Pakistan will transition all government borrowing to Shariah-compliant financing from January 1, 2028, as part of its broader strategy to transform the country’s financial system in line with Islamic banking principles. The announcement was made by State Bank of Pakistan (SBP) Deputy Governor Saleem Ullah during an event held in Karachi.
Saleem Ullah said Pakistan has made notable progress in the Islamic banking sector over the past two to three years. He revealed that Islamic banks currently hold around 29% of the country’s total banking deposits, while they account for approximately 40% of total bank financing, demonstrating the sector’s growing role in the national economy.
He explained that the government has developed a comprehensive roadmap for the post-2027 period, under which all domestic government borrowing will be carried out through Shariah-compliant instruments beginning in January 2028. He added that, wherever feasible, the government will also seek to raise external financing through Shariah-compliant modes.
The SBP deputy governor clarified that the government will continue to service its existing conventional debt obligations. However, as conventional loans mature, their rollover and refinancing will be replaced with Shariah-compliant financing, supporting the country’s gradual transition to an interest-free financial system.
Saleem Ullah further stated that the government has formulated a strategy to facilitate this transition, including amendments to nearly 40 laws within the prescribed timeframe. These legal reforms are intended to strengthen the regulatory framework and ensure the smooth implementation of Islamic finance across the country’s financial sector.
He also noted that the demand for Shariah-compliant financial services continues to grow across Pakistan. From January 1, 2028, government borrowing is expected to be fully Shariah-compliant, while local banks will continue expanding their Islamic banking products and services to meet the increasing demand for interest-free financial solutions.
Speaking at the same event, former Ruet-e-Hilal Committee Chairman Mufti Muneeb-ur-Rehman emphasized the need for wider economic reforms alongside the transition to Islamic finance. He highlighted Pakistan’s ongoing economic challenges and called on policymakers to address key issues, including those related to Independent Power Producers (IPPs), to strengthen the country’s fiscal position.
Mufti Muneeb also referred to recommendations of the Federal Shariat Court, stating that around 40 laws have been identified for amendment, with nearly 20 affecting institutions such as the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP). He stressed that these legal changes are essential for achieving a fully Shariah-compliant financial system in Pakistan.