Government outlines phased transition to Shariah-compliant banking and financing
The federal government has finalised a comprehensive strategy to transition Pakistan towards a Riba-free financial system by January 1, 2028, following constitutional and legal directives to eliminate interest-based financial practices.
Under the plan, all new financial transactions, including loans and financing agreements initiated from January 1, 2028, will follow Shariah-compliant principles. However, existing conventional contracts signed before the deadline will remain valid until they mature, ensuring contractual obligations are fully honoured.
The Ministry of Finance developed the strategy after extensive consultations with regulators, financial institutions, banks and religious scholars. The roadmap follows the Federal Shariat Court’s 2022 ruling declaring all forms of Riba prohibited and the 26th Constitutional Amendment, which requires its elimination before January 2028.
Meanwhile, majority foreign-owned banks will continue operating under a hybrid model, allowing them to offer both Islamic and conventional banking products, while most domestically owned institutions will gradually complete their transition to fully Shariah-compliant operations.
Liquidity reforms, Sukuk expansion and asset registry planned
The government will establish legal, taxation and regulatory frameworks to support the transition while expanding the issuance of Shariah-compliant liquidity instruments. Authorities also plan to introduce Sukuk with maturities of three, six and twelve months to strengthen liquidity management across the financial sector.
Furthermore, an Asset Registry Company will be created under the Finance Division to manage federal government assets that will back regular Sukuk issuances. The registry will document non-current public assets, providing flexibility for future Islamic financing without affecting government ownership or operational use.
Officials said conventional public debt and financing outstanding after December 2027 would gradually convert into Shariah-compliant instruments upon maturity, while all existing obligations would continue under agreed contractual terms. The strategy also seeks to expand Islamic financing from domestic and international markets while maintaining financial stability, investor confidence and compliance with global regulatory standards.
Pakistan’s Islamic banking industry currently comprises seven full-fledged Islamic banks and 16 conventional banks offering Islamic banking services. As of December 2025, total assets held by Islamic banking institutions reached Rs14.467 trillion.
