Islamic banks in Pakistan are either fully Islamic institutions, such as Meezan Bank or BankIslami, or Islamic branches of conventional banks, offering accounts, home, car and business financing under contracts approved by their own Sharia board.
Fully Islamic banks or branches of a conventional bank?
Customers choose between two networks. On one side are banks whose entire business is Islamic; on the other, Islamic brands of large conventional groups, operating in dedicated branches with their own funds and a separate Sharia board.
Meezan, BankIslami and the other full-fledged banks
Meezan Bank, the first licence of the 2002 generation, is the best known. BankIslami Pakistan, Dubai Islamic Bank Pakistan, Al Baraka Bank Pakistan and MCB Islamic Bank complete the group, joined by Faysal Bank after its whole network was converted.
Faysal Bank, a fully converted bank
Faysal Bank gradually turned its conventional branches into Islamic ones and obtained an Islamic banking licence at the end of 2022. For its customers, old accounts and loans were replaced by products based on Mudaraba, Murabaha or diminishing Musharaka.
Bank Alfalah Islamic, HBL Islamic and UBL Ameen
Several large commercial banks run Islamic networks under their own brand, such as Bank Alfalah Islamic, HBL Islamic or UBL Ameen. In the same city a customer can therefore find an Islamic branch of their usual bank next to the conventional one.
Current and savings accounts: how returns are calculated
The current account works as Qard and pays nothing. The savings account rests on a Mudaraba pool: each month the bank announces an expected profit rate, worked out from the pool's actual income and from weightages based on amount and tenor.
Term deposits: weightages and tenor
A one-year certificate receives a higher weightage than a demand deposit when the pool's profit is shared. The final return is not guaranteed; if the pool made a loss, depositors would bear it in proportion to their funds, unless the bank was at fault.
Breaking a deposit early: what changes
If a saver closes a certificate before maturity, the bank often recalculates the profit share using the weightage of a shorter tenor. Customers should read the schedule published by the bank, as these rules differ from one institution to another.
Zakat deducted at source on some accounts
In Pakistan, zakat can be deducted automatically from Muslims' savings accounts on an annual date set by the state. Account holders concerned who wish to be exempted file a sworn declaration within the deadline, under the rules in force.
Financing a home through diminishing Musharaka
The most common product is diminishing Musharaka: bank and customer buy the property together, the customer rents the bank's share and buys it back in instalments. Example: with a 30% contribution the bank holds 70%, and the rent falls after each buy-back.
Car Ijara: who pays for insurance and upkeep?
For a car, the bank buys the vehicle and leases it to the customer, who becomes the owner at the end through a separate promise. As owner, the bank bears the vehicle's takaful and basic liability, usually built into the rent.
Accounts for overseas Pakistanis
Since 2020 the diaspora can open a Roshan Digital Account remotely, also offered in an Islamic version, and place savings in Islamic Naya Pakistan Certificates. These options suit a resident of London or Dubai who wants to save in rupees or dollars.
Businesses: Salam, Istisna and export finance
SMEs and exporters use Murabaha for raw material purchases, Salam for harvests and Istisna for goods made to order. The State Bank has also set up export refinancing facilities in a Sharia-compliant version.
Specialist external source
The State Bank of Pakistan keeps the list of authorised Islamic banking institutions and publishes a quarterly bulletin on their branches, deposits and financing.