Pakistan unveils roadmap for Riba-free banking by 2028

The federal government has finalised a comprehensive strategy to transition Pakistan to a Riba-free financial system by January 1, 2028.

This move will be executed in line with the Federal Shariat Court's 2022 ruling and the 26th Constitutional Amendment, which mandate the elimination of interest-based financial transactions by the end of 2027. 

The plan is expected to be presented to the federal cabinet for formal approval. 

Under the strategy, all new financial transactions, including loans and financing agreements initiated from January 1, 2028, will be conducted through Shariah-compliant modes. 

Existing conventional contracts, however, will remain valid until they reach maturity, ensuring contractual obligations are honoured and financial stability is maintained.

The Ministry of Finance said the transition framework was developed in consultation with SBP, regulators, banks, financial institutions and Islamic scholars to ensure a smooth shift without disrupting the country's financial system.

Majority foreign-owned banks will be allowed to operate a hybrid model, offering both Islamic and conventional banking products, while domestically owned institutions are expected to gradually transform into fully Shariah-compliant operations.

To support the transition, the government plans to expand the issuance of Sukuk, including short-term instruments with maturities of three, six and twelve months.

Furthermore, they aim to establish an Asset Registry Company to manage federal assets backing Sukuk issuance.