Degree

Master of Science in Islamic Banking & Finance

Department

Department of Finance

Faculty/ School

School of Business Studies (SBS)

Date of Submission

Summer 2025

Supervisor

Dr. Azima Khan, Assistant Professor, Department of Finance

Keywords

Green Sukuk, Market Demand, Regulatory and Policy Framework, Islamic Banking, Mixed-Method, Pakistan

Abstract

This study explores the potential of Green Sukuk as a Shariah-compliant financial instrument for funding environmentally sustainable projects in Pakistan, with a particular focus on its viability for Tier 1 capital enhancement within the banking sector. The mixed-method approach was adopted to retrieve the data based on the survey of 102 qualified respondents in Islamic financial institutions and subsequently analyzed through PLS-SEM. The findings indicate that the adoption of Green Sukuk is constructively affected by the aspects of financial feasibility, investor confidence, and financial gain. There was however no significant impact of regulatory issues and market demand. One of the key insights is that Green Sukuk, when properly structured to meet Basel III requirements and Shariah principles, can serve as Additional Tier 1 capital, offering banks a novel tool to strengthen their core capital while aligning with sustainability goals. Although Green Sukuk may be more expensive, they also provide competitive returns and serve the sustainability agenda. This study recommends that the State Bank of Pakistan and other regulatory bodies establish clearer frameworks to facilitate Green Sukuk eligibility for Tier 1 capital and enhance investor and issuer awareness through ESG capacity-building.

Document Type

Restricted Access

Submission Type

Research Project

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