Post by Muhammad Islam Ahmed

Assalam Alykum Dear All The Government has published its Post-2027 Financial System Strategy including Conversion: Executive Summary: Post-2027 Financial System Strategy  (Available at https://lnkd.in/ddbXmQAF) ● Mandate & Timeline: In compliance with the 2022 Federal Shariat Court (FSC) judgment and the 26th Constitutional Amendment, Pakistan is transitioning to a completely Riba-free (interest-free) financial system by January 1, 2028. ● Phased Transition: To prevent economic disruption, the transition will be gradual. All existing conventional contracts and debt obligations signed before December 2027 will be legally honored and serviced until their maturity. ● Bank Conversions: Majority domestically owned financial institutions are expected to fully convert to Islamic banking. However, conversion for majority foreign-owned banks remains voluntary based on their own corporate strategies. ● Public Finance Infrastructure: Post-2027, all fresh domestic and foreign financing will strive to use Shariah-compliant modes. To support this, the government is establishing an Assets Registry Company (ARC) to pool federal assets for regular Sukuk issuance , utilizing a newly approved hybrid Sukuk structure (Ijarah-cum-Murabaha) that allows borrowing up to twice the value of underlying assets. ● Regulatory & IT Readiness: The State Bank of Pakistan (SBP) is shifting to a Shariah-compliant monetary policy framework. Regulatory revisions to align with international Islamic standards (like AAOIFI and IFSB) are mostly complete. From an IT perspective, conventional banks report no major obstacles to switching over since most already use Islamic banking windows. ● Key Challenges: The primary hurdles include converting the massive outstanding public debt into Sukuk structures , introducing short-term liquidity instruments (3 and 6-month Sukuk) , enacting minor legislative amendments through Parliament in CY27 , and executing large-scale HR capacity building across the financial sector. However, the Government, SBP, SECP, and other relevant stakeholders will work in close coordination to initiate and implement the actions envisaged in the post 2027 strategy i.e. 1. legislative amendments as envisaged in FSC judgement, 2. Development of Shariah compliant infrastructure for public finance, 3. Arrangements with multilateral & bilateral institutions for raising Shariah compliant foreign currency financing, 4. Review of regulatory and supervisory framework, 5. Strengthening of Shariah compliant financial safety nets, 6. Development of Shariah compliant monetary policy framework and vii) awareness creation and capacity building. Regards