Pakistan’s slow progress in digital banking has been a longstanding concern, but the lack of a fully operational Shariah-compliant digital bank is particularly alarming. Despite a strong demand for Islamic fintech solutions, the country lags behind both Muslim and non-Muslim nations that are actively developing Shariah-compliant digital finance ecosystems. This delay is especially striking given the State Bank of Pakistan’s (SBP) directive for the entire banking sector to transition to full Shariah compliance by the end of 2027.
Islamic banking in Pakistan has grown significantly, largely driven by consumers seeking Shariah-compliant financial solutions. The sector now accounts for nearly 20% of the total banking industry, with assets reaching Rs9.9 trillion and deposits at Rs7.6 trillion. Net financing from six Islamic banks and 16 conventional banks with standalone Islamic branches has surged to Rs3.25 trillion, while investments have grown by 22.3% to Rs4.8 trillion. Despite this momentum, regulators have yet to establish a conducive environment for digital Islamic banking, unlike countries such as Malaysia, Indonesia, and the UAE, where Shariah-compliant fintech is thriving.
Although Pakistan’s Islamic banks have mobile apps, these serve only as digital extensions of traditional banking rather than as fully digital banking platforms. A true digital bank automates all aspects of banking, from account opening to financial services, without requiring physical branch visits. In contrast, existing Islamic banking apps still necessitate in-person verification and documentation, undermining the core purpose of digital banking.
SBP introduced a Digital Retail Banks (DRBs) framework in January 2023, granting digital banking licenses to five institutions—Hugo Bank, KT Bank Pakistan, Mashreq Bank Pakistan, Raqami Islamic Digital Bank, and Easypaisa Bank. However, progress has been sluggish. While Easypaisa Bank recently became operational as Pakistan’s first fully digital bank, it leveraged its existing wallet infrastructure rather than launching as an entirely new digital entity. Mashreq Bank was awarded a pilot license last week, yet the remaining license holders, including Raqami, which was meant to introduce Islamic digital banking, have made little progress, raising concerns over execution delays, regulatory hurdles, and market readiness.
Pakistan’s failure to advance in Islamic fintech represents a significant missed opportunity, particularly given its ambition to be a global leader in Islamic finance. While SBP’s framework allows traditional banks and microfinance institutions to transition into digital banks, none have successfully established a fully operational Shariah-compliant digital banking model. Under this framework, SBP grants two types of digital bank licenses: Digital Retail Bank (DRB), catering to retail customers, and Digital Full Bank (DFB), serving both retail and corporate clients. DRBs may later transition to DFBs, provided they meet capital requirements after a two-year progression phase.
Industry leaders stress the urgent need for a truly digital Islamic bank that goes beyond basic digital wallets to offer a comprehensive range of Shariah-compliant financial services. The lack of such a bank not only limits financial inclusion but also restricts access to interest-free loans, Islamic savings accounts, and Takaful products. The current digital Islamic banking landscape remains fragmented due to regulatory complexities, limited technological infrastructure, and low digital literacy.
Investor confidence is also affected by an unpredictable regulatory environment, slow economic growth, and declining returns. The depreciation of the rupee further deters foreign investment, while Pakistan’s broader economic challenges complicate market expansion. Nevertheless, investor interest in Islamic fintech remains high, driven by strong demand for Shariah-compliant financial services. However, for digital Islamic banking to take off, Pakistan requires a robust regulatory framework, secure digital infrastructure, enhanced consumer awareness, and alignment with global Islamic finance standards.
Without these crucial reforms, Pakistan risks falling further behind in the fast-growing global Islamic fintech sector, missing out on a major opportunity to lead in Shariah-compliant digital banking.
