- Standardisation gaps and Shariah scholar shortage challenge sector’s sustainable progress
Islamic finance, grounded in Shariah principles, eschews interest (Riba), ambiguity (Gharar), and speculation (Maysir), favoring risk-sharing, ethical investments, and tangible asset linkages. This framework fosters socioeconomic equity, drawing from Quranic injunctions and Prophetic traditions. Globally, the sector has burgeoned into a robust ecosystem, with assets totaling USD 5.98 trillion as of 2024, marking a 21% year-on-year increase from USD 4.963 trillion in 2023. Projections indicate a compound annual growth rate (CAGR) of 10%, propelling assets to USD 9.7 trillion by 2029. Key drivers include Islamic banking (USD 4.32 trillion, 72% of total assets), Sukuk (USD 11 billion outstanding in select markets), Takaful (global premiums at USD 51.75 billion by 2028, 12.2% CAGR), and funds (USD 4 billion in Pakistan alone). The sector serves 1.8 billion Muslims and appeals to ethical investors worldwide, with non-Muslim participation rising 15% annually. In Pakistan, home to 240 million people (96% Muslim), Islamic finance aligns with constitutional imperatives under Article 38(f) for an interest-free economy.
The Federal Shariat Court’s (FSC) 2022 directive, upheld by the 26th Constitutional Amendment in 2024, mandates a full Riba elimination by December 2027. As of December 2025, Islamic banking assets reached approximately PKR 13.2 trillion (USD 47.3 billion), up 28.7% year-on-year from PKR 10.25 trillion in December 2024, capturing 21.4% of total banking assets. Deposits surged to PKR 8.45 trillion (25.1% of total), reflecting 26.2% growth. This expansion outpaces conventional banking’s 18.5% asset growth, driven by regulatory push and digital adoption. Pakistan’s ecosystem spans banking, Takaful (12% of insurance market, contributions PKR 120 billion in 2024, up 30% YoY), Sukuk (outstanding USD 11 billion, 2% global share), and Modaraba (USD 2.3 billion assets). The Islamic Finance Development Indicator (IFDI) 2025 ranks Pakistan 5th globally with a score of 72 (global average: 11), excelling in awareness (score: 200/200).
With 22 institutions and 5,500 branches, by January 2026, the sector employs 45,000 and finances 15 million accounts, boosting financial inclusion from 21% to 28% nationally.
| Year | Assets (PKR trillion) | Growth (%) | Market Share (%) | Key Milestone |
|---|---|---|---|---|
| 2005 | 0.15 | 200 | 5 | Meezan launch |
| 2010 | 0.35 | 133 | 7 | First Sukuk (PKR 10bn) |
| 2015 | 1.2 | 243 | 11 | Strategic Plan I |
| 2020 | 4.0 | 233 | 17 | COVID resilience (15% growth) |
| 2025 (Dec) | 13.2 | 230 | 21.4 | FSC deadline approach |
| Data: SBP Bulletins; extrapolated Dec 2025 from Q3 2025 24% growth. | ||||
Over the years Islamic Banking in Pakistan has significantly grown over the years; thanks to strong government support and planning. Back in 2000, it only made up about 1% of the country’s overall banking system, but by 2025, that share had jumped to 21.4%, showing steady progress driven by policies from the State Bank of Pakistan (SBP), the country’s central bank. For example, their second strategic plan from 2014 to 2018 aimed for and achieved a 12% market share ahead of schedule. Building on that, the third plan running from 2021 to 2025 set an ambitious goal of reaching 30% by the end of 2025, and they’ve already hit 21.4%, with assets growing by 25% in the third quarter of 2025 and total financing (like loans but Sharia-compliant) increasing by 18% to reach 3.8 trillion Pakistani rupees (PKR). This growth got a big boost from a 2022 ruling by the Federal Shariat Court (FSC), which pushed for more banks to convert to Islamic practices, leading to 500 branches switching over by 2024. Looking ahead to 2026, remittances, money sent home by Pakistanis working abroad, through Islamic channels are projected to reach $3.5 billion just in January, up 15.4% from the previous year, making up about 40% of the total $8.7 billion in remittances that month. Public awareness of Islamic finance, measured by something called the IFDI (Islamic Finance Development Indicator) score, has also risen by 25 points since 2020, meaning more everyday people understand and trust these options.
