Islam differentiates between lending (qarḍ ḥasan) and investing (on profit and loss sharing basis), former with capital guaranteed but with zero interest, and latter based on sharing in profit and loss. Since its inception 40 years ago in the world and in Pakistan (in 1980s), extensive efforts have been made to bring the Islamic banking in total conformity with the principles of Sharīʿah. The theoretical models, on which the contemporary Islamic Banking evolved, mainly contained Muḍārabah & Mushārakah (i.e. based on participatory systems), Murābaḥah & Ijārah (i.e. debt based) and Salam and Istiṣnāʿ (i.e. deferred payment sale or manufacturing contracts). In practice, however, Islamic banking substantially drifted towards debt-based financings (e.g. Murābaḥah and Ijārah etc) on asset side. Although, these debt based modes are not against Sharīʿah, per se, however in result, these modes lead to the forms of financing similar to conventional banking system. While adopting Murābaḥah & Ijārah and other debt based financing, it was claimed by the scholars involved in the framing of the Islamic banking modes that these debt based modes are not ideal and are being adopted as necessity during the infancy, immaturity and fragility stage of the Islamic Banking sector. Gradually the system would be shifted to the ideal modes i.e. Muḍārabah and Mushārakah in due course of time. Unfortunately, the shift has been very slow and diminutive because despite passage of decades, the volume of these two ideal modes is very less. The Islamic Banking sector in Pakistan continues to thrive on the modes, which are less based on Muḍārabah and Mushārakah. In this study, endeavours have been made in general to explore the legal impediments and, in particular, those, which are preventing transition of the Islamic banking, sector of Pakistan towards the two ideal modes. While absence of self-regulating comprehensive and facilitative legal framework is the main impediment, the lack of government and regulator’s ‘will’ to advance towards Islamisation of banking system as a whole in true sense and helplessness of judiciary to legally determine the Ribā despite passage of over 40 years since incorporation about its elimination in the Constitution, 1973, are, inter alia, contributory factors giving rise to the legal impediments. The account-holders, Islamic bankers and those who avail the Islamic Financing facilities also confront such legal impediments, which impede honesty and evasion of tax payments. A self-regulating facilitative legal framework coupled with ‘strong will’ by the government and the central bank is essentially required for the transfer to the ideal modes of Islamic Banking Sector. The stakeholders in the Islamic banking sector must be ready to accept the ideal modes of Islamic banking, i.e. Muḍārabah and Mushārakah. The Resident Sharīʿah Advisers and Sharīʿah Boards’ members should lay emphasis on the management of the respective Islamic banking Institutions to formulate and introduce their products based on ideal modes. Pakistan’s judiciary, particularly, the apex court and Federal Shariat Court should endeavour to settle, once for all, the question of Ribā that is already pending re-adjudication before the FSC and appeals have also been filed before the SCP for intervention in the issue to find an early solution.