Evolution of Islamic Digital Banking in Pakistan

Islamic banking in Pakistan aims to establish an interest-free economy. Key milestones include:
Early Efforts (1970s): Islamic banking in Pakistan formally started in the late 1970s. In 1979, the then-President announced the implementation of the Islamic economic system.

Introduction of PLS Accounts (1981): In 1981, accounts were opened in all scheduled banks under the “Profit and Loss Sharing” scheme to move towards an alternative system of interest.
Attempt at complete transformation (1985): Efforts were undertaken to transition the entire banking system of Pakistan to a non-interest-bearing basis from July 1, 1985. However, these measures were criticized for not fully aligning with Sharia principles.

Court decisions and Sharia Appellate Bench (1990s): In 1991, the Federal Sharia Court declared the prevailing usury system un-Shariah. In December 1999, the Sharia Appellate Bench of the Supreme Court issued a historic decision, declaring usury completely forbidden and giving the government time to reform the system.

Inception of modern Islamic banking (2001-2002): The State Bank of Pakistan introduced a new policy of Islamic banking in 2001. Under this, Meezan Bank was issued a license as Pakistan’s first fully Islamic commercial bank in 2002.

Current situation: Today, several fully Islamic banks (such as Bank Islami, Dubai Islamic Bank) and “Islamic windows” of several conventional banks are operating in Pakistan. A special department of the State Bank of Pakistan is working to monitor and promote this system.

Recent developments (2022-2024): In April 2022, the Federal Sharia Court once again ordered Pakistan to be completely interest-free within five years (by 2027), which the government and the State Bank are working on.

Digital Islamic banking is growing rapidly in Pakistan, aiming to provide modern financial services in line with Sharia principles. The State Bank of Pakistan recently introduced a licensing framework for fully digital banks to increase financial inclusion.

Digital Islamic banking in Pakistan refers to Sharia-compliant banking services provided primarily through mobile apps, websites, and digital platforms without (or with minimal reliance on) physical branches.

It combines Islamic financial principles (no riba/usury, profit and loss sharing through methods such as Mudaraba, Musharaka, Murabaha, Ijarah, etc.) with modern fintech for convenience, accessibility, and financial inclusion.

Key features of Digital Islamic Banking:
Fully digital onboarding:
Account opening through the app using a computerized national identity card, selfie, and biometric authentication (under the State Bank of Pakistan’s branchless/digital framework).
Services:
Funds transfer (including instant direct payments), bill payments, mobile top-ups, debit/credit cards (Sharia compliant), savings/investment accounts, financing (e.g., auto, home under Islamic methods), remittances, and utility/government payments.

Shariah governance: All products supervised by the Shariah Board; State Bank of Pakistan implements a robust Shariah governance framework (updated 2025) for compliance, audit, and product approval.

Regulatory support: The State Bank of Pakistan (SBP) has actively promoted the sector.

The Digital Banking Framework (2022) allows Digital Retail Banks (DRB) and Digital Full Banks (DFB) to operate in either conventional or Islamic formats (or Islamic windows).

Focus on financial inclusion, especially for youth, SMEs, women, and underserved rural areas (64%+ mobile penetration helps). Islamic banking assets form a growing share of the sector, with digital channels accelerating adoption.

The gradual evolution of digital banking in Islamic banks.

The gradual evolution of digital banking in Pakistani Islamic banking was made possible by regulatory support from the State Bank of Pakistan, technological advancements, and demand for Sharia-compliant services. Islamic banking in Pakistan began in 2002 when Meezan Bank became Pakistan’s first fully-fledged Islamic commercial bank, while digital transformation began in the mid-2000s and accelerated in the 2020s.

Phase 1: Inception and Basic Digitalization (2002–2010)

The establishment of Meezan Bank in 2002 laid the foundation for Islamic banking. Initially, the focus was on branch network and Shariah-compliant products (such as Murabaha, Ijarah, Musharaka). In 2006, Meezan Bank introduced internet banking, which was the first major step in digital services in Islamic banks. Digital banking during this period was limited to ATMs, debit cards, and SMS alerts. The State Bank of Pakistan issued Islamic Banking Policies in 2003, which later became the foundation of the digital infrastructure. Islamic banking assets were a very small part of the total banking sector, and digital access was limited to urban areas.

Phase 2: Expansion of mobile and internet banking (2011–2019)

In 2014, Meezan Bank launched a mobile banking app, which played a significant role in popularizing digital access among Islamic banks.

Other Islamic banks (such as Bank Islami, Dubai Islamic Bank Pakistan) also launched internet and mobile services.

The State Bank of Pakistan’s second strategic plan for 2014–2018 promoted Islamic banking, while cashless banking and fintechs such as Easypaisa in 2009 and JizCash in 2012 expanded the overall digital payments, as later adopted by Islamic banks.

