Pakistan targets interest-free financial system by 2027

ISLAMABAD: The federal government has kicked off work on a roadmap to move Pakistan off interest-based banking after 2027, the Finance Ministry said. The plan will be implemented jointly by the government, State Bank of Pakistan and the SECP, ARY News reported.

According to ministry figures, financial sector assets had climbed to Rs79,780 billion by 2025, equal to 68.5 percent of GDP. Banks hold most of that at Rs63,231 billion, while non-banking financial institutions account for Rs6,844 billion.

Officials said the shift to an Islamic financial system will be phased rather than abrupt. The ministry has decided to introduce a new framework for sukuk issuance and has already sped up work on short-term sukuk. Federal and provincial laws will also be amended to support Shariah-compliant finance.

Banks will be required to adjust their IT systems for Islamic banking and launch staff training programmes. From 2027 onward, all new government financing will follow Shariah principles, and conventional loans will be converted to Islamic financing in stages. The State Bank’s monetary policy is also slated to be brought in line with Shariah, with regular sukuk issuance to support the system.

The ministry stressed that the transition will be completed while keeping financial stability intact.

The move follows the 26th Constitutional Amendment, which committed Pakistan to an interest-free economy from January 2028. Jamiat Ulema-e-Islam had demanded the change during the amendment. The Federal Shariat Court had earlier directed that a riba-free system be in place by Dec. 31, 2027.

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