Development of Islamic Banking in Pakistan; Challenges and Prospects

Abstract

This research examines the evolution and progress of Islamic banking in Pakistan, identifying key challenges
and assessing future prospects within the sector. The study adopts a qualitative methodology, drawing on both
primary and secondary data sources, including historical reports, statistical data, and interviews with key
stakeholders in the Islamic banking industry. Specifically, it includes insights from regulators at the State Bank
of Pakistan (SBP) and experts from Shariah Supervisory Boards (SSBs) within the sector. Interviews were
conducted with nine officials from the SBP and twelve Shariah supervisors, making this study unique in its focus
on industry regulators and Shariah scholars, unlike previous research that predominantly centered on customers
and bankers. The findings reveal that while the development of Islamic banking in Pakistan has faced significant
challenges, it has nevertheless gained traction over time. Addressing these challenges is essential for the
continued growth and success of the sector. As of 2023, the Islamic banking industry in Pakistan has expanded
to PKR 6.8 trillion (approximately USD 40 billion), capturing a 28.4% share of the total banking market (SBP,
2023).