDB), who was also present on the occasion, reminded the potential investors that his bank was also behind the government of Pakistan to offer additional guarantees to the investing parties in the country. Furthermore, Mumtaz Khan, a seasoned private equity guru and CEO of IDB’s $2 billion infrastructure fund, also confirmed that the opportunities in the energy sector in Pakistan were lucrative enough for the funds like his own.

Ishaq Dar, the Finance Minister, also stated that some of the top British investment funds are looking into investing in Pakistan’s energy sector.

One thing, however, that was missing in the pitch was relevance of Islamic finance in attracting investments into the country. While other governments, particularly that of Britain and Malaysia, were pitching Islamic finance as a strategic tool for attracting investments into their countries, the government of Pakistan seemed at best indifferent to the use of Islamic finance in its endeavour to bring most wanted investments into Pakistan.

British Prime Minister David Cameron was most eloquent in presenting his country as a friendly host to Shariah-compliant investments. On the other hand, Pakistani delegation seemed completely unaware of the potential of Islamic finance in solving the serious economic and financial problems.

Apart from a passing remark by Prime Minister Nawaz Sharif in his speech at the opening session of the World Islamic Economic Forum, the Pakistani delegation’s almost complete silence on the issue must indicate the attitude of Pakistani government towards Islamic banking and finance.

Also, the brief document, “Pakistan Investment Guide 2013”, which was distributed by the government of Punjab, was unimpressive and lacked a theme, design and depth. It was certainly a good initiative by the government of Punjab to present investment opportunities in the province, lack of representation of other provinces was seriously noted by many delegates.

While other countries presented their cases in the most impressive ways with carefully designed documents, printed on high quality papers, with in-depth details about the projects, Pakistani documents were not impressive at all. It cannot be denied that some of the information in the documents was useful, but they cannot be deemed as impressive marketing material.

There is a definite need on the part of the government to seek advice from internationally reputed consulting firms to raise its image and profile in Islamic banking and finance.

While Shahbaz Sharif mentioned in his speech that the Chinese Exim Bank was investing in the Punjab’s energy sector, it seemed as if the government delegation was completely unaware of the potential and relevance of the global Islamic financial services industry to bringing required investments into Pakistan.

The total size of the Islamic banking and finance is $1.63 trillion (according to Global Islamic Finance Report 2013, published by the London-based Edbiz Consulting), and countries like Malaysia have immensely benefited from it in terms of attracting international investments. It should not be a problem at all for the government to raise at least $5 billion from global Islamic financial markets, if it carefully structures an Energy Sukuk to be sold internationally.

There is a definite need on part of the government to devise an Islamic finance strategy to attract foreign direct investment into the country. While there are reports that a committee on Islamic banking and finance is being formed by the government to promote Islamic banking and finance, there is a need to bring some internationally reputed experts in Islamic banking and finance to advise the government how Islamic finance can be used as a strategic tool in solving economic and financial problems faced by the country.

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