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Pakistan to introduce alternate dispute resolution mechanism for Islamic finance contracts

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ISLAMABAD – The Securities and Exchange Commission of Pakistan (SECP) has issued a concept paper to introduce an alternate dispute resolution (ADR) mechanism for Islamic finance contracts to promote the concept of out-of-court settlement.

The mechanism includes mediation, arbitration, and neutral evaluation. Islamic finance, a significant part of Pakistan’s financial system, is a driving force behind economic growth and ethical investments.

However, this growth necessitates the development of effective dispute resolution mechanisms. Contracts like Musharakah, Modaraba, Murabaha, Ijarah, Wakala, and Istisna are unique in their alignment with Islamic jurisprudence. Traditional litigation may not always align with Islamic principles, necessitating the need for ADR mechanisms tailored specifically for such contracts.

The foundational framework for Islamic finance contracts is Maqasid al-Shariah, which aims to promote human well-being and uphold security. The Enforcement of Shariah Act, 1991, established the supremacy of Shariah within Pakistan’s legal framework, declaring it as the supreme law and overriding all other laws, customs, and usages.

Accordingly, a concept paper has been issued to seek feedback and comments on the proposal for introduction of an ADR mechanism for Islamic finance contracts in Pakistan. To address the identified gaps, this paper proposes the integration of Islamic finance-related principles and conditions into a dedicated ADR mechanism for Islamic finance contracts available in regulated sectors of SECP, including mechanisms under section 276 of the Companies Act, 2017, the Arbitration Act, 1940, and the Alternative Dispute Resolution Act, 2017.

The ADR framework should include clear ADR guidelines for Islamic finance contracts, including the scope and mandate of Mediation and Conciliation Panel for Islamic finance contracts, eligibility criteria for the constitution of a panel of arbitrators and mediators, number of references for mediation and/or arbitration for Islamic finance contracts, provisions for preservation of confidentiality and relationships, and integration with other existing frameworks to streamline processes and enhance awareness of the Islamic finance contracts-specific ADR mechanism.

The concept paper is available on the SECP website, and feedback on the same may be provided at the latest by April 11, 2025. The concept paper can be accessed from

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