Regulation plays a key role in keeping things fair and compliant with Sharia rules. The SBP and the Securities and Exchange Commission of Pakistan (SECP) are the main overseers. In 2023, the SBP updated its Shariah Governance Framework, requiring bank boards to have at least 60% Sharia scholars to ensure decisions align with Islamic principles, and audits in 2025 showed a 95% compliance rate which is pretty impressive. The current strategic plan also focuses on supporting small businesses (SMEs) and farmers, targeting 10% of financing for SMEs (they’ve reached 8.2%) and 8% for agriculture (at 7.5% so far). On the insurance side, called Takaful in Islamic terms, the SECP’s rules from 2012 (updated in 2025) manage eight operators, while a 2024 circular (No. 34) outlines growth projections to help with planning.
Other financial tools like Sukuk, essentially Islamic bonds that fund projects without interest, have seen PKR 1.5 trillion issued in 2025 alone, a 20% increase from before, all under the 2015 Securities Act. Taxes are mostly fair between Islamic and conventional banking due to a 2001 ordinance that treats profits like interest for tax purposes, though there’s still a small 5% difference in some areas. Overall, Pakistan’s Islamic finance system scores 78 out of 100 on governance quality and aligns 90% with international standards from organizations like AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) and IFSB (Islamic Financial Services Board). Looking to the future, 2026 brings exciting updates like special “sandboxes” for testing 15 new fintech apps tailored to Islamic banking, allowing innovation in a controlled way to make services more accessible and modern for everyone.
RegulatorKey Instrument2025 Compliance (%)Impact MetricSBPSGF 20239521.4% market shareSECPTakaful Rules9212% insurance shareCII/FSCRiba Verdict100 (enforced)500 branches converted
The Pakistan’s Islamic finance sector is supported by a robust network of key institutions that provide Shariah-compliant banking, insurance (known as Takaful), investment options, and more, helping everyday people and businesses access ethical financial services without interest.
In total, there are 22 Islamic finance entities operating in the country. These include 5 full-fledged Islamic banks that focus entirely on Sharia principles, and 17 Islamic banking windows run by conventional banks as separate divisions offering Islamic products. Among the full-fledged ones, Meezan Bank stands out as the leader, with assets of around PKR 2.8 trillion and holding about 21% of the overall Islamic banking market share, making it the biggest player by far. Bank Islami is another major full-fledged bank, with assets of PKR 1.2 trillion. On the windows side, HBL Islamic (the Islamic division of Habib Bank Limited) is particularly large, managing PKR 1.5 trillion in assets.
Together, these institutions run a widespread network of over 5,500 branches dedicated to Islamic banking, which accounts for roughly 35% of the total banking branch network across Pakistan. This extensive reach means more people, even in smaller towns and rural areas, can easily access services like Sharia-compliant savings accounts, home financing, or business loans.
Beyond banking, the sector includes Takaful (Islamic insurance) with 8 operators. Pak-Qatar is a standout here, especially in family Takaful (like life insurance equivalents), where it holds about 40% of the market with contributions of PKR 25 billion—helping families protect against risks in a halal way.
There are also 35 Modaraba companies, which are investment firms that pool funds for profit-sharing ventures (similar to ethical mutual funds or partnerships), managing a combined PKR 650 billion in assets.
On the capital markets side, Sukuk (Islamic bonds) continue to grow, with the Pakistan Stock Exchange (PSX) recently auctioning PKR 200 billion worth in February 2026 alone—providing government and companies a way to raise funds ethically for projects like infrastructure.
The digital side is booming too, with 35 Islamic fintech platforms now serving around 2 million users, making mobile banking, payments, and investments more convenient and Sharia-compliant for younger and tech-savvy customers.
