New govt loans to be Shariah-compliant from 2028

Majority foreign-owned banks and financial institutions will be allowed to continue with a hybrid system offering both conventional and Islamic modes. The legal and constitutional requirements and timelines will be set in motion after formal approval by the federal cabinet. The Ministry of Finance has finalised the strategy for the post-2027 financial system in Pakistan in consultation with stakeholders, regulators, banks, financial institutions and religious scholars through an institutional arrangement for transition. The strategy has been formulated in light of 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 said 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 envisages 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. It also defines the roles and res