Interest-Free Banking to Be Implemented Nationwide by 2028 Following 26th Constitutional Amendment
Pakistan is set to eliminate interest-based banking by January 1, 2028, as per the newly passed 26th Constitutional Amendment Bill, 2024. This amendment revises the country’s constitutional obligations regarding the prohibition of Riba (interest), setting a definitive deadline for the transformation to an interest-free banking system.
The amendment to Article 38(f) of the Constitution, proposed by Jamiat Ulema-e-Islam-Fazl (JUI-F), was approved by the Senate. The original clause, which stated that Pakistan would eliminate Riba “as early as possible,” has now been replaced with the specific deadline of January 1, 2028.
Federal Shariat Court’s Ruling
In 2022, the Federal Shariat Court (FSC) ruled that Pakistan must transition to an Islamic and interest-free banking system within five years. The decision, issued by a three-member FSC bench, emphasized that Riba is prohibited in Islam and that transactions involving interest are “wrong.” The FSC also urged the government to ensure that internal and external loans are interest-free, including dealings with international financial institutions like the IMF and World Bank.
Moving Toward Islamic Banking
To support this transition, the State Bank of Pakistan (SBP) has taken steps to facilitate Shariah-compliant digital banking. The central bank has approved the establishment of a digital retail Islamic bank and has enabled Shariah-compliant digital banking through existing institutions.
The passage of this amendment signifies a major milestone in aligning Pakistan’s banking system with Islamic principles, marking a new era in the country’s financial sector as it prepares for the complete abolition of interest-based transactions by 2028.