Pakistan releases roadmap for phased transition to interest-free financial system

ISLAMABAD – The federal government has released a comprehensive roadmap for the gradual transition to an interest-free financial system, saying the shift will be implemented in phases to maintain financial stability and avoid disruption to the country’s economy. The Ministry of Finance’s report said that the titled “Strategy for Pakistan’s Financial System Beyond 2027,” the implementation of an interest-free financial system after 2027 will depend on overcoming several key challenges and ensuring the necessary legal, regulatory and institutional reforms are in place. The report stated that the transition strategy has been formulated in line with the Federal Shariat Court’s 2022 ruling and the constitutional obligations introduced through the 26th Constitutional Amendment. It stresses that the move towards an interest-free financial system will be gradual to protect economic stability and ensure a smooth adjustment for financial institutions. The Ministry of Finance said training programmes have already been initiated to prepare conventional banks for compliance with Islamic finance principles. It added that the State Bank of Pakistan’s monetary policy framework will also be restructured and implemented in accordance with Shariah principles after 2027. The report identifies the conversion of the government’s existing debt into Shariah-compliant financing instruments as one of the most significant challenges. To facilitate the transition, the government plans to establish an asset registry company, increase the issuance of Sukuk, and expand the use of other Islamic financial instruments. The ministry further said that amendments to federal and provincial laws by December 2027 will be critical to ensuring the successful implementation of the new financial framework. The government said the phased transition is designed to preserve financial stability, maintain investor confidence and enable the country’s banki