KARACHI: Pakistan’s new local currency sukuk issuance is expected to cross Rs3 trillion this year as the government aims to boost the share of Sharia-compliant instruments in domestic debt and deepen the Islamic capital market, aligning with its goal of eliminating interest from the economy by January 2028.
“If the recent momentum continues, up to Rs4 trillion in new sukuk are projected to be issued this year, including Government Ijarah and hybrid types, leading to an increase in the volume of sukuk,” Group Head Consumer Finance at Meezan Bank Ahmed Ali Siddiqui, told reporters at a media briefing on Tuesday.
In 2025, the government issued Rs2.2 trillion in sukuk. The total Islamic bonds issued from 2019 to 2025 amounted to Rs8.7 trillion, with an outstanding stock of around Rs6 trillion.
In Pakistan, converting existing government debt into Sharia-compliant instruments poses a significant challenge. The government heavily relies on bank credit to finance its budgetary needs, as well as domestic securities. A major portion of these investments comprises conventional Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs). In the first six months of the fiscal year 2026, the share of Islamic bonds in Pakistan’s overall government debt portfolio rose to 14 per cent, with a target from the finance ministry to increase this share to 20 per cent by FY28.
Siddiqui pointed out that the rise in Sharia-compliant funding offers several advantages, particularly for the government, as it helps reduce costs. Additionally, banks are inclined to transition to Islamic financing, and the government aims to move away from interest-based instruments, making the shift beneficial. The sukuk listed at the Pakistan Stock Exchange (PSX) allows individuals to directly access the Islamic capital market, invest in sukuk, and earn halal returns. In contrast to interest-based Treasury bills, PIBs, and national savings schemes, there are now risk-free government Shariah-compliant instruments available for investment.
The government issued its inaugural hybrid or asset-light sukuk in April, an innovative instrument that combines Ijarah (sale and leaseback) and Commodity Murabaha transactions. Pakistan successfully issued a three-year Ijarah-based sovereign green sukuk to finance renewable energy and climate resilience projects.
Siddiqui, while sharing estimates, said that Pakistan’s Islamic banking industry is expected to maintain its strong growth momentum, with total assets projected to reach Rs18-19 trillion by December 2026, compared with Rs14.47 trillion by December 2025.
According to the projections, Islamic banking deposits are expected to increase to Rs13.5-14.5 trillion by December 2026, compared with Rs11.04 trillion by December 2025. The sector’s share in total banking assets is likely to rise to 25-27 per cent by the end of 2026 from 22.9 per cent in December 2025, while its share in total banking deposits is expected to increase to 30-32 per cent from 27.8 per cent during the same period.
The Islamic financing portfolio is also projected to grow to Rs7-7.8 trillion by December 2026, compared with Rs5.65 trillion in December 2025, reflecting rising demand for Sharia-compliant financing across consumer, SME, agriculture, corporate and government-linked segments.
Other speakers highlighted that Islamic banking continues to expand at a strong pace in Pakistan, supported by rising customer preference, regulatory momentum, branch expansion, wider institutional adoption, growing sukuk activity, and the country’s broader transition towards a riba-free banking framework.
The sector has shown consistent expansion over the last five years. Islamic banking assets increased from Rs5.27 trillion in December 2021 to Rs 14.47 trillion by December 2025, while deposits rose from Rs3.62 trillion to Rs11.04 trillion during the same period. The Islamic financing portfolio also expanded from Rs2.35 trillion in December 2021 to Rs5.65 trillion by December 2025.
They noted that Islamic banking assets grew by 23.1 percent in 2024 and 30.7 per cent in 2025, reflecting strong underlying demand and increasing customer confidence in Sharia-compliant banking products and services.
Branch network expansion remains another key driver of growth. The Islamic banking branch network is projected to reach 7,300-7,800 branches by December 2026, compared with more than 6,700 branches by December 2025, further strengthening financial inclusion across the country. Speakers also noted that digital banking channels are expected to play an increasingly important role in expanding access to Islamic financial services.
Industry participants believe Pakistan’s transition target towards Islamic banking by 2027/2028 will continue to accelerate sector-wide transformation, encouraging both full-fledged Islamic banks and conventional banks with Islamic windows to expand their product offerings and customer outreach.
The briefing also underlined that large sovereign Islamic financing requirements and Sukuk issuances are deepening Pakistan’s Islamic finance ecosystem, while growing public trust in Sharia-compliant banking is driving deposit mobilisation and retail growth.
By the end of 2026, Islamic banking is expected to approach nearly one-third of total banking deposits, cross Rs18–19 trillion in assets, and further expand its footprint across digital banking, SME finance, agriculture finance and consumer finance.
If the current growth trajectory continues, Islamic banking assets in Pakistan could exceed Rs25 trillion by 2028, strengthening the country’s position among the fastest-growing Islamic banking markets globally.
Speakers said that December 2026 figures are indicative of industry projections based on current trends and available data. Actual outcomes may vary depending on regulatory, economic, market and other factors.
