KARACHI, May 5, 2026 – The State Bank of Pakistan (SBP) has shared progress on Pakistan’s transition toward a Riba-free banking system in line with the landmark judgment of the Federal Shariat Court (FSC).
In its Financial Stability Report 2025 released on Tuesday, the central bank outlined key developments and institutional efforts aimed at transforming the country’s financial system into a fully Shariah-compliant framework.
Background of FSC Judgment
The Federal Shariat Court, in its April 28, 2022 ruling, declared that all forms of Riba (interest) are strictly prohibited under Islamic injunctions as outlined in the Holy Quran and Sunnah.
The judgment mandated the elimination of interest-based financial practices from Pakistan’s economy, setting the stage for a comprehensive banking sector transformation.
Government and SBP Initiatives
Following the ruling, the federal government established a high-level Steering Committee in December 2022 to guide the implementation process.
In parallel, the SBP formed a dedicated Committee for Transformation (CT) to oversee the conversion of conventional banking into Islamic banking.
• 7 working groups established
• 36 work streams and sub-streams created
• Over 500 meetings conducted
These bodies are actively working on policy formulation and operational strategies for a smooth transition.
Key Reforms and Progress
The SBP highlighted several important developments achieved so far:
• Introduction of a dedicated Islamic banking chapter in the Banking Companies Ordinance, 1962
• Comprehensive review of legal and regulatory frameworks for Shariah compliance
• Launch of nationwide awareness campaigns on Islamic banking
• Implementation of capacity-building initiatives with 16 actionable items
The central bank has also issued guiding parameters to facilitate banks in converting their operations from conventional to Islamic modes.
Sukuk and Liquidity Solutions
To support the Islamic banking ecosystem, the SBP is developing innovative financial instruments, including:
• Hybrid and asset-light Sukuk structures
• Liquidity management solutions for Islamic banks
Additionally, the SBP, in collaboration with the Ministry of Finance, is working on creating an assets register of government-owned entities. This initiative is expected to streamline and accelerate Sukuk issuances.
Outlook
The SBP reaffirmed its commitment to ensuring a smooth and sustainable transition to a Riba-free banking system, aligning Pakistan’s financial sector with Islamic principles.
The central bank emphasized that continued coordination among stakeholders, legal reforms, and financial innovation will be key to achieving this objective.