Why Pakistan Doesn’t Have Islamic Digital Banks Yet?

Why can’t I open a fully Islamic bank account on my phone in Pakistan? It’s a question millions of Pakistanis have been asking for years now. Despite a massive demand for Shariah-compliant banking, Pakistan is lagging behind the rest of the world—even non-Muslim majority countries—in launching truly digital Islamic banks. While Malaysia, Indonesia, and the UAE are leading the charge, Pakistan, with one of the largest Muslim populations globally, hasn’t even gotten one fully digital Islamic bank off the ground. What’s going on? This article explores the roadblocks hindering Pakistan’s Islamic digital banking revolution and what it means for the future of Islamic finance in the country.

This significant lag raises pressing questions about the complex interplay of factors hindering progress, the potential consequences for Pakistan’s financial future, and the missed opportunities in a rapidly expanding global Islamic finance market. It also underscores the increasing competition from other nations aggressively pursuing this lucrative and underserved market segment.

Related: Mashreq Expands Financial Inclusion in Pakistan with Halal Digital Banking

The Untapped Potential of Islamic Digital Banks in Pakistan

The demand for Shariah-compliant financial products in Pakistan isn’t merely a preference; it’s a deeply ingrained cultural and religious imperative for a substantial portion of the population. Studies and surveys consistently reveal that a significant majority of Pakistani banking customers—estimated to be upwards of 77% and potentially even higher, depending on the specific demographic and region—express a strong and often unwavering preference for financial products that adhere strictly to Islamic principles. This vast, largely untapped market represents a significant and compelling opportunity for financial institutions capable of effectively bridging the gap between this overwhelming demand and the limited supply of truly Shariah-compliant digital financial services.

The State Bank of Pakistan’s (SBP) issuance of five digital banking licenses was initially perceived as a promising and much-needed step toward pioneering this crucial financial space, signaling a potential shift towards greater financial inclusion and access to Islamic financial services. However, as of 2025, progress has been disappointingly slow, fragmented, and largely invisible to the average consumer, with no fully operational Islamic digital banks launched. This protracted delay raises serious concerns about the preparedness and capabilities of the license holders, the efficacy and adaptability of the regulatory framework governing digital banking, and the overall commitment to fostering genuine innovation, competition, and growth within the Islamic finance sector.

Deciphering the True Essence of Islamic Digital Banking

A crucial distinction, frequently overlooked, misunderstood, or deliberately blurred in discussions surrounding Islamic digital banking in Pakistan, is the fundamental difference between a mobile banking application offered by a traditional Islamic bank and a genuinely digital, end-to-end Islamic bank. While many traditional Islamic banks in Pakistan offer mobile apps, these often function merely as extensions of their existing brick-and-mortar services, providing limited functionality and failing to deliver the full potential of a truly transformative digital banking experience. Critically, none of the current Islamic banking apps in Pakistan allow for complete and seamless online account opening, a fundamental feature of any genuine digital bank.

Customers are still invariably required to visit physical branches, often multiple times, for verification, documentation, and onboarding—a cumbersome, time-consuming, and often frustrating process that directly contradicts the core principles of digital banking, which is designed to be seamless, convenient, and accessible from anywhere with an internet connection. This persistent and often unnecessary reliance on physical branches creates a significant bottleneck, impeding the growth of Islamic digital banking and preventing it from reaching its full potential to serve the vast unbanked and underserved population, particularly in remote and rural areas. True Islamic digital banks offer a comprehensive and integrated suite of financial services accessible entirely online, from account opening and fund transfers to bill payments, investments, financing, and even Zakat calculations and charitable giving—all while adhering strictly to Shariah principles and guidelines.

Building the Robust Infrastructure for Islamic Digital Finance

Another significant and often underestimated challenge hindering the rapid development and successful implementation of Islamic digital banks in Pakistan is the lack of robust, scalable, and secure technological infrastructure. Establishing and operating a thriving Islamic digital bank requires a sophisticated and reliable backend system capable of seamlessly managing complex financial models, including profit-and-loss-sharing arrangements (Musharakah and Mudarabah), Zakat deductions, and various forms of interest-free financing solutions (Murabaha, Ijarah, Diminishing Musharakah). These systems must also be highly secure to protect sensitive financial data from cyber threats, reliable to ensure uninterrupted service and maintain customer trust, and scalable to handle the demands of a large and rapidly growing customer base.

