How Islamic Banking Is Growing in Pakistan, and What the 2028 Riba Deadline Means for Businesses

For most of the last twenty years, Islamic banking in Pakistan was a niche: a few dedicated banks and some “Islamic windows” inside conventional banks. That has changed quickly. Islamic banks now hold almost a quarter of the country’s banking assets, and they make more than a third of all bank financing.

This article looks at the numbers, the reasons behind the growth, and what the constitutional deadline to eliminate riba (interest) by 1 January 2028 means in practice for a business that borrows from a bank.

The numbers: from niche to mainstream

According to the State Bank of Pakistan’s Islamic Banking Bulletin for December 2025:

• Total assets of the Islamic banking industry reached Rs14.47 trillion, up from Rs11.07 trillion a year earlier (an increase of about 31%).
• Deposits reached Rs11.04 trillion, up more than Rs3.1 trillion in a year.
• Financing reached Rs5.65 trillion, up about 40% from Rs4.04 trillion.
• Islamic banking’s share of the whole banking industry stood at 22.9% of assets, 27.8% of deposits and 38.1% of financing.

The financing share is the one to notice. When 38 out of every 100 rupees of bank financing are already Islamic, Islamic finance is no longer an alternative product for businesses. In many sectors it is the main product.

At a media briefing in May 2026, Meezan Bank officials projected that industry assets could reach Rs18–19 trillion by December 2026. On that projection the share of banking assets would rise to roughly 25–27%, and branches would grow from more than 6,700 to around 7,300–7,800. These are one bank’s estimates, not official targets, but they show how the industry sees the trend.

Why it is growing so fast

1. A legal deadline

In April 2022 the Federal Shariat Court ruled that riba in all its forms is prohibited. It gave the government five years to move the economy to an interest-free system. In October 2024, the 26th Constitutional Amendment wrote a target date into Article 38(f) of the Constitution: riba is to be eliminated “as far as practicable” by 1 January 2028.

That date has changed how banks plan. Many conventional banks have been converting their branches to Islamic banking. Some have announced plans to convert their whole operations. In June 2026 the Ministry of Finance also published a strategy paper on Pakistan’s post-2027 financial system.

2. Customer demand

A large part of Pakistan’s population has always avoided interest-based banking for religious reasons. Many of them kept cash at home, or used informal channels instead. As Islamic banks open more branches, launch digital accounts and offer competitive profit rates, this savings base is moving into the formal system. That is why deposits have grown so quickly.

3. Government Sukuk

The government now raises a meaningful share of its domestic borrowing through Ijarah Sukuk: Shariah-compliant securities backed by government assets. These give Islamic banks a liquid, low-risk place to invest surplus funds. Without enough sukuk, Islamic banks could not grow their balance sheets this fast.

4. Products for every segment

Islamic banks no longer offer only car and home finance. Businesses can now get Running Musharakah for working capital, Murabaha and Istisna for trade and manufacturing, Diminishing Musharakah for property and plant, and Salam for agriculture. For an overview of how each mode works, see our guide to Islamic banking modes of financing.

What the 2028 deadline means for your business

If your business borrows from a bank, here is what is likely to change, and what probably will not.

What is likely to change

• Your facility may be converted. As conventional banks convert, existing running finance, term loans and trade lines may be replaced with Islamic equivalents. Usually that means Running Musharakah, Diminishing Musharakah, Ijarah or Murabaha. Expect new documents to sign.
• More paperwork tied to real transactions. A Murabaha needs invoices and evidence that the goods exist. An Ijarah needs the asset to be identified. Businesses with weak record-keeping will find this harder.
• Late payment is treated differently. Islamic facilities generally cannot charge extra profit on overdue amounts. Banks usually require a charity undertaking instead and may tighten monitoring.

What is probably not going to change

• The cost of finance will still follow the market. Islamic facilities in Pakistan are commonly priced against KIBOR, so the cost of finance will still move with monetary policy.
• Credit standards stay the same. A bank still has to be satisfied with your cash flows, DSCR, leverage and security, whichever mode it uses. A weak application does not become strong because it is Islamic.

The challenges ahead

The growth is real, but the road to 2028 is not simple:

• Government debt. A large share of the government’s domestic debt is still interest-based. External borrowing from multilateral lenders and foreign markets is harder to restructure. Converting it is the hardest part of the transition.
• Scholars and staff. Every product needs Shariah review, and every branch needs staff who understand the contracts. Both are in short supply as the industry grows.
• Liquidity tools. Islamic banks need enough short-term Shariah-compliant instruments to manage day-to-day liquidity.
• Substance over form. Critics argue that some products copy conventional loans too closely. Keeping structures genuinely asset-based matters both for credibility and for Shariah compliance.

What business owners should do now

1. Ask your bank about its conversion timeline. Find out whether your current lines will be converted, and when.
2. Understand the mode you are moving into. Running Musharakah behaves differently from a running finance. Ijarah behaves differently from a term loan.
3. Tighten your records. Clean invoices, stock records and audited accounts make every Islamic structure easier to approve and run.
4. Check your covenants. New Islamic documents may carry different covenants and reporting requirements. Read them before signing.

Frequently asked questions

Will all banks in Pakistan be Islamic by 2028?
The Constitution now targets the elimination of riba by 1 January 2028 “as far as practicable.” Banks are converting at different speeds, and the final shape of the system will depend on government and SBP policy.

Is Islamic banking safer than conventional banking?
Islamic banks are regulated and supervised by the State Bank like any other bank. They face similar credit, liquidity and market risks, plus Shariah-compliance risk. “Safer” depends on the individual bank, not the label.

Will my financing cost go down after conversion?
Not necessarily. Pricing is generally benchmarked to market rates, so the cost is likely to stay close to conventional pricing.

The bottom line

Islamic banking in Pakistan has grown from a side product into a central part of the banking system, and the 2028 deadline is speeding that up. For businesses, the practical message is simple. Learn the modes, keep your records clean, and expect your bank relationship to move onto Islamic contracts over the next few years.

Sources: State Bank of Pakistan Islamic Banking Bulletin (December 2025), as reported by Profit by Pakistan Today, March 2026; Profit by Pakistan Today, May 2026; Constitution (Twenty-sixth Amendment) Act, 2024. Figures are for information only and may be revised.

Sources and further reading

• State Bank of Pakistan: Islamic Banking Department
• State Bank of Pakistan: Laws and Regulations (Prudential Regulations)
• Islamic Financial Services Board (IFSB)