Client Name

Al-Hilal Securities Advisors

Faculty Advisor

Dr. Fawad Ahmed

SBS Thought Leadership Areas

Islamic Business and Finance

SBS Thought Leadership Area Justification

Experiential Learning Project (ELP) with Al-Hilal Securities Advisors aligns strongly with the Islamic Business and Finance thought leadership area at IBA’s School of Business Studies (SBS). At its core, the project involved the design of a Shariah-compliant SME lending fund, embedding core Islamic finance principles such as the prohibition of riba (interest), profit-and-loss sharing through contracts like Musharakah and Murabaha, ethical investment screening, and adherence to Shariah governance. This foundation places the project firmly within the Islamic Business and Finance domain. However, what distinguishes it as a thought leadership contribution is how it translated these principles into a practical, scalable, and regulatory-compliant financial product. The project’s iterative development—pivoting from a Modaraba structure to a Private Equity Fund, and finally to an Investment Finance Company (IFC) model—demonstrated applied legal and financial problem-solving in response to SECP regulations. Furthermore, the integration of blockchain-based tokenization into the fund’s future roadmap introduced an innovative Islamic DeFi angle. This shows a bold and forward-thinking approach that extends the boundaries of traditional Islamic finance, aligning with global trends while addressing local needs. Your use of stakeholder theory, pecking order theory, and diffusion of innovation theory added academic depth, while your detailed financial modeling and scenario analysis showed practical readiness. By offering a replicable blueprint for Shariah-compliant lending, especially targeted at underserved SME sectors like women-led and rural businesses, your ELP addresses financial inclusion and development—key priorities within Islamic finance. Altogether, the project exemplifies thought leadership by combining ethical finance, regulatory insight, and digital innovation in a way that is academically rigorous and operationally viable.

Aligned SDGs

GOAL 9: Industry, Innovation and Infrastructure

Aligned SDGs Justification

Our project strongly aligns with SDG 9 – Industry, Innovation, and Infrastructure by pioneering a technologically forward and ethically grounded financial model that addresses critical gaps in Pakistan’s SME financing landscape. The development of a Shariah-compliant lending fund through the Investment Finance Company (IFC) structure introduces a new kind of financial infrastructure tailored to underserved sectors. It not only supports industrial growth by channeling capital into SMEs—the backbone of Pakistan’s economy—but does so through a framework that is both compliant with Islamic principles and aligned with modern financial innovation. A standout feature of our project is the integration of blockchain-based tokenization, envisioned as a post-launch roadmap. By planning to tokenize fund units, our model introduces a decentralized and transparent mechanism for fund ownership, which has the potential to increase liquidity, reduce transaction costs, and enable fractional ownership. This positions Al Hilal Securities to become a first-mover in Pakistan’s Islamic fintech ecosystem, setting a precedent for future DeFi (Decentralized Finance) initiatives under Islamic finance. Moreover, the strategic use of smart contracts and audit trails ensures compliance, transparency, and real-time monitoring—key aspects of resilient financial infrastructure. Our project thus bridges regulatory compliance, financial innovation, and ethical finance, establishing a robust platform that supports sustainable industrial development and lays the groundwork for future-ready, inclusive financial systems in Pakistan. This alignment with SDG 9 is not just conceptual but operationally viable, as reflected in our feasibility modeling, scenario analysis, and regulatory preparation documented throughout the ELP.

NDA

No

Abstract

This Experiential Learning Project (ELP), which was conducted in partnership with Al Hilal Securities Advisors, related to the form and feasibility of a Shariah-compliant SME lending fund within the regulatory framework of the Pakistan Non-Banking Finance Company (NBFC) framework. The basic aim was to design a financially viable, legally compliant, and operationally scalable fund structure that works within the concept of Islamic finance and fills the gap that exists in financing the small and medium size enterprises (SMEs) in Pakistan.

To do so, our group followed a phased research model of regulation, financial modeling, and client feedback loops. The project was initiated by comparing three possible structures of funds i.e. Modaraba, Private Equity Fund and Investment Finance Company (IFC). Modaraba and PE Funds were rejected as unsuitable after careful examination under legal and regulatory provisions, because of lending limitations imposed by SECP. The fund was finally reformed as a vehicle based in IFC, and it can provide Shariah-compliant SME financing in the form of contracts like Musharakah and Murabaha.

A financial model was developed to model 5-year forecasts (2026-2030) assuming the best structure, which indicated that net profitability would increase by PKR 31 million in the first year to more than PKR 105 million in the fifth year. The ROI to investors was consistently over 30 percent and the ratios of operational expenses decreased with scale. At the request of our CEO, we have added some worst- and best-case stress scenarios that show that the fund is viable under a variety of market conditions. This confirmed the flexibility in use and stress-tested durability of the model.

One more peculiarity of the project was the intended inclusion of blockchain-based tokenization, which would enable the digital issuance and subsequent trading of fund units on compliant secondary platforms after the launch.

Our key recommendation is that Al Hilal should continue the preparation of the licensing procedure following the IFC model and enter preliminary talks with investors, as well as consider the sandbox-based approval of blockchain tokenization. On the whole, this ELP shows the combination of regulatory knowledge, product development, and financial rigor can be brought to bear on producing a commercially viable Islamic financial product.

Document Type

Restricted Access

Document Name for Citation

Experiential Learning Project

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