The State Bank of Pakistan (SBP) has directed Islamic Banking Institutions (IBIs) to stop placing their funds with conventional parent banks or head offices through loan-based arrangements, known as Qard, or any other form of subsidized financing.
In a circular issued to the banking sector, the central bank said such transactions are not permissible under the existing Islamic banking framework. The SBP also instructed Islamic banks to immediately withdraw any funds currently placed under these arrangements.
The move is part of the regulator’s efforts to strengthen Shariah compliance across the banking industry and support Pakistan’s transition toward a fully developed Islamic banking system.
The directive comes shortly after the SBP allowed conventional banks to establish Islamic banking windows within their conventional branches without seeking prior regulatory approval. The measure is intended to accelerate the conversion of conventional banking operations into Islamic banking services and support the sector’s expansion.
According to SBP data, Pakistan’s banking sector currently includes 16 conventional banks alongside a growing Islamic banking network comprising 4,159 full-fledged Islamic banking branches, 3,473 Islamic banking windows, and 166 sub-branches.
Islamic banking branches operated by conventional banks account for approximately 42.8 percent of the total assets of Pakistan’s Islamic banking industry, underscoring their significant role in the sector’s growth and development.
