Switching to Islamic Banking in Pakistan (2026): The 2028 Riba Deadline and You

Pakistan's Constitution, as amended by the Twenty-sixth Amendment Act of October 2024, now requires the state to eliminate riba completely before 1 January 2028. That clause followed the Federal Shariat Court's judgment of 28 April 2022 declaring the interest-based system unlawful. For a customer of a conventional bank it means three things. Your branch may be converted to an Islamic branch under State Bank of Pakistan rules that require at least three and a half months' notice and 30 days to consent or dissent. Your current account may be converted on deemed consent if you never reply, but your savings or fixed deposit may not. And your loan cannot be converted without your agreement. This guide explains the rules and how to move on your own terms.

What the law now says, and who said it

The Federal Shariat Court delivered its judgment in the riba case on 28 April 2022, according to SBP's Financial Stability Review 2025. The federal government constituted a high-level Steering Committee in December 2022 to guide implementation, and SBP set up a Committee for Transformation of conventional banking into Islamic. Then in October 2024 Parliament passed the Constitution (Twenty-sixth Amendment) Act, 2024, which substituted paragraph (f) of Article 38 with the words: eliminate riba completely before the first day of January, two thousand twenty-eight. The Act was gazetted on 21 October 2024 and came into force at once.

Two things follow for customers. First, the deadline is now constitutional, not merely judicial, which removes the pattern of appeals and extensions that defeated the 1991 and 1999 rulings. Second, Article 38 is a principle of policy addressed to the state, not a clause that voids your deposit contract on 1 January 2028. The practical conversion happens bank by bank and branch by branch under SBP circulars, which is why the rules in the next sections matter more to you than the headline date. For the basics of how Islamic accounts differ, start with the halal banking guide.

How Pakistan got here: three deadlines that came and went

SBP's own history page records the sequence. The Federal Shariat Court first ruled on 14 November 1991 that the banking system and many fiscal laws were based on interest and ordered its abolition by 30 June 1992. On appeal, the Supreme Court's Shariat Appellate Bench upheld that decision on 23 December 1999 and set 30 June 2001, later extended to 30 June 2002. In June 2002 the Supreme Court set aside the earlier verdicts on a review petition and sent the case back to the Federal Shariat Court. The government chose a parallel system instead: SBP created an Islamic Banking Department, amended the Banking Companies Ordinance in 2002 to allow Islamic subsidiaries, and licensed Meezan Bank as the first full-fledged Islamic bank that year.

That parallel system is what you bank in today: full Islamic banks, Islamic subsidiaries, and Islamic windows inside conventional banks. The 2022 judgment and the 2024 amendment end the parallel model in principle. Whether the end arrives on time is a political question; what SBP has already changed is not. The difference between the three models is explained in Islamic bank vs Islamic window.

What SBP has actually done since 2022

SBP's Financial Stability Review 2025 reports that the Committee for Transformation runs seven working groups and 36 work streams, that they have held more than 500 meetings, and that their output so far includes a dedicated chapter on Islamic banking in the Banking Companies Ordinance 1962, a full assessment of the legal and regulatory framework against Shariah, an awareness campaign and a capacity-building strategy. SBP has adopted 45 AAOIFI standards and ten IFSB standards, and has operationalised a Shariah-compliant standing ceiling facility and open market operations against PSX-issued Government of Pakistan Ijara Sukuk, which gives Islamic banks the liquidity tools they lacked.

On the licensing side, the same review says SBP granted three approvals to commence Shariah-compliant operations, one to a digital bank and two to microfinance banks, and gave in-principle approval to five more institutions. On 28 June 2024 IFPD Circular No. 03 of 2024 told every locally incorporated bank to prepare a conversion plan covering vision, governance, milestones for converting assets, deposits, financing and branches, gap analysis, staff training, stakeholder communication and customer facilitation. On 1 October 2024 IFPD Circular No. 05 of 2024 rewrote the criteria for converting individual branches. That second circular is the one that touches your account.