In 2015, the Shariah Governance Framework was released, which helped ensure Shariah compliance of digital products. Digital transactions increased during this period, but reliance on branches was still high.

Phase 3: COVID-19 and the Digital Revolution (2022–2020)

The COVID-19 pandemic accelerated digital banking. Banking apps, online account opening, and biometric verification became commonplace.

Banks like Meezan Bank saw a large increase in digital transactions (e.g., 114% increase in mobile/internet banking value in 2022). State Bank of Pakistan introduced “Pakistan’s first Instant Payment Service (Raast)” in 2021, which enables real-time payments between individuals and businesses across the country by providing a better experience to onboard users by linking their mobile number to their bank account and creating their RAAST ID, enabling end-to-end digital payments and providing Shariah-compliant interoperability for Islamic banks. -The third strategic plan of 2021-2025 emphasized fintech and alternative delivery channels (ADC), which included Islamic microfinance and SME financing.

Phase 4: Digital Banking License and Modern Era (2025–2022)

In 2022, the State Bank of Pakistan issued the Digital Banking Licensing Framework, which also covers the Islamic segment. It promoted digital-first banks.

Islamic banks have embraced AI, big data, and modern core banking systems (such as Temenos). Meezan Bank has launched generative AI projects.

Raqqami Islamic Digital Bank (limited license for pilot operations in 2025) is poised to become Pakistan’s first fully Sharia-compliant digital retail bank. Its assets have grown rapidly, and other digital banks (such as Mashreq Digital Bank) have offered Islamic services. The State Bank of Pakistan has approved a few of the more than 40 applications.

By 2025, Islamic banking assets had become about 21–20% of total banking, while digital payments accounted for 92% of retail transactions.

Phase 5: Towards the Future (2026-2028)

As per the Federal Shariat Court of Pakistan’s decision “2022”, the State Bank of Pakistan’s Vision 2028 aims to transition to a fully Shariah-compliant banking system.

Expanding digital banking: real-time payments, AI-powered personal services, blockchain, and inclusive products (for women, youth, SMEs, rural areas).

Challenges: Stringent Shariah governance, cybersecurity, lack of infrastructure in rural areas, and standard fintech integration.

Opportunities: Over 64% financial inclusion (by 2023), young population (64% under 30), and 75% mobile penetration. The State Bank of Pakistan’s target is 75% financial inclusion by 2028.
Role of fully Islamic banks in Pakistan:
Meezan Bank;
Pakistan’s first, largest, and most well-known Islamic bank is Meezan Bank. Meezan Bank operates entirely on Sharia (Islamic banking) and provides interest-free financial services. Meezan Bank was founded on 27 January 1997 as an investment bank. In January 2002, the State Bank of Pakistan issued the country’s first full Islamic commercial banking license. It was later renamed Meezan Bank and became a full-fledged commercial Islamic bank. It has a network of over 1,000 branches spread across more than 320 cities in Pakistan. It is a publicly listed company on the Pakistan Stock Exchange, with a paid-up capital of approximately Rs. 18 billion.

Credit Rating, AAA Highest and Short Term Most Secure A1+ Over 33% in Pakistan’s Islamic Banking Industry

Received Pakistan’s Best Bank Award multiple times (third time in Pakistan Banking Awards 2023) and International Awards for Best Islamic Bank, such as Global Finance, Islamic Finance News
Digital and Other Products:
Meezan Bank offers all traditional banking services in an interest-free manner, such as: Accounts, Current, Savings, (Term Deposits) Roshan Digital Account (for overseas Pakistanis), Car Lease/Car Financing, Easy Home/House Finance (Musharakah-based, shared ownership model), Business Finance, Trade Finance, Working Capital, Digital Banking, Mobile App, (Meezan Bank Mobile), Internet Banking, SMS Banking, Digital Account Opening, Visa and MasterCard, Debit Cards and other investments,Meezan Bank not only introduced Islamic Banking in Pakistan but also rapidly expanded it Developed and today it is considered one of the largest and safest banks in the country. Digital and other products: The bank provides retail, corporate, consumer, investment, and agricultural banking services. Islamic Sahulat Account, Islamic Asan Account, Islamic Khair Current Account, Auto Financing, Maskan Home Financing, Agricultural Financing (such as Tractor Financing – under the Prime Minister’s Kamyab Jawan Program) Debit Cards (used at 50,000+ merchants and 14,000+ ATMs across the country) Takaful (Sharia-compliant alternative to insurance) Digital Banking (launched in June 2025 “Aik” digital platform Online Banking, Mobile App, Remittance, SME Financing and Trade Financing The bank’s entire network is online, meaning instant transactions are possible from any branch. Named the Best Islamic Bank in Pakistan at the 2025 Euromoney Islamic Finance Awards and won the Jury Award for Best Campaign at the 2025 Pakistan Digital Awards, Dubai Islamic Bank Pakistan Limited is a fully Islamic commercial bank in Pakistan. It is the world’s first Islamic bank, established in the United Arab Emirates in 1975, Dubai Islamic Bank is a wholly owned subsidiary of the United Arab Emirates, established in Pakistan on 28 March 2006, and is headquartered in Karachi, with 235 branches across the country. Digital and other products, Personal banking (accounts, debit cards, financing)

