KARACHI, April 7 The SBP is actively working with the industry and the federal government to develop Shariah compliant short-term securities which would be issued on a regular basis.

This was stated by SBP governor Salim Raza while speaking at a lecture by Dr Umer Chapra on Tuesday.

Mr Raza said SBP's immediate objective is to improve and diversify avenues for short-term liquidity management for the Islamic banking industry.

“Islamic banks in Pakistan have to live with the big constraint of only being able to place their surplus funds with other Islamic banks, in the absence of suitable investment opportunity,” he said and added that this market gap limits earnings and inhibits aggressive deposit mobilisation drives.

Mr Raza said Islamic banking in the country, from a modest start in 2002, has made a good progress and achieved six per cent market share.

“The heightened global interest in the subject, particularly after the recent financial crisis, leads one to expect that Islamic banking will make more rapid strides globally and in Pakistan,” he said.

The SBP governor stressed the need for improving understanding among investors more broadly about those principles in Islamic finance that provide investors assurance about risk evaluation and risk management frameworks and practices that improve upon most conventional counterparts.

Referring to participatory financing modes, where risk is shared between the entrepreneur, the bank and the investor, he said these structures can provide all advantages that venture capital and private equity structures do in conventional finance without the risk often created by high leverage.

The participatory modes also don't view the investment merely a financial exercise, but the one that seeks to achieve true economic value-addition, he emphasised.

He said Islamic bankers could benefit from more training with respect to development to their capacity to apply Islamic banking tools and principles.