Pakistan has pledged to become fully Shariah-compliant in its banking services by December 2027 under a Federal Shariat Court order. The court had given the government five years to adopt a Shariah-compliant mode of the financial system, both domestically and internationally, to convert the country into an “equitable, asset-based, risk-sharing and interest-free economy”.

Given the challenges and the limited timeframe allowed by the court for conversion, the ambitious task appears to be quite daunting, even if not outrightly impossible to pull off. Although the banks have already submitted their conversion plans with the State Bank of Pakistan (SBP), providing timelines for meeting the tight deadline, the bankers concede that they ‘may not be able to adhere to it’.

The first Shehbaz Sharif government had agreed to implement Islamic finance under pressure from religious parties and groups, with its then-finance minister Ishaq Dar telling the State Bank and the National Bank to withdraw their appeals to the Shariat Court against the ruling. The private banks were also advised to follow suit and adopt Shariah-compliant modes.

Pakistan’s Islamic finance sector still remains relatively small in spite of serious attempts made in the last two decades to ‘Islamise’ the banking system, starting with the establishment of the Meezan Bank in 2002. Islamic banking assets have since grown to Rs9.88 trillion, or 19 per cent of the country’s total banking assets, as of September 2024. The deposits of Rs7.59tr form nearly 24pc of the total banking deposits. The share of Islamic banking in the overall industry has risen at an average of slightly less than 1pc per........

© Dawn Business