By Abdul Ghani

Pakistan has highlighted three major obstacles to achieving a Riba‑free financial system by 2027: converting public debt, implementing necessary legislative reforms and expanding the supply of Shariah-compliant financial instruments. The government has  outlined a comprehensive mitigation strategy to address these challenges.

According to the Post-2027 Financial System in Pakistan strategy paper, available with Wealth Pakistan, the successful implementation of the post-2027 financial system will depend on addressing several legal, institutional and operational challenges before the constitutional deadline for eliminating Riba.

The strategy identifies the conversion of existing public debt into Shariah-compliant financing as the most significant challenge facing the transition. According to the document, overcoming this obstacle will require the establishment of an Asset Registry Company (ARC), the willingness of federal government entities to assign non-current assets for Sukuk issuance, implementation of a cabinet-approved asset assignment mechanism and the introduction of a regular sovereign Sukuk issuance calendar.

The government also considers the development of short-term sovereign Sukuk to be critical for the smooth functioning of the future financial system. The strategy notes that the State Bank of Pakistan (SBP) and commercial banks are at an advanced stage of finalising structures for three-month and six-month Sukuk, which are expected to address liquidity management requirements before December 2027.

Another major challenge highlighted in the document is the timely enactment of amendments to federal and provincial laws governing financial and commercial activities. The strategy states that these legislative changes are essential for establishing an enabling legal and regulatory framework that ensures Shariah conformity while protecting consumers and maintaining financial system stability.

According to the strategy, a comprehensive review of the relevant laws has largely been completed and the required amendments have already been identified. The legislative process is expected to begin soon to ensure completion before the end of 2027.

The document also addresses concerns regarding the technological readiness of Pakistan's banking sector. It states that information technology risks are relatively limited because most conventional banks already possess the infrastructure needed to operate Islamic banking services through their existing Islamic banking windows. A dedicated working group has prepared baseline specifications for the required IT ecosystem to minimise execution risks during the transition.

Human resource capacity has been identified as another implementation challenge. According to the strategy, numerous initiatives have already been launched to train employees of conventional banks in Islamic finance, strengthen institutional expertise and bridge knowledge gaps across the financial sector. These programmes are expected to improve operational preparedness and facilitate a smoother transition.

The strategy concludes that coordinated implementation by the federal and provincial governments, SBP, the Securities and Exchange Commission of Pakistan and other stakeholders will be essential for managing these risks and ensuring a seamless transition to a Shariah-compliant financial system. It states that the reforms are intended to maintain financial stability, preserve investor confidence and support the continued functioning of Pakistan's financial markets throughout the transition.

Credit: INP-WealthPk