Zafar Iqbal
The government’s newly unveiled roadmap for eliminating riba from Pakistan’s financial system by 2028 finally brings some order to a question that had been hanging in the air for four years: how, exactly, does a country whose economy runs on conventional banking intend to comply with the Federal Shariat Court’s landmark ruling? The policy direction itself was never really in doubt after the government embedded the court’s deadline directly into the Constitution through the 26th Amendment, a move widely understood as part of a broader political bargain struck to win the support of religious parties for that amendment. What remained uncertain was the mechanics, the actual path by which an economy this deeply woven into conventional finance and global capital markets could execute a transformation of this magnitude without tearing itself apart in the process.
On that front, the roadmap deserves some credit. By choosing a gradual, contract-respecting approach, the government has committed to honouring existing financial obligations until they reach maturity rather than forcing an abrupt and disruptive break. This is not a small thing. It preserves legal certainty for lenders and borrowers alike, protects the confidence of investors who have entered contracts under the current regime, and avoids the kind of financial shock that could ripple through an already fragile economy. Equally sensible is the decision to allow most foreign-owned banks operating in Pakistan to continue running hybrid models, offering both conventional and Islamic banking products side by side. Insisting on complete uniformity across the entire banking sector overnight was never realistic, and pretending otherwise would have served ideology more than economic sense.
But a roadmap, however carefully drafted, is only the starting point. The real test lies in execution, and here the challenges multiply quickly. Pakistan’s Islamic finance sector, despite genuine and rapid growth over the past decade, still lacks the depth, product diversity, and liquidity management infrastructure needed to support an economy of Pakistan’s size and complexity. The government’s stated commitment to regular sukuk issuance across a range of maturities is a welcome acknowledgment of this gap. Sukuk, the Islamic equivalent of bonds, have long been constrained in Pakistan by a shortage of usable government assets to back them, and a steady, predictable issuance calendar would go some distance toward giving the market the liquidity tools it currently lacks.
Tied to this is the proposal to build a comprehensive register of federal assets, an initiative that could meaningfully expand the pool of assets available for sukuk structuring and reduce the sector’s dependence on the narrow set of properties and holdings currently in use. This is a sound idea in principle, but it is also one that will live or die on execution. Asset-backed Islamic instruments only retain credibility if the underlying assets are transparently identified, accurately valued, and governed with real rigor. A register compiled hastily or without proper oversight would do more harm than good, undermining exactly the confidence the roadmap is trying to build.
Where the roadmap falls notably short, however, is in its silence on a debate that has never actually been resolved among scholars, bankers, and economists: whether conventional bank interest, as practiced today, constitutes riba in the first place. This is not a fringe disagreement. Serious voices within Islamic scholarship have long argued that what the Quran prohibits is exploitative lending and the debt traps that arise from it, not every form of return on the time value of money. Others, including the Federal Shariat Court itself, take the opposing view, that any predetermined interest on a loan is riba regardless of the lender’s intent or the borrower’s circumstances. This unresolved disagreement is not merely academic. It shows up in the real world: conventional and Islamic banking continue to coexist comfortably across Muslim-majority countries, and even after decades of active policy support, Islamic banking’s market penetration in most of these countries, Pakistan included, has remained relatively modest. That pattern suggests something important, that a meaningful share of the population, given a genuine choice, still prefers conventional products.
The government’s own policy choices quietly acknowledge this reality, even if the roadmap doesn’t say so directly. If foreign-owned banks are permitted to keep offering hybrid conventional and Islamic services, it becomes very difficult to construct a principled argument for denying the same flexibility to domestically owned banks operating under identical market conditions. Likewise, the government’s own intention to pursue Sharia-compliant external financing only “where feasible,” rather than as an absolute rule, is itself a tacit admission that rigid compulsion is neither practical nor, perhaps, even desired.
If financial stability and consumer choice genuinely point toward the value of a hybrid or dual system, then the more coherent path forward is to let market preferences evolve on their own terms rather than forcing convergence through regulatory compulsion. Confidence in Islamic finance, if it is to be built at all, will be built far more durably through competition and demonstrated performance than through mandates that outpace what the market, and the underlying scholarly consensus, are actually ready to support.
The best-selling books of Republic Policy Think Tank, including the landmark book The Bureaucratic Coup, are available at Vanguard Books, Liberty Books, Readings, Kitab Sarai, Sang-e-Meel, Saeed Book Bank Islamabad, National Book Foundation, and others across Pakistan. Contact for home delivery: 0300 9552542.
