Pakistan, one of the largest Muslim-majority nations, is struggling to establish a fully operational Islamic digital banking system. Despite the surging demand for Shariah-compliant financial solutions, the country lags significantly in the global Islamic fintech race. While nations like Malaysia, Indonesia, and the UAE have successfully launched digital banks aligned with Islamic finance principles, Pakistan has yet to get a single fully digital Islamic bank off the ground.
A Massive Demand, Yet No Real Progress
The demand for Islamic banking is undeniable. Reports suggest that over 77% of Pakistan’s banking customers prefer Shariah-compliant financial products, yet their options remain limited. The State Bank of Pakistan (SBP) issued five digital banking licenses, expecting these institutions to spearhead the Islamic fintech revolution. However, as of 2025, there has been little to no tangible progress, raising concerns about whether these digital banks were ever adequately prepared for such an undertaking.
The Difference Between Digital Islamic Banking and Traditional Mobile Apps
A critical distinction has been overlooked: there is a fundamental difference between an Islamic bank’s mobile app and a fully digital Islamic bank.
Most existing Islamic banks in Pakistan offer mobile applications, but these serve merely as extensions of traditional banking rather than fully digital banking ecosystems. None of the current Islamic banking apps provide a 100% online account opening experience or an end-to-end digital solution. Customers must still visit physical branches for verification, documentation, and onboarding—defeating the purpose of digital banking.
The Technology Gap: A Major Roadblock
One of the biggest hurdles in launching a fully digital Islamic bank is the lack of technological readiness. Unlike conventional banks, an Islamic digital bank must be equipped with a strong backend system capable of managing:
- Profit-and-loss-sharing models
- Zakat deductions
- Interest-free financing solutions
Unfortunately, the majority of Pakistan’s digital banking license holders have struggled with even basic technological infrastructure, making it nearly impossible to roll out a seamless Islamic digital banking experience.
Investor Confidence Is Crumbling
Pakistan’s Islamic fintech sector initially saw significant investor interest. However, the continued delays, lack of transparency, and absence of a clear execution roadmap have eroded investor confidence. Many early backers who were once optimistic about Pakistan’s potential to lead the global Islamic finance sector are now backing out due to uncertainty and lack of action.
Conventional Digital Banking Is Growing—At the Cost of Islamic Banking
While Islamic digital banking remains stagnant, conventional digital banks are expanding at a rapid pace. New banking models that do not adhere to Shariah compliance are being rolled out successfully, raising a critical question: Is Pakistan truly committed to Islamic digital banking, or has it simply become a talking point with no real execution?
The Cost of Inaction: A Financial Policy Failure in the Making
The failure to establish a functional Islamic digital banking system is not just a missed opportunity—it is a serious setback for Pakistan’s aspirations to become a global leader in Islamic finance. If this trend continues, digital banking in Pakistan will go down as one of the biggest financial policy failures in recent history.
What Needs to Be Done?
To address this crisis, immediate action is needed:
- Accelerate Regulatory Reforms – The SBP and the Ministry of Finance must introduce clear guidelines and provide a structured framework for Islamic digital banking.
- Invest in Fintech Infrastructure – Without robust technological infrastructure, no Islamic digital bank can operate efficiently.
- Encourage Public-Private Collaboration – The government must incentivize fintech startups and banks to develop truly digital Shariah-compliant solutions.
- Restore Investor Confidence – A transparent roadmap and accountability measures are needed to reassure investors that Pakistan is serious about its commitment to Islamic fintech.
Pakistan stands at a crossroads. The global Islamic fintech industry is growing, but the country is failing to keep up. With an overwhelmingly large Muslim population demanding Shariah-compliant banking solutions, Pakistan cannot afford to delay any longer. The time to act is now—before Islamic digital banking becomes yet another unrealized dream.
