KARACHI – Despite the growing demand for Shariah-compliant digital banking solutions, Pakistan’s progress in the Islamic fintech sector has been strikingly slow. As the global market for Islamic fintech continues to expand, Pakistan finds itself falling behind, with policymakers struggling to launch even a single fully operational digital bank that adheres to Islamic financial principles. This is particularly concerning as the entire banking industry in Pakistan is expected to transition to Shariah-compliant practices by the end of 2027.
In recent years, Islamic banking in Pakistan has seen substantial growth, fueled primarily by individual consumers seeking financial services that align with their religious beliefs. The Islamic banking sector now constitutes almost a fifth of the country’s overall banking industry, with assets reaching Rs9.9 trillion and deposits growing to Rs7.6 trillion. Additionally, net financing by Islamic banks and conventional banks with dedicated Islamic banking branches has surged to Rs3.25 trillion, while their net investments grew by 22.3% to Rs4.8 trillion.
Despite this impressive growth in Islamic banking, the country has failed to capitalize on the emerging opportunity in the Islamic fintech space. While countries like Malaysia, Indonesia, and the United Arab Emirates (UAE) have made significant strides in establishing robust digital ecosystems for Islamic finance, Pakistan has yet to create an environment that supports the growth of digital Islamic banking. Although there is growing investor interest and demand for Shariah-compliant digital financial solutions, policymakers have not made progress in fostering an ecosystem for this sector.
One of the key issues is the lack of a fully operational digital Islamic bank in the country. While Islamic banks in Pakistan do offer mobile applications, these apps are not representative of a fully digital Islamic banking experience. Instead, they serve as extensions of traditional banking services, allowing customers to perform basic functions like money transfers and payments. However, they do not provide the comprehensive digital services associated with a true digital bank.
In contrast, digital banking is much more than just online or mobile banking. It involves complete automation of all bank functions, including both front-end and back-end processes. A fully digital bank offers a range of financial products and services through digital platforms or electronic channels, eliminating the need for physical branches. The goal of digital banking is to create a seamless experience for customers by enabling them to manage all aspects of their banking needs from the convenience of their devices.
However, Pakistan’s Islamic banking sector has not evolved to this stage. The mobile banking apps provided by Islamic banks still require customers to visit physical branches for verification, documentation, and account opening. This defeats the very purpose of digital banking, which is to offer an end-to-end, online experience without the need for in-person interactions. The failure to digitize the complete customer journey leaves the sector lagging behind in comparison to the more advanced Islamic fintech markets worldwide.
The lack of progress in Shariah-compliant digital banking is also surprising considering the growing demand for such services. Islamic finance has proven to be resilient, and its appeal is on the rise not just in Pakistan but globally. There is an opportunity for Pakistan to tap into this burgeoning market and cater to the needs of its Muslim population, who increasingly seek digital solutions that adhere to their religious values.
The slow pace of digital transformation in Pakistan’s Islamic banking sector calls for urgent action from policymakers and financial institutions alike. To keep pace with global trends and harness the potential of Islamic fintech, Pakistan needs to focus on creating a fully digital ecosystem for Shariah-compliant banking. This would not only help meet the needs of local consumers but also position the country as a competitive player in the growing global market for Islamic fintech.