Pakistan charts roadmap for Islamic banking transition

Pakistan is moving forward with a plan to transition its financial system away from interest-based transactions, known as riba, by 2028. This initiative stems from a 2020 Federal Shariat Court ruling that was later incorporated into the Constitution through the 26th Amendment.

The government's approach emphasizes a gradual shift, ensuring that existing financial obligations are honored until maturity. This strategy aims to maintain legal certainty and protect investor confidence while avoiding significant financial disruption. The decision to permit most foreign-owned banks to continue offering both conventional and Islamic banking services reflects a pragmatic approach to the transition.

Uncertainty had previously surrounded how Pakistan's economy, deeply intertwined with conventional banking and global capital, would manage such a profound change. The outlined policy direction seeks to address these concerns by adopting a contract-respecting, phased implementation.