In a world shaped by changing geopolitics, the need for sustainability over capitalistic gains, collaboration over competition and mutually beneficial cooperation is driving Islamic banking's growth.
ISLAMIC FINANCE
In a world shaped by changing geopolitics, the need for sustainability over capitalistic gains, collaboration over competition and mutually beneficial cooperation is driving Islamic banking's growth.
Islamic banking was never a standalone invention. The ethical economics underpinning it had driven trade and commerce across Islamic civilisations for centuries. Initially reliant on the concept of safekeeping (amanat), it gradually evolved into partnerships, collateral-based financing, goodwill loans, and entrepreneurship. This framework travelled wherever Islamic influence reached, shaping commercial norms across continents long before modern banking existed.
The formal reawakening of the system in the 20th century simply gave institutional expression to a system that had always flourished: one that avoided the compounding burden of interest (Riba), steered clear of speculative excess and was intrinsically oriented towards the debtor rather than the lender. The holistic social welfare design excluded investments in alcohol, gambling, and other harmful activities -- making it not merely an alternative financial architecture, but an investment in social good.
It is this inherent goodness that is now compelling the globe to veer towards it. Another compelling feature is its alignment with the Islamic injunction against interest. Data reveals that two-fifths of Pakistan’s adult population remains outside the formal financial system. What makes this gap particularly significant is its character: a substantial share of those excluded are not unaware of banking; they are unwilling to engage with interest-based systems on grounds of religious conviction. SBP research confirms that faith accounts for 23 per cent of the demand for Islamic banking in Pakistan, concentrated most strongly among retail households.
Pakistan’s National Financial Inclusion Strategy (NFIS) 2024-28, issued by the SBP, sets ambitious targets: raising financial inclusion to 75 per cent and reducing the gender gap to 25 per cent by 2028. Progress is already visible. The number of depositors rose from 54 million in 2018 to 88 million in 2023, a 63 per cent increase, while women depositors grew from 13.1 million to 31.2 million over the same period, lifting women’s financial inclusion from 23 to 58 per cent.
If the NFIS target of 75 per cent inclusion by 2028 is to be met, Islamic finance must be recognised as the primary entry point for a large segment of the population. The numbers affirm this: by December 2025, Islamic banking assets had reached PKR 14.5 trillion, reflecting a quarterly increase of over 14 per cent, with deposits surging 39.6 per cent to Rs11 trillion, representing approximately 23 per cent of total banking assets.
Islamic banking has expanded in parallel, now accounting for 23 per cent of total deposits, 19 per cent of assets, and 29 per cent of the banking sector’s branch network. This growth has been enabled by regulatory reform, new technologies, and stronger public-private partnerships, including landmark instruments such as the Asaan Digital Account, Asaan Mobile Account, and the Raast instant payment system.
Going back to the sustainable world and its needs; the broader global context of Environmental, Social and Governance (ESG) principles are already reshaping how capital is allocated across international markets. Islamic banking is a natural partner in this transition. The prohibition of speculative instruments, the emphasis on asset-backed transactions, and the ethical screening of investments align directly with the sustainability mandates increasingly demanded by global investors. For Pakistan, which needs both Foreign Direct Investment and access to international financial corridors, positioning Islamic finance as its primary offering is both ideologically coherent and commercially sound. The resilience of Islamic banking through the 2008 global financial crisis demonstrated the stability of a system grounded in real economic activity and insulated from the worst excesses of speculative leverage.
Pakistan’s progressive economic future will, in no small part, be financed through the principles of Islamic economics, not despite the country’s modernity, but as an expression of it
The expansion of Islamic banking cannot be separated from digital transformation. Mobile and online transactions in Pakistan rose from 17 per cent of all retail transactions in early 2020 to 92 per cent by the second quarter of FY2025-26, according to the SBP’s Quarterly Payment Systems Review of March 2026. Pakistan had 190 million active cellular connections in early 2025, equivalent to 75.2 per cent of the population and 116 million internet users, representing an online penetration of 45.7 per cent.
With an estimated 53-55 per cent of unbanked Pakistanis owning a mobile phone, digital platforms offer the lowest-cost and fastest route to extending Shariah-compliant products to those currently outside the formal system, particularly in rural areas and among women, who remain disproportionately excluded. Mobile-based Islamic microfinance, Shariah-compliant digital wallets, and AI-driven credit scoring aligned with profit-and-loss-sharing models are practical tools that can close conventional banking’s structural gaps.
At the National Bank of Pakistan, the Islamic banking arm, NBP Aitemaad, operates within this framework. As the Islamic banking arm of Pakistan’s largest state-owned bank, NBP Aitemaad carries a responsibility that extends beyond commercial performance. Over the past eight years, deposits have grown at a 43 per cent CAGR and earning assets at 40 per cent, nearly double the broader industry’s pace of 24 per cent and 27 per cent, respectively and the bank’s ranking among Islamic deposit holders has improved from 15th in 2018 to 6th in 2025.
The product range spans Murabaha and Ijarah facilities for asset financing, Diminishing Musharakah structures for home finance, and Salam and Istisna modes serving agriculture and construction. Running Musharakah provides working capital to corporate clients on participatory terms. The Advance Salary Product received a Silver Award in the Distribution Category at the Qorus Reinvention Awards -MEA 2025, recognition of a product that combines accessibility, Shariah compliance, and customer-centricity in addressing short-term liquidity needs for salaried individuals. The Aitemaad Amirah Account and the Amirah PayPak Pink Debit Card, the country’s first PayPak debit card for women under an Islamic banking account, reflect the commitment to closing the gender gap in financial access through purpose-built, rather than repurposed, products.
What distinguishes Islamic finance from a simple substitution of labels is the philosophy embedded within it. It does not replace interest with partnership or collateral options; it actually reorients the entire relationship dynamic between institution and customer from one of creditor and debtor to one of shared risk and shared outcome.
The principles of Islamic finance-transparency, asset-backing, shared risk, and the prohibition of speculative excess, align naturally with ESG-conscious investment. The Federal Shariat Court’s directive to align Pakistan’s entire banking system with Islamic principles by 2027 sets a deadline but not a destination. Meeting that deadline with integrity, rather than cosmetic compliance, will require genuine innovation, institutional discipline and unwavering transparency. Pakistan’s progressive economic future will, in no small part, be financed through the principles of Islamic economics, not despite the country’s modernity, but as an expression of it.
The writer is a freelance contributor. He can be reached at: [email protected]
