KARACHI: Pakistan’s Islamic banking rules will require domestic lenders to convert fully by January 1, 2028, while foreign banks may keep conventional services, Reuters reported.
The shift will require all new loans and government borrowing to use Shariah-compliant structures from the 2028 deadline.
Islamic finance bars interest, or Riba, and uses structures tied to assets, profit-sharing or trade-based arrangements.
Foreign-owned banks will be allowed to operate a hybrid model offering both Islamic and conventional banking services.
The exemption was designed to protect foreign investment and reduce the risk of capital flight.
Domestic commercial banks will have to fully transition to Shariah-compliant operations under the planned framework. Existing conventional loans issued by local banks will remain valid until maturity.
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Maturing funds and rolled-over credit lines will then have to be shifted to Islamic alternatives. One such instrument is Sukuk, an Islamic bond-like certificate backed by assets rather than fixed interest payments.
The policy creates two banking tracks within a single currency system, allowing foreign lenders to retain products that local banks must phase out.
