The State Bank of Pakistan (SBP) has instructed Islamic Banking Institutions (IBIs) to immediately discontinue placing funds with their conventional parent banks or head offices under loan-based arrangements such as Qard, as well as any other subsidized financing structures.
In a circular issued to the banking industry, the central bank stated that such fund placements are not compliant with the existing Islamic banking regulatory framework. It further directed IBIs to withdraw all existing deposits or exposures held under these arrangements without delay.
The SBP said the decision is aimed at reinforcing Shariah compliance within the banking sector and advancing Pakistan’s broader transition toward a more robust Islamic banking system.
The move follows a recent regulatory change allowing conventional banks to open Islamic banking windows within their existing branch networks without prior approval, a step designed to accelerate the expansion of Islamic banking operations and facilitate gradual conversion from conventional banking.
Currently, Pakistan’s banking system comprises 16 conventional banks alongside an expanding Islamic banking network, which includes 4,159 full-fledged Islamic banking branches, 3,473 Islamic banking windows, and 166 sub-branches.
SBP data shows that Islamic banking branches operated by conventional banks contribute around 42.8 percent of total assets in the Islamic banking industry, highlighting their growing influence in the sector.