What happens to your account when your branch converts

Annexure I to IFPD Circular No. 05 of 2024 sets the procedure a bank must follow when it converts a conventional branch into an Islamic one. The bank must inform the public and account holders at least three and a half months before conversion through notices in leading Urdu and English newspapers, notices in all branches, and its website or other channels. It must approach each account holder for consent by letter, email, SMS, telephone or digital means, and give at least 30 days for a reply. It must disclose the new terms and conditions, any change in fees, the alternative Islamic products and their features, FAQs on Islamic banking, and the expected profit rate on each category of remunerative deposit.

• If you consent, your account converts to the Islamic equivalent on the effective date, with the disclosed terms
• If you dissent, the bank must either transfer your account to another conventional branch or close it, at your choice, and must shift you to an adjacent conventional branch rather than a virtual cost centre
• If you are an individual with a current account and never respond, the bank may convert it on a deemed acceptance basis, but only after at least two notices 30 days apart in English and Urdu, Shariah Board approval and legal clearance
• If you hold a savings or fixed deposit and never respond, it cannot be converted on deemed consent; it is parked in a temporary virtual conventional cost centre for up to a year or moved to the nearest conventional branch with notice to you
• If you are a non-Muslim, no account can be converted without your explicit consent
• Accounts under litigation, of deceased persons, in dispute, or dormant are excluded from deemed conversion, and so are all loans, financing and non-individual accounts

The virtual conventional cost centre deserves a word because it is where unresponsive savers end up. It is an IT segregation of a converted branch's leftover conventional business, allowed for one year from the date of the Islamic branch licence, during which no new conventional business, enhancement or rollover is permitted. If your fixed deposit lands there, it will run to maturity and then you will be asked again.

Which banks are converting and how far along they are

Faysal Bank is the finished example: it converted an entire conventional balance sheet to Islamic banking, the largest such transformation on record, and now operates as a full Islamic bank. Bank Makramah, the former Summit Bank, is a commercial bank in the middle of an Islamic conversion with no consumer financing products yet. U Bank, the PTCL-owned microfinance bank with around 300 branches, is moving its entire operation to Islamic banking. Bank of Khyber runs the most transparent Islamic window in the country and is on course to stop being a window at all. Sindh Bank has documented 94 branches converting, and Askari Bank is converting its growth faster than any other conventional bank.

The pace differs because SBP's 2017 guidelines for converting a whole bank give up to three years from in-principle approval, with extensions on justified grounds, and freeze expansion of the conventional network from the date of that approval. A bank that has received in-principle approval therefore cannot open new conventional branches, and its remaining conventional branches are on a timetable. Our tracker of which banks are going fully Islamic lists each announcement; this guide is about what you do with the information.

Your loan or financing: what the rules say and what they do not

Annexure I is explicit that deemed acceptance does not apply to the conversion of a loan or financing portfolio. A conventional car loan, personal loan or mortgage at a converting branch therefore stays conventional until you sign a new Islamic contract or the loan is repaid. The circular allows the bank to keep collateral and securities in place while the conventional portfolio phases out, and lets it manage that portfolio through the virtual cost centre or a mapped conventional branch. In practice a converting bank will offer you a refinance into Diminishing Musharakah or Ijarah; you are not obliged to accept, but you should compare the offer against a fresh facility elsewhere, as our Islamic vs conventional home loan comparison does.

What the rules do not say is what happens to conventional contracts still outstanding on 1 January 2028. Article 38 binds the state to eliminate riba; it does not itself rewrite private contracts, and SBP's working groups on legal reform have not published a customer-facing answer. Until they do, the prudent course is to refinance any long-dated conventional borrowing into an Islamic structure on your own timetable rather than wait to be told.

How to move your accounts without waiting for the letter

• Choose the destination: a full Islamic bank, an Islamic subsidiary or a window, using the bank accounts hub to compare declared rates and governance, and remembering that a window at a converting bank will itself change
• Open the new account digitally or at a branch following the steps in our guide to opening an Islamic bank account, and register a Raast ID against the new IBAN
• Move your salary credit by giving HR the new IBAN at least one pay cycle in advance, and keep the old account funded for one more month to catch stragglers
• Re-point every standing instruction, utility autopay, school fee mandate and mutual fund direct debit to the new account, then watch one full billing cycle
• Let conventional fixed deposits run to maturity rather than breaking them, then move the proceeds to a Sarwa account, an Islamic term deposit or a money market fund
• Refinance any conventional loan into an Islamic facility, comparing the converting bank's offer against at least one competitor's Key Fact Statement
• Close the old account in writing and obtain a closure letter, because dormant conventional accounts still accrue interest that must be purified

