# Islamic vs conventional banking in Pakistan: what is actually different

URL: https://which.pk/money/guides/islamic-vs-conventional-banking/
Author: Ahtisham Imtiaz
Updated: 15 Oct 2026

## Summary

A conventional savings account is a loan to the bank that earns a set rate; an Islamic one is a mudarabah pool where profit is shared after the month and, per MCB Islamic, the principal is not guaranteed by the contract. In one month, August 2026, MCB Islamic declared 7.49% and NBP's PLS account paid 10.00%. Islamic banking held 29.2% of deposits in June 2026, and the Constitution requires riba to end before 1 January 2028.

## Key facts

- Islamic share of deposits: 29.2% (June 2026)
- Riba deadline: Before 1 Jan 2028 (Art. 38(f))
- One month, two banks (Aug 2026): 7.49% (MCB Islamic) vs 10.00% (NBP PLS)
- Islamic branches: 7,757 + 3,733 windows (June 2026)

In Islamic banking in Pakistan, the main difference is the contract, not the app or the branch. A conventional savings account is a loan to the bank that earns a rate set in advance. An Islamic savings account is a **mudarabah** pool: the bank invests your money and shares the actual profit after each month. On returns, in one month only, **August 2026**, MCB Islamic declared **7.49%** a year and NBP's conventional PLS account paid **10.00%**.

**Islamic banking's share of deposits in Pakistan:** 29.2% (Rs 12,669 billion of deposits, as of 30 June 2026, from SBP's Islamic Banking Bulletin. A year earlier the share was 25.5%.)

## What is the difference between Islamic and conventional banking?

The table follows MCB Islamic's published comparison of its products with conventional ones, plus the rate notices of MCB Islamic and NBP. Other Islamic banks may word things differently.

| | Conventional bank | Islamic bank (MCB Islamic's description) |
|---|---|---|
| Current account | A loan to the bank | Qard, a loan to the bank, no profit |
| Savings and term deposits | A loan to the bank that earns interest | Mudarabah: you provide the money, the bank manages it, profit is shared by a pre-agreed ratio |
| Is the principal guaranteed by the contract? | It is a loan, so the bank owes it back | MCB Islamic says it "is not protected / guaranteed"; depositors bear any loss in proportion to their money |
| When the rate is known | Announced in advance | Declared after the month ends |
| Home finance | Loan | Diminishing musharakah (joint ownership, bought out gradually) |
| Car finance | Lease | Ijarah (the bank owns and rents) or diminishing musharakah |
| Late-payment charges | Bank income | Given to charity, not bank income |
| Insurance on financed assets | Conventional insurance | Takaful |

**Deposit protection:** The Finance Division's June 2026 strategy says a Shariah-compliant deposit protection scheme is running for eligible deposits at Islamic banking institutions. The "not guaranteed" wording above is about the mudarabah contract itself.

## How do Islamic banks decide your profit?

Each month, an Islamic bank publishes a **weightage** for every deposit product and balance tier in its pool, and a **profit-sharing ratio** between depositors and the bank. After the month ends, it works out the pool's profit and declares a rate for each product.

For example, Allied Bank's Islamic banking set a **50:50** ratio between depositors and the bank for its rupee pool for September 2026, and **1:99** for its foreign currency pools. It published that on 25 August 2026.

Since 1 January 2025, Islamic banks must pay at least **75%** of the gross yield of their investment pool as profit on rupee savings, as reported by Aaj News. We couldn't open SBP's own circular, because sbp.org.pk blocks automated requests.

## Does Islamic banking pay more or less than conventional banking?

We found published rates for only two banks for the same month. Treat this as one data point, not a rule for every Islamic or conventional bank.

| August 2026 | Rate a year | How it is set |
|---|---|---|
| MCB Islamic, main rupee savings accounts | 7.4948% | Declared after the month (7 Sep 2026), not guaranteed in advance |
| NBP PLS Savings Account (conventional) | 10.00% | Announced in advance from 1 Aug 2026, credited half-yearly |

For September 2026, MCB Islamic declared **8.0240%** on its Asaan Saving and Imaan Saving accounts for balances up to Rs 10 million. We couldn't check Meezan Bank, BankIslami, Dubai Islamic or AlBaraka: their rate pages blocked us or weren't found.

The rules behind the two numbers differ:

- **Conventional banks** must pay individuals at least **10.00%** a year on rupee savings, 50 basis points below SBP's floor rate, as of September 2026. Since 1 August 2026 that minimum covers monthly average balances up to Rs 10 million. SBP's policy rate was **11.50%** on 15 September 2026.
- **Islamic savings deposits** are not under that minimum-rate rule. They follow the 75% of pool yield rule instead.

