Pakistan Sets Out Roadmap for Riba-Free Financial System by 2028
The Pakistani government has finalized a strategy to gradually shift the country’s financial system to a Riba-free basis by the end of 2027, with all new transactions, including loans, to be contracted on a Shariah-compliant basis from Jan 1, 2028, according to the Ministry of Finance. Existing arrangements will continue until maturity, and majority foreign-owned banks and financial institutions will be allowed to operate a hybrid system offering both conventional and Islamic modes.
The Ministry of Finance has prepared the strategy for the post-2027 financial system in consultation with stakeholders, regulators, banks, financial institutions and religious scholars through an institutional arrangement for transition, the ministry said. The legal and constitutional requirements and timelines will be activated after formal approval by the federal cabinet.
The roadmap is based on the Federal Shariat Court’s April 28, 2022, judgement, which declared that “Riba is absolutely prohibited in all its forms and manifestations” and mandated its elimination from Pakistan by Dec 31, 2027. The 26th Amendment to the Constitution, issued in October 2024, also set a timeline for the earlier constitutional provision and envisaged the elimination of Riba “before the first day of January, two thousand twenty-eight”.
The Ministry of Finance stated that with clear direction and operational guidelines, the shift to a Riba-free financial system would be smooth, seamless and without any major disruption. The strategy outlines the post-2027 financial system landscape and highlights key actions, risks and milestones during the transition to remove uncertainty about the shape and environment of the financial system after 2027, and defines the roles and responsibilities of various entities.
The policy direction itself was settled when the government embraced the court’s verdict by incorporating its deadline into the Constitution through the 26th Amendment, a move seen as part of a political bargain to secure the support of religious parties for the amendment. Uncertainty had persisted over how an economy deeply integrated with conventional banking and global capital could manage such a profound transition.
By opting for a gradual, contract-respecting approach, the government has committed itself to honouring existing obligations until maturity, preserving legal certainty, protecting investor confidence and avoiding financial disruption. The decision to allow most foreign-owned banks to continue operating hybrid models offering both conventional and Islamic banking services is also seen as a step in the right direction, as complete uniformity is neither practical nor desirable.
The roadmap, however, is only the beginning; the challenge lies in execution. Pakistan’s Islamic finance sector has expanded rapidly but still lacks the depth, diversity and liquidity management tools to support an economy of this size. The government’s commitment to regular issuance of sukuk across different maturities addresses a big structural weakness of the sector.
The proposal to develop a comprehensive register of federal assets is another important reform for sustained sukuk issuance and reduced reliance on the limited stock of assets currently available for Islamic financing. The initiative will demand transparency, accurate valuation and robust governance to safeguard the credibility of asset-backed instruments.
The roadmap sidesteps an important debate among scholars, bankers and economists centring on the lack of universal agreement on whether modern bank interest constitutes riba at all. This unresolved question could pose challenges in the practical implementation of the transition.