The State Bank of Pakistan (SBP) said on Saturday that it has sought guidance from the Shariat Appelate Bench of the Supreme Court for implementation and practicalities involved in ending the interest-based banking system by the end of 2027.

On April 28, the Federal Shariat Court (FSC) of Pakistan ruled that elimination of interest from the economic system was a religious and legal responsibility and ordered the government to end the interest-based banking system by the end of 2027.

The decision was made on petitions against Riba (usury) after the Supreme Court referred the case back to the court in 2002 following appeals against the decision of the FSC.

Federal Shariat Court declares interest-based banking as against Sharia

“After detailed review of the judgment and based upon the advice of our chief legal adviser and external counsel, we have sought guidance from the Shariat Appelate Bench of the Supreme Court in terms of its implementation and practicalities involved,” said the SBP in a statement.

“SBP welcomes the FSC’s Judgement of April 28, 2022 on Riba case, as has already been done by the finance minister. In particular, we appreciate the substantive part of the decision.

"As the prime custodian and regulator of the financial and monetary framework of the Islamic Republic of Pakistan, SBP is deeply committed to ensuring compliance with the injunctions of Islam, in particular those pertaining to Riba, while protecting the stability and security of the financial sector of the country that functions as part of the global financial system," the central bank stated.

Government asked to end riba-based banking system by 2027

It said that SBP was among the few regulators across the globe where comprehensive legal, regulatory and Shariah governance frameworks have been successfully developed and implemented.

Currently, 22 Islamic banking institutions (5 full- fledged Islamic banks and 17 conventional banks having standalone Islamic banking branches) with a branch network of 3,983 branches along with 1,418 Islamic banking windows (Islamic banking counters at conventional branches) are operational across the country, it said.

According to SBP, the industry now accounted for 19.4% of the country's overall banking system in terms of assets while in terms of deposits the share is 20% (as of March 31, 2022).

In addition, the SBP has also been taking measures to bring the legal and regulatory infrastructure in compliance with Shariah principles.