Banking in Pakistan formally began during the period of

colonialism Colonialism is the control of another territory, natural resources and people by a foreign group. Colonizers control the political and tribal power of the colonised territory. While frequently an Imperialism, imperialist project, colonialism c ...

South Asia South Asia is the southern Subregion#Asia, subregion of Asia that is defined in both geographical and Ethnicity, ethnic-Culture, cultural terms. South Asia, with a population of 2.04 billion, contains a quarter (25%) of the world's populatio ...

, during which much of

Pakistan Pakistan, officially the Islamic Republic of Pakistan, is a country in South Asia. It is the List of countries and dependencies by population, fifth-most populous country, with a population of over 241.5 million, having the Islam by country# ...

was controlled by the

British Empire The British Empire comprised the dominions, Crown colony, colonies, protectorates, League of Nations mandate, mandates, and other Dependent territory, territories ruled or administered by the United Kingdom and its predecessor states. It bega ...

History

In 1947, Pakistan gained

independence Independence is a condition of a nation, country, or state, in which residents and population, or some portion thereof, exercise self-government, and usually sovereignty, over its territory. The opposite of independence is the status of ...

from the

British Raj The British Raj ( ; from Hindustani language, Hindustani , 'reign', 'rule' or 'government') was the colonial rule of the British The Crown, Crown on the Indian subcontinent, * * lasting from 1858 to 1947. * * It is also called Crown rule ...

. After independence, the

State Bank of Pakistan The State Bank of Pakistan (SBP) is the central bank of Pakistan. Its Constitution, as originally laid down in the State Bank of Pakistan Order 1948, remained basically unchanged until 1 January 1974, when the bank was nationalised and the scope ...

was established as the central bank of the country, with its headquarters in

Karachi Karachi is the capital city of the Administrative units of Pakistan, province of Sindh, Pakistan. It is the List of cities in Pakistan by population, largest city in Pakistan and 12th List of largest cities, largest in the world, with a popul ...

. Prior to independence, the

Reserve Bank of India Reserve Bank of India, abbreviated as RBI, is the central bank of the Republic of India, and regulatory body responsible for regulation of the Indian banking system and Indian rupee, Indian currency. Owned by the Ministry of Finance (India), Min ...

acted as the central bank for what became Pakistan. Under pressure from the

International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution funded by 191 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of las ...

, Pakistan implemented economic reforms in the late 1990s. These reforms included a $250 million

World Bank The World Bank is an international financial institution that provides loans and Grant (money), grants to the governments of Least developed countries, low- and Developing country, middle-income countries for the purposes of economic development ...

loan for banking reform, which helped in loan recovery and reducing operational losses. Specialized banking courts were established to expedite the processing of pending loan recovery cases. Professional management structures and independent boards were introduced, resulting in workforce downsizing and branch closures to reduce costs. The

gained autonomy, and United Bank Limited, which had collapsed, was recapitalized under central bank management. In 1997, Pakistan initiated banking reforms to address long-standing issues within major state-owned banks, such as the National Bank of Pakistan (NBP), Habib Bank Limited (HBL), and

United Bank Limited United Bank Limited (often abbreviated as UBL) is a Pakistani bank headquartered at I.I. Chundrigar Road in Karachi. It is a subsidiary of British multinational conglomerate, Bestway Group. Founded by Agha Hasan Abedi in 1959, UBL saw its firs ...

(UBL). These banks, which were nationalized in the 1970s, faced problems such as bureaucratic corruption, politically motivated lending, and inefficiencies, leading to significant financial losses and overstaffing. The pace of these reforms slowed in 1998 under Prime Minister

Nawaz Sharif Mian Muhammad Nawaz Sharif (born 25 December 1949) is a Pakistani politician and businessman who served as the 12th Prime Minister of Pakistan, prime minister of Pakistan for three non-consecutive terms, first serving from 1990 to 1993, then ...

's administration and remained stagnant until

Pervez Musharraf Pervez Musharraf (11 August 1943 – 5 February 2023) was a Pakistani general and politician who served as the tenth president of Pakistan from 2001 to 2008. Prior to his career in politics, he was a four-star general and appointed as ...

's government revitalized them around 2000. This revival brought in professional managers from international banks, leading to improved operational efficiency and financial health. With the support of an additional $300 million World Bank loan, this phase focused on restructuring and privatization. In 2018, there were 50.565 million bank accounts in Pakistan for its population of 207.77 million, resulting in a penetration rate of 24.34%. There were 15,053 bank branches, 14,148 ATMs, and 53,269 POS machines active in the country. On 28 April 2022, the Federal Shariat Court (FSC) announced a verdict in a case on

Riba ''Riba'' (, or , ) is an Arabic word used in Islamic law and roughly translated as " usury": unjust, exploitative gains made in trade or business. ''Riba'' is mentioned and condemned in several different verses in the Qur'an3:130

, declaring all the provisions of the Interest Act 1839, which facilitated interest, unlawful. The FSC also declared the prevailing

interest In finance and economics, interest is payment from a debtor or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct f ...

-based

banking A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...

system to be against

Shariah Sharia, Sharī'ah, Shari'a, or Shariah () is a body of religious law that forms a part of the Islamic tradition based on scriptures of Islam, particularly the Qur'an and hadith. In Islamic terminology ''sharīʿah'' refers to immutable, intan ...

. The FSC ruled that the

federal government A federation (also called a federal state) is an entity characterized by a political union, union of partially federated state, self-governing provinces, states, or other regions under a #Federal governments, federal government (federalism) ...

and provincial governments must amend relevant laws and issued directives that Pakistan's banking system should be free of interest by December 2027.

Islamic Banking

As of Sep, 2020, Islamic banking industry (IBI) assets and deposits of the overall banking industry stood at 16.0 percent and 17.3 percent, respectively. As of Sep, 2020, the infrastructure of IBI in Pakistan consists of 22 Islamic banking institutions (IBIs), 5 full-fledged Islamic banks (IBs), and 17 conventional banks with standalone Islamic banking branches (IBBs).

History

Islamic Banking

See also

References

Further reading