Bank of Khyber Takes Steps to Operate as a Fully Islamic Bank

The Bank of Khyber (BoK) has officially embarked on its journey to transform from a conventional banking institution into a fully-fledged Islamic bank. This strategic move aligns with Pakistan’s broader objective to establish a Shariah-compliant banking system by 2027.

In a formal notification to the Pakistan Stock Exchange (PSX) on February 20, 2025, BoK announced the commencement of its conversion process. The statement succinctly noted, “The bank has initiated the process for conversion from conventional to Islamic bank.”

The transition was ceremonially inaugurated by Khyber Pakhtunkhwa’s Chief Minister, Ali Amin Khan Gandapur, at BoK’s headquarters in Peshawar. During the event, it was disclosed that BoK aims to complete its full conversion to Islamic banking by December 2026.

BoK’s decision is in harmony with Pakistan’s national agenda to shift entirely to Shariah-compliant banking by December 2027, following directives from the Federal Shariat Court issued in 2022.

Growth of Islamic Banking in Pakistan

The Islamic banking sector in Pakistan has witnessed significant growth over the past two decades. The State Bank of Pakistan reported that the share of Islamic banking in the overall banking industry increased from 2.3% in 2003 to 17.6% in 2021.

This upward trajectory is attributed to factors such as religious beliefs, the resilience of Islamic finance during global financial crises, and the availability of diverse financial products that offer credible alternatives to conventional banking systems.

For BoK’s clientele, this transition signifies a shift towards banking services that adhere strictly to Islamic principles, which prohibit interest (riba) and promote profit-and-loss sharing mechanisms. The bank’s management is expected to undertake comprehensive training programs for its staff, revamp existing financial products, and ensure robust Shariah governance frameworks are in place to facilitate a seamless transition.