What the riba judgment is
Riba is the Arabic word, and sood the Urdu word, for interest: a fixed, guaranteed extra amount charged or paid on a loan or deposit. Islamic law prohibits riba. The Federal Shariat Court (FSC) is the constitutional court that examines whether laws in Pakistan agree with Islamic injunctions.
In the riba judgment, the FSC held that interest in its various forms is riba and is therefore not allowed. It found that a number of legal provisions allowing interest conflict with Islamic injunctions. The Court directed the government to change the financial system to an interest-free one within a fixed deadline.
The judgment followed a long series of earlier petitions and court rounds on the same question. Readers who want the exact holdings, the list of laws involved and the deadline should read the full judgment text published by the Court. This page summarises the main points and does not replace the official text.
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Appeals and later steps
After the judgment, appeals were filed in the Shariat Appellate Bench of the Supreme Court. Several of these appeals were later withdrawn, including the appeal filed by the State Bank of Pakistan (SBP). The government also added the target of eliminating riba to the Constitution through an amendment.
The legal position can change through court orders, amendments and new SBP rules. Before relying on any summary, including this one, check:
- the current text of the judgment and any appellate orders
- SBP circulars and statements on the transition to Islamic banking
- Federal Board of Revenue (FBR) notices where tax treatment of profit is involved
For the regulators and how they divide their roles, see Law and regulators.
How the transition is meant to work
The judgment does not switch every bank account overnight. It sets a direction: banks, the government and other lenders are expected to replace interest-based products with Shariah-compliant contracts over the transition period.
The main contract types used in Islamic banking are:
| Contract | How it works | Where it is used |
|---|---|---|
| Mudarabah | Bank and customer share profit by an agreed ratio; loss falls on the capital provider | Savings and term deposits |
| Musharakah | Partnership in a business or asset; profit and loss shared | Business finance, home finance |
| Murabahah | Bank buys an asset and sells it to the customer at cost plus a disclosed margin | Trade and asset finance |
| Ijarah | Bank owns an asset and leases it to the customer | Car and equipment finance |
| Sukuk | Certificates linked to an asset or business, not a pure loan | Government and corporate borrowing |
Government borrowing is a large part of the change. Moving it from interest-based instruments to sukuk and similar contracts affects how banks invest the money people deposit.
More detail on products and bank types is on Islamic banking and Payments, tax, Islamic banking.
What it means for savers
Your money stays yours
The judgment is about the type of contract, not about taking deposits away. A conventional savings account does not disappear because of the ruling. Changes come through your bank, under SBP rules, and banks are expected to inform customers.
Profit is not the same as interest
On an Islamic deposit, the return is called profit, not interest. It depends on the bank's actual earnings from its pool of investments and the profit-sharing ratio in your contract. The bank may announce an expected rate, but in principle the return is not fixed in advance the way interest is.
Rates still follow the wider economy
Both conventional and Islamic returns are linked to the general level of rates in the economy, which the SBP sets through its policy rate. The latest decision recorded on this site: SBP policy rate raised by 50 bps to 12% with effect from 27.10.2026 (MPC). For background, see SBP rates and economy.
Practical checks
- Ask your bank whether your account is conventional or Islamic, and whether it plans to convert it.
- For an Islamic deposit, read the profit-sharing ratio, the profit calculation method and how often profit is paid.
- Check whether early withdrawal changes the profit on a term deposit.
- Check how profit is taxed, and whether your filer status affects the deduction. See Filer status (ATL).
- For National Savings products, check the current terms on the official channels. Overviews are on National Savings schemes and Savings and deposits.
Borrowers
Car, home and personal finance are also expected to move to Shariah-compliant contracts. If you hold a conventional loan, ask the lender in writing how any conversion would affect your instalments, total cost and early settlement terms.
A note on trading and "Islamic" accounts
Some traders read the riba debate and look for swap-free accounts on trading platforms. A swap-free account removes the overnight swap charge, but it does not make leveraged forex or CFD trading safe. Leveraged trading can lose money fast, including more than you expected to risk. The SBP also has rules on sending foreign exchange to overseas trading platforms. See Islamic finance and Regulation and Safety before deciding anything.
Frequent questions
What did the Federal Shariat Court decide on riba?
It held that interest in its various forms is riba, found several interest-related legal provisions contrary to Islamic injunctions, and directed a move to an interest-free system within a deadline set in the judgment.
Is interest-free banking in Pakistan already in place?
Islamic banks and Islamic windows already operate alongside conventional banks. The full transition of the system is still in progress. Check SBP publications for the current status.
Will my conventional account be closed?
The ruling does not close accounts by itself. Any conversion happens through your bank under SBP rules. Ask your bank directly.
Is Islamic bank profit guaranteed?
In principle, no. Profit depends on the bank's earnings and the agreed sharing ratio. Read your account terms for how it is calculated.
Where can I read the official text?
Read the judgment published by the Federal Shariat Court and the SBP's statements on the transition. Note the date you checked, because the position can change.
Does the sood judgment apply to prize bonds and National Savings?
Government savings products are part of the wider transition. Check the current terms of each product on the official National Savings channels.