For rates across more banks, see [savings account profit rates](/money/guides/savings-account-profit-rates/). Profit from either kind of account is taxed: see [tax on bank profit](/money/guides/tax-on-bank-profit/).

## Is Islamic banking halal or really interest-free?

That is a religious question, and we don't answer it ourselves. Here is what the official bodies say and how oversight works.

- **The Federal Shariat Court** ruled on 28 April 2022 that "prohibition of Riba is complete and absolute in all its forms and manifestations", and that any amount charged over the principal of a loan is riba, according to the government's press release.
- **SBP's Shariah Governance Framework** (2014), as reported by ARY News, makes each Islamic bank's Shariah board decisions binding on its management. Disputes go to SBP's own Shariah board. An external Shariah audit is required every year.
- **Standards:** by July 2022 SBP had adopted 20 AAOIFI Shariah standards, Dawn reported. The Finance Division says conformity with AAOIFI will be ensured "with necessary customization, where needed".

We couldn't confirm from any bank's key fact statement how Islamic car or home rentals are priced, so we don't describe it. If it matters to you, ask the bank for its key fact statement, and ask a scholar you trust about the religious question.

## Which banks in Pakistan are Islamic, and is UBL or HBL Islamic?

As of 30 June 2026, SBP counted **7 full-fledged Islamic banks** and **16 conventional banks** with separate Islamic branches. UBL and HBL are conventional banks that run Islamic branches.

| Full-fledged Islamic bank | Branches | Conventional bank with Islamic branches | Islamic branches |
|---|---|---|---|
| Meezan Bank | 1,150 | UBL | 798 |
| Faysal Bank | 900 | HBL | 620 |
| BankIslami | 569 | Bank Alfalah | 450 |
| MCB Islamic | 324 | Bank Al Habib | 419 |
| Dubai Islamic Bank Pakistan | 310 | Askari | 396 |
| AlBaraka | 185 | Allied Bank | 321 |
| Raqami Islamic Digital Bank | Digital | NBP | 312 |
| | | Habib Metropolitan | 252 |

Branch counts include sub-branches and are from SBP's bulletin for June 2026. In all there were **7,757** Islamic branches in 145 districts, plus **3,733** Islamic windows in conventional branches. Full-fledged Islamic banks held 54.6% of Islamic deposits and Islamic branches of conventional banks 45.4%. For a closer look at the largest one, see [Meezan Bank vs other banks](/money/guides/meezan-bank-vs-other-banks/).

## How do Islamic car and home loans work?

The most common Islamic financing is **diminishing musharakah**, at **35.2%** of all Islamic financing in June 2026, followed by musharakah (25.4%), istisna (9.5%), murabaha (9.1%) and ijarah (8.3%), per SBP.

- **Home finance:** MCB Islamic says you and the bank jointly own the house, you buy the bank's share bit by bit, and rent starts only once you can use the property.
- **Car finance:** MCB Islamic uses ijarah or diminishing musharakah. It says instalments stop if the car is stolen or totally lost, while a conventional lease keeps running until the insurance claim is paid.

For rates and banks, see [home loans in Pakistan](/money/guides/home-loan-pakistan/) and [car financing in Pakistan](/money/guides/car-financing-pakistan/).

## Will all banks become riba-free by 2028?

The law sets the deadline; how each bank gets there is still being worked out.

- **The Constitution:** the 26th Amendment, in force from 21 October 2024, changed Article 38(f) to "eliminate riba completely before the first day of January, two thousand twenty-eight". Article 38 is a Principle of Policy.
- **The court:** the Federal Shariat Court's 2022 ruling set 31 December 2027 as its deadline, per the Finance Division and Dawn. In November 2022 the finance minister said SBP and NBP would withdraw their appeals. We couldn't confirm whether other banks' appeals are still pending in 2026.
- **The plan:** the Finance Division's June 2026 strategy calls the change "phased and gradual". Conventional loans will be replaced with Shariah-compliant ones as they mature. Most banks are expected to become Islamic, but conversion is voluntary for banks with majority foreign ownership, which may offer both kinds of products.

**Nothing you need to do today:** The strategy says existing commitments will be honoured.

More guides: [best bank in Pakistan](/money/guides/best-bank-in-pakistan/), [Sukuk in Pakistan](/money/guides/sukuk-pakistan/), [Banking & Payments](/money/banking/), [Money](/money/).

