The State Bank of Pakistan (SBP) has relaxed regulatory requirements for banks seeking to expand Islamic banking services, allowing conventional banks and microfinance banks to establish Islamic Banking Windows (IBWs) without obtaining prior approval from the central bank.
The move is aimed at speeding up Pakistan’s transition toward a fully Shariah-compliant banking system and facilitating branch conversions across the banking sector.
Under the revised framework, banks can now set up Islamic Banking Windows within conventional branches that are approved for conversion under their annual branch conversion plans or through separate conversion requests.
These windows will operate on an interim basis from the start of a branch’s conversion process until its complete transformation into an Islamic banking branch.
During the conversion period, banks and microfinance banks will be permitted to offer a full range of Shariah-compliant products and services, including:
- Islamic deposit accounts
- Funded financing facilities
- Non-funded financing products
- Other Islamic banking services
Banks must, however, include their plans for establishing Islamic Banking Windows when applying for branch conversion approvals.
To encourage faster adoption, SBP has also waived both processing and annual fees for Islamic Banking Windows established as part of branch conversion initiatives.
The regulator has further relaxed signage requirements. Previously, banks were required to dedicate one-fourth of a branch signboard to the Islamic Banking Window. Under the new guidelines, banks can instead use alternative arrangements at branch entrances and display prominent notices inside branches highlighting the availability of Islamic banking services.
SBP has also revised operational requirements to allow greater use of technology in managing Islamic banking operations.
Instead of requiring real-time connectivity with the nearest Islamic banking branch or hub, Islamic Banking Windows can now connect directly with a controlling branch, centralized hub, or data center, enabling more efficient segregation of Islamic and conventional funds.
According to SBP data, Pakistan’s Islamic banking sector continues to grow rapidly, with more than 7,508 Islamic banking branches and 347 Islamic Banking Windows currently operating across the country.
The latest regulatory easing is expected to support the banking industry’s ongoing efforts to meet Pakistan’s broader objective of expanding Islamic finance and increasing the share of Shariah-compliant banking services nationwide.