Many of the entities that received digital banking licenses in Pakistan have struggled with even basic technological infrastructure, often lacking the necessary expertise, resources, and substantial investment capital to build and maintain the complex and sophisticated systems required for a fully functional and competitive Islamic digital bank. This technological gap creates a substantial barrier to entry, effectively preventing these institutions from effectively competing in the rapidly evolving and technologically driven digital finance landscape. It also necessitates substantial and strategic investment in cutting-edge technology, robust cybersecurity infrastructure, and ongoing talent acquisition to bridge this critical gap and enable Pakistan to fully participate in the global fintech revolution.

The Detrimental Impact of Delays and Lack of Clear Direction

The continued and frustrating delays, coupled with the perceived lack of concrete action, inconsistent policy pronouncements, and a clear, consistent, and supportive regulatory roadmap in the Islamic digital banking space, have significantly eroded investor confidence in Pakistan’s broader fintech sector, particularly among those interested in the burgeoning field of Islamic finance. Initial enthusiasm for fintech innovation in Pakistan was remarkably high, attracting significant interest from both local and international investors eager to capitalize on the perceived potential of this underserved and rapidly growing market.

However, the prolonged absence of a well-defined and predictable regulatory framework, coupled with the disappointingly slow and often opaque progress of licensed entities in launching fully operational Islamic digital banks, has driven many investors away, prompting them to seek more promising and less risky opportunities in other, more mature and stable markets. This decline in investor confidence not only hampers the development and growth of Islamic digital banks but also has broader and more detrimental implications for Pakistan’s entire fintech ecosystem, stifling innovation, hindering job creation, and impeding overall economic growth.

A Question of Priorities and Genuine Commitment

While the development and implementation of Islamic digital banks have stalled and faced numerous hurdles, conventional digital banking models in Pakistan have continued to experience rapid growth and expansion, driven by increasing smartphone penetration and a growing tech-savvy population, even though they do not adhere to Shariah compliance. This parallel growth, while undeniably positive in terms of increased financial inclusion and greater access to digital financial services for a segment of the population, raises pertinent and uncomfortable questions about the true priorities of regulators and policymakers.

Is there a genuine and unwavering commitment to fostering and promoting Islamic digital banking, or has it simply become a convenient talking point without any real intent or concrete action behind it? The impressive growth of conventional digital banking models highlights the urgent and pressing need to address the underlying challenges that are hindering the development and adoption of Islamic digital banks. It’s essential to create a level playing field where both conventional and Islamic digital banks can thrive and compete fairly, offering consumers a wider range of choices that cater to their diverse financial needs and preferences and promoting greater financial inclusion for all segments of Pakistani society.

A Call for Urgent Action and Collaborative Partnerships

Unless drastic, decisive, and coordinated action is taken very shortly, the continued failure to launch fully operational and thriving Islamic digital banks in Pakistan will be remembered as a significant and deeply regrettable policy failure with potentially far-reaching and negative consequences for the nation’s financial health, economic development, and social well-being. The following strategic steps are crucial and urgently needed for moving forward and unlocking the immense potential of Islamic digital banking in Pakistan:

• A Supportive Regulatory Framework: The State Bank of Pakistan (SBP) must establish a clear, comprehensive, and supportive regulatory framework specifically designed for the unique requirements and operational dynamics of Islamic digital banks. This well-defined framework should address all critical issues related to licensing procedures, Shariah compliance standards, technology requirements, data security protocols, cybersecurity measures, consumer protection safeguards, anti-money laundering (AML), and combating the financing of terrorism (CFT) regulations. This framework should also be adaptable and responsive to the rapidly evolving nature of fintech and digital financial services.