Digital banking (mobile app, internet banking)
Corporate and SME banking
Priority banking
All services are Sharia-compliant (Islamic banking)
Credit rating: Long-term ‘AA-‘ and short-term ‘A-1’ (stable outlook) from JCR-VIS
It is one of the major Islamic banks in Pakistan. Al Barakah Islamic Bank is a fully Sharia-compliant Islamic bank in Pakistan. It is a subsidiary of Al Barakah Banking Group (Bahrain), a leading international Islamic financial group in the world.

Al Barakah Islamic Bank Limited started its operations in Pakistan in 1991, when it was a branch operation of Al Barakah Islamic Bank, Bahrain. It was incorporated as a public limited company in 2004 and received an Islamic banking license in 2007.

In 2010, the first major merger of Pakistan’s Islamic banking sector took place, combining the branch operations of Al Barakah Islamic Bank Pakistan + Emirates Global Islamic Bank (Pakistan) to form Al Barakah Islamic Bank (Pakistan). It became fully operational on 1 November 2010. In 2016, the second major merger took place with Burj Bank Limited, further expanding the bank’s network. Al Barakah Islamic Bank is considered the pioneer (founder) of Islamic banking in Pakistan, as it has been offering Sharia-compliant banking continuously since 1991. With around 200 branches in 80+ cities across the country, it is among the 6-7 fully Islamic banks in Pakistan (such as Meezan Bank, Bank Islami, Dubai Islamic Bank, MCB Islami, etc.). Digital and Other Products: The bank offers all services in accordance with Shariah on an interest-free, risk-sharing basis Current Account, Savings/Platinum Accounts (with profit sharing), Car Finance, Home Finance, Business Finance, Term Deposits, Muhammadan Deposits, Corporate Banking: Treasury, Trade Finance, Investments, Online/Mobile Banking, Digital Account Opening, Credit Cards (Shariah), Remittances, Hajj/Umrah Finance etc.

All the bank’s products are approved by the Shariah Board, and its Shariah certificates are available on the website.

Al Baraka Banking Group (Bahrain) is present in 13+ countries (Asia, Africa, Europe). With 600+ branches globally, playing a key role in promoting Islamic banking in Pakistan, MCB Islamic Bank is a fully Sharia-compliant bank in Pakistan. It is a wholly owned subsidiary of Muslim Commercial Bank Limited.

MCB Islamic Bank commenced its operations in 2015. It was formed from the Islamic portfolio of the Muslim Commercial Bank and the National Idea Bank NIB). The bank aims to provide financial services based purely on Sharia principles, and operates under the guidelines of the State Bank of Pakistan and under the supervision of its Sharia Board.

The Chairman of the Sharia Board is a renowned scholar like Professor Mufti Muneeb-ur-Rehman. There are over 320+ online branches across the country, while select services (such as cash deposits, cheque clearing, etc.) are available at 1400+ branches.

Digital and Other Products: Current Accounts (on the principle of Qard) Savings Accounts and Term Deposits (on the principle of Mudarabah) Digital Account (Open in 5 minutes from Subik App + Free Takaful Coverage) Debit Cards (Qadar Classic, Qadar Gold, PayPak) Mobile App: SUBUK (Account Management, Fund Transfer, Bill Payments, Mobile Top-up) MICAR (Vehicle Financing / Diminishing Musharakah, Murabaha Microfinance (PKR 10,000 to 500,000, 3-24 months) SME, Commercial, Corporate and Agriculture Financing, Financial Institutions and Remittance Services (Instant Payments at 320+ Branches), Digital Banking, SUBUK Mobile App, Internet Banking, Phone Banking, RAAST, IBFT, RTGS, Digital Onboarding (Open Account from Home), Bank Focus Corporate, Commercial, SME, Consumer, Agriculture and Micro Sectors. Home Remittance Services (Instant Payments from all over the world – COC, Direct Credit, etc.), Home Remittance has a network of 320+ branches.

