Page 46 - CMA Journal (Mar-Apr 2025)

Islamic Banking Reform in Pakistan
Focus Section

and the Transition to a Riba-Free System

Background and Context place in Pakistan's national
financial structure. Total
The fundamental teaching of Islamic jurisprudence forbids
assets at were PKR 11,070
riba (interest) because Islam views it as both ethically wrong
billion in December 2024,
and economically disadvantageous. Under Islamic which showed a
economic principles, all financial operations should exclude
significant rise of PKR
riba while contributing to economic fairness, equitable 1,189 billion, which
resource allocation, and protective measures against
exceeded the PKR 10
exploitative banking methods. Today's worldwide financial
trillion mark for the initial
structure bases its operations mainly on interest payments. time. Similarly, deposits
The interest-based financial system maintains strong
increased to PKR 7,905
connections to extreme wealth concentration among elites, billion after an increase of
monopoly development, and worsening economic disparity PKR 309 billion. Total assets Dr. Azeema Begum Ph.D
between people.
inflated by 23.1 percent Assistant Manager
Latest statistics show how one percent of global citizens year over year, and (Research and Publications)
posseses quantities of wealth surpassing those shared deposits rose by 17.1 Saviours, Karachi
among the entire 99 percent of global residents. This percent during the yearly
systematic unfairness produces societal tension while comparison.
promoting useless competitive behaviour. Islamic
Analyses of the financing portfolio revealed impressive
economists defend riba-free financial systems as practical results as it grew by 21.0 percent YoY to PKR 4,037 billion,
ethical systems that can solve these structural economic followed closely by net investments expansion at PKR 4,987
1
issues . This economic model eliminates interest and seeks billion, which increased by 17.7 percent from the preceding
to build inclusive prosperity while establishing a moral
year. These financial developments indicate an increasing
economic system for the country. The advancement of
interest in Shariah-compliant financial operations, which will
economic Islamisation in Pakistan began in the early 1950s help to deepen financial inclusion inside the Islamic banking
when Shariah scholars started their advocacy, leading to the
structure .
2
creation of the Islamic Economics Division at the State Bank
of Pakistan. Foundational
Table 1: Islamic Banking Sector Progress
theoretical work happened
(Amount in PKR Billion)
during the first decades, yet
Particulars Islamic Banking Industry Progress Growth (YoY)
substantial reforms started
Dec-23 Dec-24 Dec- 23 Dec-24
seriously in the late 1970s. The
Assets 8,994 11,070 24.4 23.1
period implemented legal and
Deposits 6,749 7,905 30.8 17.1
institutional changes that
Investments (net) 4,235 4,987 38.8 17.7
worked toward establishing Financing (net) 3,335 4,037 7.1 21.0
financial principles based on Number of Islamic Banking Institutions 22 22 — —
Islam. In 1991, the Federal Shariat Number of Branches 4,955 6,017 12.7 21.4
Court declared bank interest Number of Islamic Banking Windows 1,922 2,253 26.8 17.2
payments prohibited by Islamic
Source: Quarterly Islamic Banking Bulletin October-December 2024
law. The Federal Shariat Court
developed its previous order by
issuing a complete ban on interest payments through its Market Share, Number of Branches and
April 2022 judgment, with a five-year enforcement period. Mode of Financing
Following this judicial decision, Parliament passed the 26th
Regarding market share, the total assets in Islamic banking
Constitutional Amendment that sets January 1, 2028, as the
deadline for riba elimination in Pakistan's financial system. operations represented 20.6 percent of the banking
industry, while Islamic deposits comprised 24.9 percent of
Pakistan established a landmark legislative achievement
through the 26th Constitutional Amendment, which reflects the market. Islamic banks provided 25.5 percent financing
capacity to the total sector funds and maintained a 16.7
its continuous work to create a Shariah-compliant financial
percent stake in all investments. The economic architecture
framework .
1
demonstrates an escalating presence of Islamic financial
Islamic Banking Growth and Trend services through these statistical indicators. Islamic Banking
Branches (IBBs) increased to 6,017 physical locations yearly,
The Islamic banking sector in Pakistan achieved significant
growth during the fourth quarter of 2024, strengthening its representing a 21.4 percent yearly growth.
44 ICMA’s Chartered Management Accountant, Mar-Apr 2025