Pakistan’s constitutional commitment to eliminate Riba before Jan 1, 2028, presents an opportunity far greater than converting conventional banking contracts into Islamic alternatives. It offers a chance to reshape how the country mobilises savings, finances government expenditure, supports enterprise and distributes economic opportunity. The real test is whether Pakistan builds a productive, inclusive and sustainable financial system grounded in Shariah principles.

The constitutional obligation to eliminate Riba requires a comprehensive transition, not a permanent dual banking arrangement. The Ministry of Finance’s Post-2027 Financial System Strategy now provides a policy road map for this transformation.

The next question is more fundamental: what economic benefits should Pakistan expect from this transition? Success must be measured not only by the replacement of conventional financial instruments, but by how Islamic finance helps create a more productive, inclusive and sustainable economy.

The State Bank of Pakistan’s June 2026 Bulletin records that the Islamic banking assets increased by Rs2.88 trillion over the two quarters, reaching Rs16.35tr by June 30, 2026. Deposits rose to Rs12.67tr, while the financing portfolio reached Rs6.01tr. In the June quarter alone, assets grew by 11.5pc to Rs16.35tr while deposits increased by 12.1pc to Rs12.67tr. Islamic banking now accounts for 29.2pc of deposits and 39.1pc of financing. This rapid expansion demonstrates both the public’s growing engagement with Islamic banking and the sector’s increasing capacity.

Pakistan has also made significant progress in sovereign Sukuk issuance, short-term Islamic instruments and the development of market infrastructure with total Sukuk issuance crossing the Rs10tr mark. The finance ministry’s strategy envisages that fresh domestic government financing after 2027 will be raised through Shariah-compliant modes and instruments. Outstanding conventional public debt will be replaced with Shariah-compliant financing as it matures. This approach provides a framework for transition while protecting financial stability and investor confidence.

Success must be measured not only by replacement of conventional financial instruments, but by how Islamic finance helps create an inclusive and sustainable economy

The immediate priority is to translate this policy direction into clear implementation milestones, with defined responsibilities for the finance ministry, SBP and Securities and Exchange Commission of Pakistan.

The transition from conventional government bonds to Sukuk is necessary, but it should also prompt a wider debate about Pakistan’s reliance on borrowing. The government must strengthen revenue mobilisation, improve expenditure efficiency, reform loss-making public-sector enterprises and encourage sustainable economic growth. A deeper domestic Sukuk market should mobilise savings from banks, pension funds, Takaful operators, investment funds and individual investors.

The ministry’s strategy also points towards short, medium and long-term Sukuk, supported by a government asset register and Shariah-compliant liquidity-management facilities. These measures can establish the foundations of a functioning Islamic money market. The next step should be to ensure that this infrastructure supports not only government financing but also a broader capital market capable of funding private investment.

Sukuk can mobilise long-term domestic and international investment for energy, transport, water, logistics and renewable-energy projects. Retail and social Sukuk could also enable citizens to invest in identifiable projects such as university buildings, hospitals, solar parks and affordable housing, with clearly defined asset ownership, rental income, risks and redemption arrangements.

Pakistan should also pursue Shariah-compliant external financing where viable options are available, while maintaining its sustainability and conversion of the existing international commitments to Shariah-based modes.

A genuinely transformative financial system must expand access to finance for sectors like housing, small businesses, and the agriculture sector that generate employment, improve living standards and strengthen productive capacity, thus connecting financial-sector reform to tangible economic outcomes.

Four reforms are essential. First, commercial, banking, insolvency, recovery and securities laws must provide legal certainty for Shariah-compliant transactions. Second, tax rules must avoid penalising Islamic structures because they involve multiple contractual steps. Third, the SBP must establish reliable Shariah-compliant liquidity operations and interbank markets. Fourth, institutions must strengthen Shariah governance, technology, disclosure and professional capacity.

These reforms must extend beyond banks to capital markets, Takaful, non-bank financial institutions (NBFIs) and other financial intermediaries. The transition should preserve financial stability while ensuring that Shariah compliance reflects the substance of transactions, not merely their documentation.

The global opportunity is significant. The London Stock Exchange Islamic Finance Development Report 2026 estimates that global Islamic finance assets reached $6.5tr in 2025 and projects the market to exceed $10.5tr by 2030. Pakistan is among the world’s leading Islamic finance markets, but future progress will depend on institutional depth, innovation and the capacity to finance the real economy.

For measuring success beyond 2027, Pakistan needs a public transformation dashboard with annual targets and accountable institutions. Indicators should include the share of fresh domestic government financing raised through Shariah-compliant instruments, the maturity-based replacement of conventional debt, private-sector financing, housing and SME access, agricultural inclusion, infrastructure investment and the availability of Shariah-compliant liquidity facilities.

Progress should be independently verifiable, with regular reporting to the Parliament and corrective action where milestones are missed. Equally important, Pakistan should measure employment generated, businesses supported, homes financed and investment mobilised into productive assets.

January 2028 should mark the beginning of a new phase, not the end of the reform process. Pakistan has the opportunity to demonstrate that a financial system grounded in Shariah principles can combine commercial viability with social responsibility and financial stability with productive investment.

The real test is not simply whether conventional contracts and government bonds have been replaced. It is whether the transition reduces excessive dependence on debt, broadens access to finance, strengthens economic resilience and directs national savings towards productive activity.

Pakistan must benefit from Islamic finance to build a system that delivers a more inclusive, sustainable and productive economy.

The writer is the founding director of IBA Centre for Excellence in Islamic Finance

Published in Dawn, The Business and Finance Weekly, November 9th, 2026