Islamabad. The Islamic finance sector is set for further stellar growth, pushed in part by the central bank (Shutterstock).

Islamic Finance

Pakistan’s Islamic banking sector growing in the double digits

Islamic banking has grown 24% a year over the past decade, according to Moody’s, and is set for 25% growth over the next five years.


Pakistan’s banking sector has achieved strong growth over the past decade, driven by the country’s large Muslim population, low financial inclusion rates and more conducive governmental regulations, according to a report by Moody’s Investor Service.

In 2011, Islamic banking assets accounted for 8% of overall banking assets, but have increased by an average of 24% a year, to 19% of total banking assets, at Pakistani Rupees (PKR) 5,577 billion ($31.2 billion). Moody’s expect annual growth of over 25% over the next five years, enabling the sector to take 30% market share.

“We expect growth in Islamic banking to continue to materially outpace conventional banking, reaching a market share of total assets and deposits of around 30% by end 2026, with net financings market share at around 33%. We estimate average growth over 2021-2026 to range between 25%-28% for total assets and deposits, and over 20% for net financings,” said Constantinos Krypreos, a Moody’s Senior Vice President, in a press release.

Deposits have reached PKR4,211 billion ($20.8 billion), equivalent to 19.4% market share, with an average annual growth of 23% since 2011. Net financing has grown faster than deposits, the report noted, at 29% over the past decade, to PKR2,597 billion ($12.83 billion), or a 25.7% market share.

There are 22 Islamic banking institutions in the country, with five fully-fledged Islamic banks and 17 conventional banks with Islamic banking branches. As of December 2021, there were 3,956 branches with an additional 1,442 Islamic banking windows (at conventional branches). Last year, 500 branches were added, with Moody’s expecting similar openings per year over the next five years.

A key driver of growth is the country’s 210 million population, of which 95% are Muslim. According to a 2014 survey by the State Bank of Pakistan (SBP, the central bank), there was strong demand for Sharia-compliant banking by households and businesses.

A further driver of growth has been the country’s low financial inclusion rate. In 2017, an estimated 21% of Pakistani adults had a bank account, according to the World Bank’s Global Findex Database. That number has increased significantly, to 62%, according to SBP estimates, but remains below neighbouring countries, such as India with over 80% having a formal bank account. Digitalisation has been a further boost to improving financial inclusion rates, the report noted.

Government support has helped drive growth in the Islamic finance sector, with the SBP’s five year Strategic Plan, released in April 2021, setting targets for 2025 of 30% total bank assets and deposits, 35% share branch network share, and to provide 10% and 8% of financing to SMEs and the agricultural sector, respectively.

Initiatives include strengthening the legal and regulatory framework, and adopting the standards of the Islamic Financial Services Board, and the Sharia standards of Bahrain-based AAOIFI. Moody’s noted that SBP has implemented 16 AAOIFI Sharia standards, with an additional six standards to be adopted.


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