## Questions people ask

### What is the difference between Islamic and conventional banking in Pakistan?

A conventional savings account is a loan to the bank that earns a rate set in advance. In an Islamic savings account the bank says it acts as mudarib (manager) of your money in a mudarabah pool and shares the actual profit by a pre-agreed ratio; MCB Islamic states the principal is not guaranteed by the contract.

### Does Islamic banking pay more profit than conventional banking?

In the one month we compared, no: for August 2026 MCB Islamic declared 7.49% a year on its main savings accounts and NBP paid 10.00% on its PLS savings account. That is two banks and one month only. The rules differ too: conventional banks must pay individuals at least 10% (as of September 2026), Islamic banks at least 75% of their pool's gross yield.

### Will all banks in Pakistan become Islamic by 2028?

The Constitution, as amended in October 2024, requires riba to be eliminated before 1 January 2028. The Finance Division's June 2026 strategy says the change will be phased: existing conventional loans run to maturity, most banks are expected to convert, and conversion is voluntary for majority foreign-owned banks.

### Which banks in Pakistan are Islamic banks?

As of June 2026 SBP counted 7 full-fledged Islamic banks: Meezan, Faysal Bank, BankIslami, MCB Islamic, Dubai Islamic Bank Pakistan, AlBaraka and Raqami Islamic Digital Bank. Another 16 conventional banks, such as UBL, HBL, Bank Alfalah and Bank Al Habib, run separate Islamic branches.

### How is Islamic car and home financing different?

MCB Islamic says its car finance uses ijarah (the bank owns the car and rents it to you) or diminishing musharakah, and its home finance uses diminishing musharakah (joint ownership that you buy out gradually). Diminishing musharakah was 35.2% of all Islamic financing in June 2026, per SBP.

## Sources

- [Islamic Banking Bulletin, period ending 30 June 2026](https://www.sbp.org.pk/assets/document/publications/Islamic_Banking_Bulletin_-_30_June_2026.pdf), State Bank of Pakistan (accessed 15 Oct 2026)
- [Constitution (Twenty-sixth Amendment) Act, 2024, Gazette of Pakistan, 21 October 2024](https://na.gov.pk/uploads/documents/67bffcc9b1c95_762.pdf), National Assembly of Pakistan (accessed 15 Oct 2026)
- [Strategy Paper: Post-2027 Financial System in Pakistan (June 2026)](https://www.finance.gov.pk/publications/Post_2027_Financial_System_Strategy.pdf), Finance Division, Government of Pakistan (accessed 15 Oct 2026)
- [PR No. 139: Federal Shariat Court judgment on Riba](https://pid.gov.pk/site/press_detail/19729), Press Information Department (accessed 15 Oct 2026)
- [Comparison of Islamic Banking Products with Conventional Banking Products](https://www.mcbislamicbank.com/assets/documents/Islamic-Banking-Products-vs-Conventional-Banking-Products.pdf), MCB Islamic Bank (accessed 15 Oct 2026)
- [Profit Rate for the month of August 2026](https://www.mcbislamicbank.com/assets/documents/Profit-Rates-FTM-August-2026.pdf), MCB Islamic Bank (accessed 15 Oct 2026)
- [Profit Rate for the month of September 2026](https://www.mcbislamicbank.com/assets/documents/Profit-Rates-FTM-September-2026.pdf), MCB Islamic Bank (accessed 15 Oct 2026)
- [Indicative Profit Rates on Remunerative Deposits w.e.f. 01 August 2026](https://www.nbp.com.pk/IndicativeProfitRates/files/Indicative-Profit-Rates-W.e.f%2001-08-2026.pdf), National Bank of Pakistan (accessed 15 Oct 2026)
- [SBP Policy Rate Explained for Savers](https://www.abl.com/sbp-policy-rate-explained/), Allied Bank (accessed 15 Oct 2026)
- [Weightages and Profit Sharing Ratios, General Pool, September 2026](https://www.abl.com/wp-content/uploads/2026/08/09-Weightages-Profit-Sharing-Ratios-for-Islamic-Banking-September-2026.pdf), Allied Bank (Islamic Banking Group) (accessed 15 Oct 2026)
- [SBP makes major changes to Islamic Banking requirements](https://english.aaj.tv/news/amp/330390760), Aaj News (accessed 15 Oct 2026)
- ['Seismic shift' to take interest out of banking sector](https://www.dawn.com/news/1720061), Dawn (accessed 15 Oct 2026)
- [SBP adopts more Sharia-compliant standards for Islamic banking](https://www.dawn.com/news/1698238), Dawn (accessed 15 Oct 2026)
- [SBP issues sharia governance framework](https://arynews.tv/sbp-issues-sharia-governance-framework), ARY News (accessed 15 Oct 2026)