Key facts
- Pakistan mandates all domestically owned banks to operate under a Sharia-compliant model by 2028.
- Interest-based finance will be eliminated for domestic banks.
- Foreign banks are permitted to continue offering conventional services.
- Foreign banks can also offer Islamic financial services.
- This policy aims to reshape Pakistan's domestic banking sector.
- The transition provides a five-year window for domestic banks.
- Foreign banks may gain a competitive advantage.
Pakistan has issued a directive requiring all domestically owned banks to transition to Sharia-compliant operations by 2028. This mandate signifies a complete shift away from interest-based financial models within the country. The move is expected to reshape the domestic banking sector, pushing it towards Islamic finance principles. Foreign-owned banks operating in Pakistan will not be subject to the same stringent requirements. They will be permitted to continue offering conventional, interest-based financial services. Furthermore, these foreign institutions will also be allowed to offer Islamic financial services alongside their traditional offerings. This dual capability could provide foreign banks with a competitive advantage over their domestic counterparts as the market adapts to the new regulatory environment. The deadline of 2028 provides a five-year window for domestic institutions to implement the necessary changes to their operational frameworks and product offerings.