The State Bank of Pakistan has introduced Shariah-compliant terminology across its existing regulatory framework, instructions and Foreign Exchange Manual as part of efforts under SBP Vision 2028 to align banking regulations with Shariah principles. The central bank has directed banks, microfinance banks and development finance institutions to interpret specified conventional banking terms alongside their corresponding terminology used in Islamic finance. The changes have been communicated to presidents and chief executives of banks, MFBs and DFIs through a circular notice and are intended to provide Shariah-compliant alternatives within the existing regulatory framework without altering the remaining provisions.
Under the revised terminology, 21 identified terms will have corresponding Shariah-compliant alternatives. Among the examples provided by SBP, the term “interest” will be read as “return,” while “loan” will be interpreted as “loan/financing.” Similarly, “borrower” will be read as “borrower/obligor,” while “TFC” will be interpreted as “TFC/Sukuk.” The terminology changes are intended to allow existing regulatory documents to be applied in a manner that also reflects Islamic banking concepts where the relevant provisions relate to Shariah-compliant financial activities.
SBP said the terminology insertions will apply to the regulations and chapters of the Foreign Exchange Manual specifically identified in the relevant annexures. The central bank has also clarified that the Shariah alternatives will extend to other SBP regulations, instructions and manual chapters that may not have been explicitly listed, where those provisions relate to Islamic banking. This approach allows the terminology changes to cover the broader regulatory framework applicable to Islamic financial activities rather than limiting the amendments to a narrowly defined list of documents.
The regulations identified under Annexure-I cover several major areas of banking activity, including capital adequacy, consumer financing, agricultural credit, small and medium enterprise financing, housing finance and payment systems. These areas represent a broad portion of the regulatory framework governing banking operations in Pakistan. The inclusion of such regulations within the terminology alignment means that the relevant provisions can be interpreted using the specified conventional and Shariah-compliant alternatives where Islamic banking operations are involved.
Annexure-II covers 14 chapters of the Foreign Exchange Manual, extending the terminology changes to a range of foreign exchange and international banking activities. The listed chapters include provisions concerning forward exchange facilities, nostro accounts, remittances, exports, imports and securities, among other areas. By incorporating the specified terminology alternatives into these chapters, SBP is extending the Shariah-alignment exercise to regulatory provisions covering foreign exchange operations and other activities relevant to Islamic financial institutions.
The central bank has made clear that the changes are limited to the specific insertions and Shariah-compliant alternatives identified in Annexure-III. SBP stated that all other contents of the existing regulations, instructions and Foreign Exchange Manual will remain unchanged. This means the latest measure primarily concerns terminology and interpretation for Islamic banking rather than a broad revision of the substantive regulatory requirements contained in the existing framework.
The terminology alignment forms part of SBP Vision 2028 and reflects the central bank’s stated direction toward greater integration of Shariah principles within Pakistan’s financial regulatory structure. By introducing recognised Islamic finance alternatives alongside conventional terminology, SBP is providing banks, MFBs and DFIs with a common regulatory reference for provisions applicable to Islamic banking. The measure also covers areas ranging from financing and capital requirements to payment systems and foreign exchange operations, while maintaining the existing provisions of the regulatory framework.
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