What to ask before you sign the Islamic account form

SBP's conversion circular obliges the bank to give you the expected profit rate for each deposit category, the new fee schedule and the product features. Ask for all three in writing and then ask for the things it does not oblige: the pool's profit-sharing ratio and weightages, the last twelve months of declared rates, the Shariah Board's fatwa on the specific account, and whether the account is a Mudarabah savings account or a Qard-based current account. If the bank is a window, ask when its own conversion is scheduled, because you may be moving twice.

Our view: move now, on your terms

A customer with only a salary account and a debit card should switch this month, because the Islamic equivalents are mature, the declared rates at the best Islamic banks beat most conventional savings rates, and waiting only means receiving a conversion notice on the bank's timetable instead of yours. A customer with a conventional fixed deposit should let it mature and move the proceeds, not break it. A customer with a conventional mortgage or car loan should request an Islamic refinance quote from the existing bank and a competing Key Fact Statement from a full Islamic bank, and choose on total cost rather than loyalty.

A customer at a bank already under in-principle approval for full conversion, such as Bank Makramah or U Bank, can reasonably stay and consent when the notice arrives, because the whole institution is moving and the branch rules protect the choice. Everyone else should treat 1 January 2028 as the latest acceptable date, not the target. Facts checked against sbp.org.pk, senate.gov.pk on 26 September 2026.

Frequently asked questions

What is the deadline for eliminating riba in Pakistan?

Before 1 January 2028. The Constitution (Twenty-sixth Amendment) Act, 2024, gazetted on 21 October 2024, replaced Article 38(f) with the words eliminate riba completely before the first day of January, two thousand twenty-eight. The clause binds the state as a principle of policy. It followed the Federal Shariat Court's judgment of 28 April 2022, which SBP's Financial Stability Review 2025 cites as the trigger for the transformation programme.

Can my bank convert my account to Islamic without asking me?

Only an individual's current account, and only after the bank has exhausted efforts to reach you. SBP's IFPD Circular No. 05 of 2024 allows deemed acceptance for individual current accounts after at least two notices 30 days apart in English and Urdu, with Shariah Board approval and legal clearance. Savings and fixed deposits, non-individual accounts, loans, and accounts of non-Muslims cannot be converted without explicit consent.

What happens to my fixed deposit if my branch becomes Islamic?

If you consent, it converts to the Islamic term product on disclosed terms. If you dissent, the bank must transfer it to another conventional branch or close it as you choose. If you do not respond, SBP's rules forbid deemed conversion of savings and fixed accounts; the deposit is parked in a temporary virtual conventional cost centre for up to a year or moved to the nearest conventional branch with notice to you.

Does the riba judgment cancel my conventional car loan or mortgage?

No. SBP's conversion rules state that deemed acceptance does not apply to loan or financing portfolios, so your contract stays in force until repaid or refinanced with your agreement. A converting bank will usually offer an Islamic refinance into Diminishing Musharakah or Ijarah. Compare that offer against a competitor's Key Fact Statement before accepting, and do not assume the 2028 deadline will rewrite the contract for you.

Which Pakistani banks have already converted to Islamic banking?

Faysal Bank completed the conversion of its entire conventional balance sheet and operates as a full Islamic bank. Bank Makramah, formerly Summit Bank, is mid-conversion. U Bank is moving its whole microfinance operation to Islamic banking, Bank of Khyber is on course to stop being a window, Sindh Bank has 94 branches documented as converting, and Askari Bank is converting its growth fastest. SBP's 2025 review also records three new approvals and five in-principle approvals for Shariah-compliant operations.

How long does a bank have to complete conversion once SBP approves it?

SBP's 2017 guidelines for converting a conventional bank into a full Islamic bank allow up to three years from in-principle approval, with extensions on justified grounds, and bar the bank from expanding its conventional branch network from the approval date. Individual branches convert under IFPD Circular No. 05 of 2024, which requires three and a half months' public notice and a 30-day consent window for account holders.