Islamabad, Jan 15: United Bank Limited (UBL) has made a significant move towards embracing Islamic banking by converting all of its branches in Khyber Pakhtunkhwa and Balochistan into fully Shariah-compliant branches.
This step is part of the bank’s commitment to align with the recently passed legislation, which mandates a transition of the entire banking sector towards Islamic banking by 2027.
The legal framework was established following a ruling by Pakistan’s Federal Shariat Court, which called for the elimination of riba (interest) from the financial system.
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UBL’s transformation follows a broader trend in Pakistan’s financial sector. As of 2023, the Islamic finance industry accounted for 21 percent of the country’s total banking market, with Islamic banking assets reaching an impressive Rs. 7.2 trillion—marking a 24 percent year-on-year increase.
Deposits in Islamic banks also surged to Rs. 5.8 trillion, which represents nearly a quarter of all banking deposits in the country.
This growth highlights the increasing acceptance and demand for Shariah-compliant financial products in Pakistan, driven by both legal mandates and consumer preference.
However, the conversion of conventional banks to Islamic banking is a complex process. It requires banks to overhaul their loan portfolios, ensure their products comply with Shariah principles, and train staff on the nuances of Islamic finance.
Currently, only five out of Pakistan’s 42 commercial banks are fully Islamic institutions. The transition for the remaining banks involves extensive restructuring, including the introduction of Sharia-compliant financial products and services.
The State Bank of Pakistan (SBP) has played a crucial role in facilitating this shift. The SBP’s Transformation Plan (2023-2027) provides technical support and financial incentives to banks, ensuring they can make a smooth transition to Islamic banking while adhering to Shariah standards.
The shift to Islamic banking is a monumental step in Pakistan’s financial evolution, offering an alternative to conventional banking systems that align with the ethical and moral values of its predominantly Muslim population.