• Support for License Holders: The SBP should provide active, ongoing, and targeted support to the entities that have already received digital banking licenses, offering them expert guidance, readily available resources, and technical assistance to help them effectively overcome the myriad challenges they face in launching and scaling their operations. This support could include facilitating strategic partnerships with experienced technology providers, offering specialized training programs for their staff on Islamic finance principles and digital banking best practices, and providing access to necessary funding and investment opportunities.

• Investor Confidence: The government and regulatory bodies need to take concrete, visible, and demonstrably effective steps to restore and strengthen investor confidence in Pakistan’s fintech sector, particularly within the Islamic digital banking space. This requires demonstrating a clear and unwavering commitment to fostering genuine innovation, creating a stable, predictable, and transparent regulatory environment, and showcasing tangible progress in the implementation and growth of Islamic digital banks. This also involves clear communication with potential investors about the government’s vision for Islamic digital banking and the opportunities available in this rapidly growing market.

• Public-Private Partnerships: Building strong and productive collaborations and public-private partnerships between traditional banks, innovative fintech companies, experienced technology providers, and reputable Shariah scholars is essential for developing cutting-edge, user-friendly, and effective Islamic digital banking solutions. The SBP can play a proactive and facilitating role in fostering such strategic partnerships, creating a collaborative ecosystem where expertise and resources can be effectively shared and leveraged. This collaborative approach can help overcome technological hurdles, accelerate innovation, and ensure that Islamic digital banking products and services meet the diverse needs of the market.

• Comprehensive Consumer Education: Educating consumers about the numerous benefits, unique features, and user-friendly functionalities of Islamic digital banking is crucial for driving widespread adoption and increasing market penetration. This can be achieved through well-designed and targeted public awareness campaigns, educational programs conducted in partnership with community organizations and religious leaders, and the strategic use of social media and other digital platforms to reach a broad and diverse audience. These campaigns should emphasize the accessibility, convenience, and Shariah compliance of Islamic digital banking, addressing any misconceptions or concerns that potential customers may have.

• Focus on Technological Infrastructure: Investing in robust, scalable, and secure technological infrastructure is essential for building successful and sustainable Islamic digital banks. This includes developing secure and reliable backend systems, user-friendly mobile platforms, and other digital tools that meet the specific requirements of Islamic finance and adhere to the highest standards of cybersecurity. Encouraging innovation in fintech and supporting the development of new and creative Islamic digital banking solutions is also crucial for staying competitive in the global market.

• Robust Shariah Compliance Framework: Ensuring the strict Shariah compliance of all Islamic digital banking products and services is paramount for maintaining customer trust and upholding the integrity of Islamic finance. This requires establishing clear and comprehensive Shariah governance frameworks and providing ongoing oversight by qualified and independent Shariah scholars. Transparency and accountability in Shariah compliance are essential for building confidence among consumers and attracting investment.

• Addressing Cybersecurity Concerns: As digital banking becomes increasingly prevalent, cybersecurity threats become a significant concern. Islamic digital banks must invest heavily in robust cybersecurity measures to protect customer data and prevent fraud. This includes implementing advanced encryption technologies, conducting regular security audits, and educating customers about online security best practices.

• Financial Inclusion: Islamic digital banks have the potential to play a crucial role in promoting financial inclusion, particularly among underserved and unbanked communities. By offering accessible and affordable digital financial services, Islamic digital banks can empower individuals and small businesses, contributing to economic growth and social development.

• Developing a Skilled Workforce: Building a strong and skilled workforce is essential for the success of Islamic digital banking. This requires investing in training programs and educational initiatives to develop expertise in Islamic finance, digital banking technologies, and cybersecurity.

However, realizing this substantial potential requires urgent, decisive, and coordinated action, strategic vision, and a firm, unwavering commitment from all stakeholders, including government regulators, financial institutions, technology providers, Shariah scholars, and the broader community. The time for discussion and deliberation is over; the time for concrete action and implementation is now. Pakistan must seize this crucial opportunity to fully embrace the transformative power of Islamic digital banking and unlock its vast potential for the benefit of its citizens, its economy, and its future. The success of Islamic digital banking in Pakistan is not just a financial imperative; it’s a social and economic imperative that can contribute to building a more prosperous and inclusive society for all.