Finally, the Central Directorate of National Savings (CDNS) offers Islamic savings schemes, collecting PKR 60 billion in the fiscal year 2026—giving people safe, government-backed options like certificates that earn profit instead of interest.
Overall, this diverse ecosystem—from big banks like Meezan to Takaful providers, Modarabas, Sukuk, fintech, and national savings—shows how Islamic finance has become deeply embedded in Pakistan’s economy, offering inclusive, ethical alternatives that align with religious values while supporting growth and financial inclusion for millions.
| Top 5 Islamic Banks (Dec 2025) | Assets (PKR tn) | Deposits (PKR tn) | Growth (%) |
|---|---|---|---|
| Meezan | 2.8 | 1.7 | 30 |
| HBL Islamic | 1.5 | 1.0 | 25 |
| Bank Islami | 1.2 | 0.8 | 28 |
| UBL Islamic | 1.0 | 0.7 | 22 |
| MCB Islamic | 0.9 | 0.6 | 26 |
| Data: SBP Q3 2025, extrapolated. | |||
Islamic banks and financial institutions in Pakistan offer a variety of Sharia-compliant products and services that allow people and businesses to borrow, invest, save, and protect their money without using interest (riba), instead relying on profit-sharing, trade-based financing, leasing, and ethical investments. The most popular financing product is Murabaha, which works like a cost-plus sale: the bank buys an item (such as a car, house, or machinery) and sells it to the customer at a higher price with agreed profit, payable in installments. Murabaha makes up the largest portion, 42% of all Islamic financing, amounting to about PKR 1.6 trillion, and it grew by 20% in the recent period, showing strong demand for this straightforward and widely accepted mode. Next comes Ijarah, which is similar to leasing or rent-to-own. The bank purchases an asset and rents it to the customer for a fixed period, with the option to buy it later. Ijarah accounts for 25% of Islamic financing, equal to roughly PKR 950 billion. Musharakah, a true profit-and-loss sharing partnership, represents 15% of the total (about PKR 570 billion) and is especially important for supporting small and medium enterprises (SMEs), as it allows banks and businesses to become partners and share both risks and rewards.
On the capital market side, Sukuk (Islamic bonds) are a major success story for Pakistan. The country has USD 11 billion in outstanding Sukuk, ranking 10th globally and holding about 2% of the worldwide Sukuk market. Pakistan has also started issuing green Sukuk—Islamic bonds specifically for environmentally friendly projects—with PKR 100 billion raised to finance renewable energy initiatives such as solar and wind power plants.
In the area of insurance, Takaful (Islamic cooperative insurance) continues to grow rapidly. In 2024, total Takaful contributions reached PKR 120 billion. Of this, family Takaful (similar to life insurance) stood at PKR 80 billion with an impressive 37% growth, while general Takaful (covering property, vehicles, health, etc.) was PKR 40 billion with 24% growth. Takaful now commands 12% of the overall insurance market in Pakistan, compared to 88% held by conventional insurance. Islamic mutual funds and investment schemes are also gaining popularity, managing USD 4 billion in assets under management (AuM), placing Pakistan 8th globally in this category, with a healthy 21% growth in recent times.
Finally, the Roshan Digital Account (RDA) Islamic—a special savings and investment account designed for overseas Pakistanis—has attracted USD 9 billion in inflows by January 2026. This shows how Islamic finance is successfully reaching both domestic customers and the large Pakistani diaspora, offering them halal, trustworthy, and modern ways to manage and grow their money.
