Federal Minister for Finance and Revenue Senator Muhammad Ishaq Dar on Wednesday said the government remains determined to eliminate interest-based system in Pakistan.

“Modern banking has become a necessity of life,” said Dar, while addressing a conference titled 'Hurmat e Sood' arranged by the Federation of Pakistan Chambers of Commerce & Industry (FPCCI) in Karachi.

The finance minister lauded the Federal Shariat Court's (FSC) decision to implement Islamic banking system by 2027, saying that the government remains committed to promoting Islamic finance and eliminating the interest-based system in the country.

“A base has already been established, as Islamic banking, in terms of overall assets and deposits, enjoys a market share of 20% and 21%, respectively,” said Dar, while adding that further progress needs to be made.

“Apart from Islamic banking, progress is required in non-banking sectors including mutual funds, insurance and capital markets on Islamic terms,” he said.

Dar said that around the globe attempts are made to improve financial inclusion. “In this regard, we made considerable progress during our previous stint and approximately 30% of the population became part of the banking sector,” said Dar, adding that steps are being taken that every individual is included in the financial system.

Dar informed that a special wing would be set up at the State Bank of Pakistan (SBP) for the promotion of interest-free system. “I would notify the wing in a week's time,” he said.

“Our country is facing twin deficits i.e. current account and budget deficit,” he said, adding that there is a need to impose a fiscal discipline. “We need to increase our income while rationalising our expense in order to cut the budget deficit,” he said.

He added that resolutions of the seminar would be shared with the Prime Minister.

SPB governor says Islamic banking 'crucial aspect' of financial sector

Earlier, Governor SBP Jameel Ahmad said Islamic banking has become a crucial aspect of the country’s financial sector.

“The demand for Islamic banking is much higher than conventional banking in Pakistan. Therefore, the SBP and the government are taking further measures to meet public demand,” said the central bank chief.

Ahmad said that the central bank remains committed to promoting Islamic banking in the country. “I want to restate that SBP remains committed to implement the FSC decision. We have commenced work on a transformation plan to convert conventional into Islamic banking,” he said.

A high-level working group has been formed including officials from the SBP, SECP and the Ministry of Finance. “This working group is responsible for developing Sukuk structures,” he added.

Mufti Taqi Usmani weighs in

Addressing the seminar, renowned Islamic scholar Mufti Taqi Usmani lauded the government’s earlier decision to repeal their appeals against the FSC decision, while urging the Ministry of Finance to take practical steps to put in place an interest-free system

“Private banks are yet to rescind their appeals and have not consulted the Federal Shariat Court,” said the Islamic scholar, while urging the people to boycott such banks and financial institutions.

“We also urge the government to take practical measures on an emergent basis to rid of this interest-based system. In order to develop an interest-free system, the finance ministry should establish a permanent division, under which a task force should be set up,” he added.

Earlier this month, Dar announced that the government had reached an understanding with the SBP and National Bank of Pakistan (NBP) to repeal their appeals against the Federal Shariat Court’s (FSC) order to implement Islamic banking system in Pakistan by 2027.

On April 28, 2022, the FSC had ruled that elimination of interest from the economic system was a religious and legal responsibility, ordering 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.

While announcing the verdict in the long-pending case in April, Judge Syed Muhammad Anwar had emphasised that interest-free banking can be implemented all over the world. He directed the government of Pakistan to make efforts to eliminate interest from the country’s banking system in the next five years.

It is pertinent to mention that the Riba-free economy case was remanded by Shariat Appellate Bench of the Supreme Court of Pakistan in 2002.