By Shahzad Khokhar, Head of Islamic Banking, Mashreq Pakistan
Islamic banking is undergoing an exponential transformation in Pakistan – shifting from a niche sector to a significant one in the country’s financial system – enabled by the direction to make all banking Shariah compliant by 2027. By March 2024, Islamic banking assets in Pakistan had reached PKR 9,235 billion, reflecting a strong year-on-year growth of 22.6%, with deposits surging by 28.5% to PKR 6,875 billion. There has been a rapid expansion of Islamic banking branches in Pakistan, which grew by 15.2% to 5,101 branches by March 2024. The KAP Study by SBP and the Department of International Development UK found that 74% of the banked population is open to switching to Islamic Banking, showing a clear desire for accessible Shariah-compliant services. These numbers demonstrate a growing confidence in Islamic financial institutions, both among individual consumers and businesses.
The SBP has provided robust regulatory support, laying out an ambitious roadmap in its Strategic Plan for Islamic Banking (2021-2025). This plan aims to increase the share of Islamic banking assets and deposits to 30% of the country’s overall banking industry.
Beyond regulatory and government support, a significant driver of the growth in Islamic Banking will be the adoption of technology. Even while there has been a significant expansion in the number of Islamic banking branches in Pakistan, digital banking is where the real transformation will take place. Advances in financial technology will allow Islamic banks to broaden their reach, offering customers, services through mobile apps and online platforms, even in remote areas. This digital-first approach ensures that financial services are more accessible, efficient, and user-friendly, while adhering to Islamic principles. The combination of Shariah-compliant practices and technological innovation is paving the way for the future.
As a key player entering the Pakistani market, Mashreq brings a wealth of experience and innovation, especially in the digital banking space. Our rich history of experience in the region enhanced by our innovation-led global culture, has established us as leaders in both digital and Islamic banking. The increasing consumer demand and regulatory push for Islamic Banking gives us the confidence that we can make a real difference through our capability to integrate state-of-the-art digital platforms that can make Islamic banking products and services easily accessible beyond the confines of traditional brick-and-mortar branches. Through the adoption of technologies like AI, Mashreq is poised to create banking experiences that are seamless and tailored to the unique needs of the Pakistani market. Complementing our technology capabilities and expertise in Islamic Banking are Mashreq’s inherent cultural values that are in harmony with Islamic banking principles, positioning us as not just a service provider but a partner attuned to local traditions and beliefs.
Another key tenet of Islamic finance is to foster economic fairness and equitable opportunities for all members of society. In line with this, Islamic Banking solutions hold immense potential for promoting financial inclusion and economic empowerment, particularly in underserved communities. Providing Shariah-compliant solutions that can reach businesses that have traditionally been excluded from the financial system, by utilizing advanced technologies such as mobile banking and AI-driven solutions, can support their growth and empowering individuals.
As Environmental, Social, and Governance (ESG) principles gain prominence globally and in Pakistan – rightly so – the growth of Islamic banking brings a profound synergy, being inherently based on values of ethics, responsibility, and social well-being. Integrating Islamic offerings with sustainable finance practices can further the vision for a sustainable future.
To step-up the growth in the sector, there needs to be a collective effort by institutions to offer better products and create more value for clients. Continued focus is also required on building skillset and knowledge through education and training to increase awareness on Islamic finance. As Mashreq expands into Pakistan with its “Rise Every Day” philosophy, the bank is committed to fostering a new generation of Islamic finance professionals who are not only well-versed in Shariah principles but also in modern banking technologies, who can help ensure that the sector continues to grow responsibly.
Looking ahead, the future of Islamic banking in Pakistan is promising. The country’s young, tech-savvy population and growing middle class offer a significant opportunity for Islamic banks to expand their reach. It is not anymore just about growth in assets, deposits or profits; it is about leveraging innovation to build a financial system that is both technologically advanced and ethically sound. Shariah-compliant digital banking solutions are set to enhance accessibility, convenience, dismantle geographical barriers, and foster financial inclusion.
The journey ahead is full of potential, and Islamic banking in Pakistan is well-positioned to lead the way to a values-centric, innovation-driven, inclusive, and robust future.