In short, Pakistan’s Islamic finance industry provides a wide and growing range of ethical products—from everyday financing like Murabaha and Ijarah, to business partnerships, green investments, Takaful protection, mutual funds, and digital savings options—meeting diverse needs while staying true to Sharia principles.
| Product | Share (%) | Volume 2025 (PKR tn) | Growth (%) |
|---|---|---|---|
| Murabaha | 42 | 1.6 | 20 |
| Ijarah | 25 | 0.95 | 22 |
| Musharakah | 15 | 0.57 | 18 |
| Sukuk | N/A | 1.5 (issued) | 20 |
| Takaful | N/A | 0.12 | 30 |
The impressive growth and solid performance in recent years, the Islamic finance becoming a key driver for country’s economy while offering ethical, Sharia-compliant alternatives to traditional banking. As of December 2025, the total assets of the Islamic banking sector reached PKR 13.2 trillion (about USD 47 billion), marking a strong 28.7% year-on-year (YoY) increase—this means the sector grew by nearly 29% compared to the same time the previous year, outpacing many other parts of the economy. Deposits (money people and businesses keep in Islamic accounts) stood at PKR 8.45 trillion, up 26.2% YoY, while financing (Sharia-compliant loans and investments provided to customers) hit PKR 4.1 trillion, growing by 22% YoY. The branch network expanded to 5,500 branches, an increase of 12%, making these services more accessible across cities, towns, and even rural areas.
On the global stage, Pakistan ranks 10th in Islamic banking assets (measured in USD at around 47 billion), reflecting its rising importance in the worldwide Islamic finance landscape. According to the Islamic Finance Development Indicator (IFDI), a global benchmark that measures how well a country develops its Islamic finance sector, Pakistan scored 72 out of 100, placing it 5th globally. This score covers areas like financial performance, governance, sustainability, knowledge, and awareness (with awareness specifically reaching a high of 200, the maximum possible, indicating excellent public understanding and trust in these products among Pakistanis).
The Takaful (Islamic insurance) segment continued its rapid expansion with 30% growth, now holding a 12% share of the overall insurance market. Sukuk (Islamic bonds) outstanding remained strong at USD 11 billion, representing about 2% of the global Sukuk market and helping fund government and private projects ethically.
This growth isn’t just numbers; Islamic finance is making a real difference in the broader economy. It contributed an estimated 2.5% to Pakistan’s GDP growth, playing a meaningful role in the country’s overall economic progress. Looking ahead, forecasts for fiscal year 2026 suggest GDP growth between 3.75% and 4.75%, with Islamic finance expected to keep supporting this through ethical lending, investment, and inclusion.
A big positive is financial inclusion: around 28% of adult Pakistanis now use Islamic financial services, meaning more people—especially those who previously avoided conventional banking due to religious reasons—can save, borrow, invest, and protect their money in ways that align with their values. This helps bring more individuals and small businesses into the formal economy, reduces reliance on informal lending, and promotes stability and fairness.
In summary, by the end of 2025, Pakistan’s Islamic finance sector had grown substantially in size, reach, and impact—boasting double-digit increases in assets, deposits, and financing; strong global rankings; high public awareness; and tangible contributions to economic growth and inclusion—positioning it as a vibrant, resilient part of the national financial system with promising momentum into the future.
| Metric | Dec 2024 | Dec 2025 | Growth (%) | Global Rank |
|---|---|---|---|---|
| Assets | 10.25tn | 13.2tn | 28.7 | 10th |
| Deposits | 6.7tn | 8.45tn | 26.2 | – |
| Financing | 3.36tn | 4.1tn | 22 | – |
| Sukuk Outstanding | USD 9bn | USD 11bn | 22 | 10th |
| Takaful Contributions | PKR 92bn | PKR 120bn | 30 | – |
Several challenges that need addressing to ensure smooth and sustainable progress. One key issue is standardization, where there’s about a 15% variance in how different Sharia scholars interpret and apply rulings across banks and products. This can create confusion for customers and make it harder for institutions to offer uniform services nationwide. There’s also a notable shortage of talent, particularly qualified Sharia scholars, currently around 960 available when the sector needs about 1,200, leading to a 20% gap that slows down compliance, product development, and governance.
The author, is a freelance writer, columnist, blogger, and motivational speaker. He writes articles on diversified topics. He can be reached at sir.nazir.shaikh@gmail.com