Islamabad: The federal government has finalised a strategy to transition Pakistan to a Riba-free financial system, under which all new financing arrangements, including loans, will be contracted on a Shariah-compliant basis from Jan 1, 2028.
The roadmap, prepared by the Ministry of Finance in consultation with regulators, banks, financial institutions, religious scholars and other stakeholders, is awaiting formal approval from the federal cabinet. It has been developed in line with the 2022 Federal Shariat Court ruling, which directed the elimination of Riba by Dec 31, 2027, and the 26th Constitutional Amendment, which reaffirmed the same deadline.
Under the strategy, all conventional financing agreements entered into by Dec 31, 2027, will remain valid until their contractual maturity. As those obligations mature, they will be replaced with Shariah-compliant financing, ensuring contractual commitments are honoured and investor confidence is maintained.
The government said the transition would be gradual and designed to avoid disruption to financial stability while remaining consistent with international prudential and supervisory standards.
Majority domestically owned financial institutions will continue their transition to Islamic banking in line with the regulatory framework and the availability of Shariah-compliant liquidity management tools. Majority foreign-owned banks and financial institutions, however, will be allowed to continue operating under a hybrid model by offering both conventional and Islamic financial products.
To support the transition, the government plans to complete the necessary legal, taxation, regulatory and supervisory reforms within the next 12 months. It will also expand the availability of Shariah-compliant liquidity instruments, including sukuk of varying tenors, to address one of the key challenges facing Islamic banks.
From 2028 onwards, the federal and provincial governments will seek to arrange all new domestic and external financing through Shariah-compliant instruments, subject to suitable options being available in international capital markets. Existing public debt and other conventional financing obligations will continue to be serviced according to their contractual terms before being converted to Shariah-compliant financing upon maturity.
As part of the strategy, the government also plans to establish an Asset Registry Company under the Finance Division to maintain a register of federal government assets that will support regular sukuk issuance. The initiative is intended to broaden the range of Shariah-compliant investment instruments and strengthen liquidity management across the financial sector.
Pakistan’s Islamic banking sector currently comprises seven full-fledged Islamic banks and 16 conventional banks operating dedicated Islamic banking branches. As of December 2025, the sector’s total assets stood at PKR 14.467 trillion.
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