Islamic banking will help draw the funds of rural customers, a less sophisticated client base who also traditionally shun conventional banks due to concerns over interest which is forbidden under Islam, said Saleem Ullah, director of the Islamic banking department at the State Bank
Pakistan's plan is to raise that figure to 12 percent from 7 percent currently by 2015.
Islamic finance growth has faced challenges due to the worsening geopolitical and security situation in Pakistan. But with a population of around 180 million Muslims, the small South Asian nation is still considered as one of the hottest growth areas for the industry.
Pakistan has five fully-fledged sharia-compliant banks and twelve conventional banks with Islamic operations, creating a network of 800 branches in Pakistan. Ullah anticipates that 150 new branches will open by the end of the year.
Islamic banking currently accounts for 497 billion rupees ($5.74 billion), or 7.3 percent of the country's overall banking system.
"Historically, the poor and oppressed in a society are more inclined to follow the norms of their religion than the affluent," said Muddassir Siddiqui, an Islamic scholar and partner at law firm SNR Denton in Dubai.
The combination of aggressive advertising and more Islamic branches in rural areas should drive the industry, Zahid Mansoor, treasurer at DIB Pakistan, a unit of Dubai Islamic Bank , said.
"The new regulatory requirements are a good first step by the government to reaching those in rural areas, where there is little trust for banks and people prefer to keep money under their pillows," he said.
"If you create awareness in the minds of these people, there is significant potential to take Islamic finance beyond a niche market and make it the main choice for banking."
DIB Pakistan, which currently has 59 branches throughout the country, should have 80 branches by the end of the year, Mansoor said.
The prospects for growth is already attracting interest from both the conventional banks in Pakistan and foreign institutions, primarily out of the Gulf region.
Both Dubai Islamic Bank and Bahrain's Al Baraka Bank have subsidiaries in Pakistan and Standard Chartered Saadiq, the Islamic arm of UK-based Standard Chartered , also launched operations in the country.
"We currently have 100 branches in Pakistan and consider it to be a growth area for us," said Adnan Ahmed Yousif, chief executive of Al Baraka Bank. "At our bank, we are looking to get to 200 branches over time. The country definitely has a lot of potential within Islamic finance.