The government has given partnership rights in railway lands to Islamic (non-interest-based) banks in exchange for Rs109 billion. At the same time, it has borrowed Rs409 billion from conventional (interest-based) banks through the auction of treasury bills. In total, the government has raised Rs518 billion from both conventional and Islamic banks to bridge the budget deficit.
According to banking sources, the latest Ijarah Sukuk (Islamic lease-based bonds) were issued against railway land. Previously, Sukuk bonds were issued against properties of airports in Islamabad, Lahore, Karachi, and Gwadar, as well as the Makran Coastal Highway, motorways, highways, and the Pakistan Sports Complex. Since 2020, more than Rs8 trillion worth of Ijarah Sukuk have been issued.
How and Why Does the Government Borrow from Banks?
To cover its budget deficit, the government borrows from local banks. This includes interest-based borrowing through Market Treasury Bills (MTBs) or Pakistan Investment Certificates, and Shariah-compliant borrowing through Ijarah Sukuk from Islamic banks. Treasury bills are usually short-term, lasting only a few months, while investment certificates and Sukuk are long-term instruments, often extending for several years.
What is the Difference Between Treasury Bills and Ijarah Sukuk?
Although both are methods for the government to raise funds from banks, there are key procedural differences. According to Jawad Tahseen, Senior Vice President and Unit Head of Shariah Compliance at Meezan Bank, conventional banks lend money to the government against sovereign guarantees and earn a fixed return (interest). In contrast, Islamic banks enter into joint ownership of a government asset and earn pre-agreed rent based on its usage by the government.
In response to whether the property underlying the Sukuk can be sold, Jawad Tahseen explained that since Sukuk involve shared ownership in the asset, the government cannot sell it. However, it can outsource operations of the asset, which falls under subleasing.
Why Is the Volume of Ijarah Sukuk Increasing in Pakistan?
According to Ahmad Ali Siddiqui, Senior Executive Vice President and Group Head of Shariah Compliance at Meezan Bank, the volume of Ijarah Sukuk in Pakistan is increasing. A key reason is the Federal Shariat Court’s ruling that requires Pakistan’s entire banking system to be interest-free by 2028—just about two and a half years away. Consequently, the government is gradually replacing interest-based borrowing with Ijarah Sukuk.
Speaking to Hamariweb, Siddiqui added that the volume of Ijarah Sukuk is expected to increase further in the future, along with the promotion of other Shariah-compliant banking products.
 banks. In total, the government secured Rs518 billion from both interest-based and non-interest-based banks to cover the budget deficit.){kind=link}