Last week the largest transformation from conventional to Islamic banking was achieved as all the branches of the Faysal Bank spread across the country completed their conversion to Islamic banking.
Conversion of Pakistani banks to Islamic banking is a fulfillment of the dream of the founder of the nation Quaid-e-Azam who as early as in 1948 addressing the opening ceremony of the State Bank of Pakistan had said: “I shall watch with keenness the work of your Research Organization in evolving banking practices compatible with Islamic ideas of social and economic life.
The adoption of Western economic theory and practice will not help us in achieving our goal of creating a happy and contented people. We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice. We will thereby be fulfilling our mission as Muslims and giving to humanity the message of peace which alone can save and secure the welfare, happiness and prosperity of mankind”.
The slow but steady march towards Islamic banking has many other milestones. First January 1980 was another historic landmark in this journey towards Islamic banking when 7000 counters in nationalized banks across Pakistan opened as special counters providing Islamic banking facilities.
This meant interest-free banking and Pakistan emerged in the Islamic world as a leader in this field and proved to the world that Islamic banking is not just a buzzword but it can be practically implemented and by implementing it we can follow the teachings of Islam and it has a place in the modern world.
It must be understood that truly Islamic banking does not just imply providing few interest-free services but a complete system which is in letter and spirit in compliance with the spirit of Islam and is based on correct interpretations of Quranic injunctions.
The initial work towards establishing an Islamic banking system was researched and spearheaded by visiting Muslim scholars from around the world. For this important research an Islamic Division was created in 1950 in State Bank of Pakistan and in 1970 work started to remove interest from the entire financial landscape, resulting in practical steps being taken in 1980.
Many laws were amended and new laws were introduced. This financial model was at that time much better than any other such model available globally. While all this was going on the Federal Shariat Court imposed a total ban on markup meaning any kind of interest but a Supreme court appellate bench stayed the order of the Federal Sharia Court.
A verdict was delivered in December 1999 through which it was announced that the system based on interest will be wrapped up by 30th June 2001 but then relaxation to this order was granted up to 30th June 2022 but on an appeal by a bank this order was withdrawn and the whole case sent back to the Federal Sharia Court.
In the meantime, the concerned authorities decided that they will not create any ripples and slowly enforce Islamic banking within the allowed parameters.
A landmark day for Islamic banking in Pakistan was the announcement of decision by federal Shariat Court in April 2022 which made it mandatory for the government to establish Islamic banking system in totality within the next 5 years. This was endorsed by the federal finance Minister Ishaq Dar, removing any ambiguity that this order might not be implemented.
Now the government is duty-bound to implement this system within 5 years and not only that but all foreign loans agreements will also be according to this system. Considering our present economic condition, it is to be seen if our government can convince foreign lenders to follow this Islamic system.
The experiment of Islamic banking in Pakistan has captured the attention of the entire world. We are on the threshold of proving to the world that Islamic banking and its affiliated financial system can compete with the best in the world.
Our success and the successful implementation of Islamic banking will not only help us regain our rightful position among the Islamic world but implement in letter and spirit the wishes of the father of the nation.
Copyright Business Recorder, 2023
The writer is a well-known columnist
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