Faisal Bank is a large and prominent fully Islamic bank in Pakistan. The bank converted to fully Islamic banking in 2023, when the State Bank of Pakistan issued it a full Islamic banking license. At present, it is the second-largest fully Islamic bank in Pakistan after Meezan Bank. Before 1994, Al Faisal Investment Bank was known as Prince Muhammad bin Faisal Al Saud of Saudi Arabia, with a wide network of about 850+ Islamic branches in 350+ cities and towns across Pakistan.

Digital and Other Products:
Faisal Bank provides all services in accordance with Sharia, such as Riba (interest) free, Mudarabat, Murabaha, Tawariq, Ijarah, Products based on Musharakah, etc., Savings Accounts (Faysal Islamic Saving Account), Halal Profit (on Mudaraba principle), No Minimum Balance Required, Asaan Saving, Life Plus, Mubarak Safar, etc. Current Accounts (Faysal Islamic Current Account) without profit, for business and personal use, Asaan Current Account, Rehmat Business Account, Personal Financing (Personal Finance, based on Tawarq, from Rs. 50,000 to Rs. 40 lakh, tenor of 12 to 48 months. Car Financing (Car Finance), Sharia-compliant for vehicle purchase, Home Financing, and other asset financing are also available. Noor Cards (Faysal Islami Noor Cards), Sharia-compliant debit and credit cards (debit cards mostly), Global acceptance, with special discounts, Barkat Debit Card, Roshan Digital Account, Islamic Funds (Faysal Funds), Sharia-compliant investment in PSX. Digital Banking Mobile App, Internet Banking, Bill Halal solutions for payments, remittances, and Takaful. The full Islamic conversion of Faisal Bank was a historic step and is overseen by the Sharia Board. There are now 7 full Islamic banks in Pakistan, including Faisal Bank. Many scholars (such as those on Fatwa websites) consider it permissible, while some hard-line scholars object to certain aspects of Islamic banking (such as credit card agreements). Bank Mukarramah Limited is an Islamic bank in Pakistan with its head office in Karachi. It was previously known as Summit Bank Limited. Established in 2006, the bank was fully converted to an Islamic bank in November 2023, and its name was changed from Summit Bank to Bank Mukarramah Limited. This change reflects its commitment to adopting the principles of Islamic finance and offering innovative financial solutions.

Stock Exchange: Listed on the Pakistan Stock Exchange (PSX) under the symbol BML. It has approximately 170+ branches in 60+ cities across Pakistan and 180–200+ ATM machines. The Chairman/Main Investor is Nasser Abdulla Hussain Lootah, who is the major shareholder and patron of the bank. He acquired 60.45% of the bank’s shares in 2023 and subsequently made a total investment of approximately Rs. 41 billion. In 9 months (till September 2025), a profit before tax of more than Rs 1.75 billion was recorded, and deposits also saw an increase. The bank’s long-term and short-term ratings have improved. Digital and other products: BML Mobile App and Internet Banking provide facilities for fund transfer, bill payment, account management, etc. “Raast” is available, a modern solution for instant payments. BML is now a fully Islamic bank and offers various Islamic banking products such as Islamic Savings Accounts, Financing, Corporate Banking, Islamic Current Account, Asan Account, Hoor Account, etc., which are Sharia-compliant. A mobile app, BML Mobile, is also available, which provides facilities for bill payment, fund transfer, etc.
Note that the article is written by Syed Mohsin Ali Shah, PhD Scholar, Department of Thought History and Culture, Allama Iqbal Open University, Islamabad, whose research paper ‘Evolution of Islamic Digital Banking in Pakistan’ includes references to Dr. Khurshid Ahmed-ul-Haq, Islamic Banking and Pakistani Economy, Sangmail Publications, Lahore, 2015 Dr. Rafiq Ahmed, Islamic Economic System and Pakistan, Iqbal Academy, Lahore, 2002; Dr. Asmatullah, Islamic Banking and Modern Times, Islamic Research Institute, Islamabad, 2008; Dr. Muhammad Zubair Ashraf Usmani, Islamic Banking and Us, Maktaba Ma’arif-ul-Quran, Karachi, 2014 Dr. Muhammad Abu Bakr Siddique, Economics of Islam, International Islamic University, Islamabad. September 2024, Dr. Shahid Hussain Siddiqui, Islamic Banking, Interest-Free or Interest-Free and Exploitative, Fazli Book Karachi, September 2025, Dr. Mufti Imdadullah Mahmood Farid, Research Review of Usury Issues in Islamic Finance and Banking, Al-Faisal Publishers and Book Traders, Ghazni Street Urdu Bazaar, Lahore, September 2025, Dr. Mahmood Ahmed Ghazi, Lectures on Economy and Trade, Al-Faisal Publishers and Book Traders, Ghazni Street Urdu Bazaar, Lahore, February 2022, Dr. Muhammad Amir Taseen, Some Hidden Corners of Islamic Economics, Science and Research Corner Karachi, 2022.