ISLAMABAD: The federal government has decided that all new financing and borrowing, including loans, will be arranged through Shariah-compliant modes from January 1, 2028, as part of its strategy to transition Pakistan to a Riba-free financial system. Existing conventional loans and financial obligations will continue to be honored until their respective maturities.
The Ministry of Finance has finalized the post-2027 financial system strategy in consultation with regulators, banks, financial institutions, and Shariah scholars. The plan will be implemented after formal approval by the federal cabinet and is based on the Federal Shariat Court’s April 2022 judgment, which declared all forms of Riba prohibited and directed its elimination by December 31, 2027. The timeline was later reinforced through the 26th Constitutional Amendment.
According to the ministry, the transition will be gradual and designed to ensure financial stability without disrupting the banking sector. Existing contractual commitments with domestic and international lenders, investors, and other stakeholders will remain fully protected, while conventional financing will be replaced with Shariah-compliant financing upon maturity.
The strategy allows majority domestically owned banks and financial institutions to continue their transformation toward full Islamic banking in line with regulatory requirements and the availability of Shariah-compliant liquidity management tools. At the same time, majority foreign-owned banks and financial institutions will be permitted to operate a hybrid model, offering both conventional and Islamic banking products.
After December 2027, the federal and provincial governments will seek to arrange all fresh domestic and international financing through Shariah-compliant instruments wherever feasible. Conventional public debt outstanding as of December 31, 2027, will continue to be serviced according to existing contractual commitments before being converted into Shariah-compliant financing as it matures.
To support the transition, the government plans to expand the issuance of Sukuk with a range of maturities, including short-term tenors of three, six, and twelve months. These instruments will help banks and financial institutions manage liquidity while gradually replacing conventional government securities. Existing conventional securities will remain eligible for liquidity management until they mature.
A major initiative under the strategy is the establishment of an Asset Registry Company, a wholly government-owned entity under the Finance Division. The company will maintain a centralized register of federal government assets that will serve as the underlying asset pool for regular Sukuk issuances. These assets will remain under government ownership and continue to be used by the relevant public entities while supporting Islamic financing transactions.
The proposed asset register will contain detailed information on each asset, including ownership, location, size, book value, market value, and any encumbrances. The hybrid Sukuk structure backed by this asset pool has already received approval from the State Bank of Pakistan’s Shariah Advisory Committee, and the government is expected to seek cabinet approval soon for the establishment of the Asset Registry Company.
The Ministry of Finance acknowledged that converting existing public debt into Shariah-compliant financing remains one of the biggest challenges of the transition. Another key priority is the development of short-term Sukuk instruments, with the State Bank of Pakistan and the banking industry currently finalizing three- and six-month Sukuk structures ahead of the 2027 deadline.
As of December 2025, Pakistan’s Islamic banking sector comprised seven full-fledged Islamic banks and sixteen conventional banks offering Islamic banking services through dedicated branches. Total assets of Islamic banking institutions reached Rs14.467 trillion, reflecting the sector’s continued growth and its increasing role in Pakistan’s financial system.
The Ministry of Finance expressed confidence that, with appropriate legal, regulatory, taxation, and supervisory reforms, Pakistan’s transition to a fully Shariah-compliant financial system can be completed smoothly while maintaining investor confidence, protecting contractual obligations, and ensuring compliance with international financial standards.