Pakistan Using Islamic Finance For Infrastructure Deals

This evolution plays to the strengths of Islamic finance. Sukuk and other Shariah-compliant instruments are anchored to identifiable assets and real economic activity, making them naturally suited to infrastructure such as power plants, transport networks, ports and transmission systems. These projects generate predictable cash flows and can be structured around tangible assets, aligning closely with Shariah principles.

Yet for much of its history, Pakistan’s Islamic finance market has struggled to extend maturities. Islamic bonds and loans have typically been shorter than their conventional equivalents, often clustered around five years. Several factors have contributed to this pattern: relatively shallow and less liquid Islamic capital markets, limited product standardisation, and the reliance of Islamic banks on short-term deposits, which complicates long-dated lending without careful asset-liability management.

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That constraint has begun to ease. A landmark moment came with the arrangement of a 10-year sukuk worth 100 billion rupees to finance a hydropower project—one of the largest infrastructure deals in Pakistan to be funded through Islamic structures. The transaction demonstrated that local banks are increasingly capable of managing longer tenors and absorbing the risks associated with extended project timelines.

The broader opportunity is being shaped by Pakistan’s substantial infrastructure pipeline, particularly under the China-Pakistan Economic Corridor. The scale of planned investments—spanning energy generation, transport and logistics—has created sustained demand for financing solutions that match long project lifecycles. This environment has made shorter-dated Islamic instruments less practical and encouraged experimentation with longer-term structures.

Liquidity conditions within the Islamic banking sector have also played a role. As Islamic banks have grown, excess liquidity has pushed them to seek new deployment opportunities, including participation in large infrastructure projects that were once considered beyond their traditional comfort zone. Managing the mismatch between short-term deposits and long-term assets has become a strategic priority rather than a structural barrier.

Government policy has reinforced this direction. Pakistan’s leadership has repeatedly signalled its intention to prioritise Shariah-compliant financing for infrastructure and long-term funding needs, including plans to shift a significant portion of public debt from conventional to Islamic sources. Legal and regulatory developments aimed at reducing reliance on interest-based finance have further accelerated institutional planning around Islamic alternatives.

Islamic finance has also been integrated into cross-border infrastructure deals involving foreign lenders, particularly Chinese banks active in CPEC projects. While early transactions were dominated by conventional financing, later deals incorporated Shariah-compliant tranches alongside traditional loans, demonstrating that hybrid structures can accommodate diverse funding sources.

These transactions have commonly relied on lease-based structures such as ijara, which are well understood, widely accepted by Shariah scholars, and adaptable to large-scale assets. Once established, such models are relatively easy to replicate, lowering execution risk for future projects.

The result is a gradual but important recalibration of Pakistan’s financing landscape. With a larger Islamic banking sector, clearer policy direction and a steady pipeline of infrastructure projects, longer-tenor Shariah-compliant financing is becoming more viable and more repeatable. If this trajectory continues, Islamic finance could move decisively beyond short-term instruments and emerge as a foundational pillar of Pakistan’s long-term infrastructure development.