Islamic banks financing in Pakistan has seen an unprecedented rise as private sector businesses increasingly avoid conventional loans. Central bank data shows a major shift in borrowing patterns during the first half of the current financial year.
According to the State Bank of Pakistan, businesses obtained Rs. 708 billion in financing from the Islamic banking system between July and January 16. During the same period, private companies repaid Rs. 120 billion in loans from conventional banks.
The surge was most pronounced in Islamic banking branches of conventional banks, which provided Rs. 467 billion in financing. This represents an 834 percent increase compared with Rs. 50 billion in the same period last year. Full-fledged Islamic banks contributed Rs. 241 billion, slightly lower than the Rs. 678 billion recorded last year, as conventional banks’ Islamic windows captured more of the demand.
Shift from Conventional to Sharia-Compliant Banking
Conventional banks recorded a net retirement of Rs. 120 billion by private sector clients, highlighting a growing preference for Sharia-compliant products. Analysts note that Islamic financing is becoming increasingly attractive due to lower rates and enhanced confidence in compliance with Islamic principles.
Ibrahim Amin, a banking analyst, said conventional banks are directing customers toward their Islamic banking branches and windows. He added that marketing strategies and customer incentives are playing a key role in encouraging this transition. Competition among Islamic banks and Islamic windows is expected to further accelerate this trend.
The government aims to convert Pakistan’s entire interest-based banking system into a Sharia-compliant one by 2028, following a ruling from the Federal Sharia Court. Currently, the Islamic banking industry includes six full-fledged Islamic banks and 15 conventional banks offering Sharia-compliant services through dedicated branches.
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Recent policy measures also support the shift. The government reduced export refinance rates to 4.5 percent, while the central bank lowered the Cash Reserve Requirement to improve liquidity. These steps are expected to further stimulate Islamic banking growth and support private sector financing in a Sharia-compliant framework.
The surge in Islamic bank financing reflects both growing trust in Sharia-compliant financial products and a strategic transition by banks to meet evolving market demand. Analysts expect this trend to continue as more businesses prefer Islamic financing over conventional loans.
