By Naveed Naqvi
ISLAMABAD: The government would withdraw its appeals against the Federal Shariat Court’s April decision of eliminating Riba from the country in five years, Finance Minister Ishaq Dhar announced on Wednesday, saying the country would move towards an interest-free banking system under Islamic law by 2027.
“With the permission of the prime minister and consultation with the State Bank of Pakistan governor, I’m announcing on behalf of the federal government that the SBP and National Bank of Pakistan will withdraw their appeals from the Supreme Court and our government will fully try to as quickly as possible implement an Islamic system in Pakistan,” Dar said in a pre-recorded video message.
Federal Shariat Court (FSC) in April declared the prevailing interest-based banking system as against the Sharia law and directed the government to replace it with an interest-free system by the end of 2027.
The FSC gave its verdict after the Supreme Court had referred the case back to the court in 2002 following the appeals against the decision of the FSC.
The court further directed the government to take internal and external loans under an interest-free system and added that an interest-free system would be more beneficial. However, it acknowledged that the transition towards an Islamic system would take time but the bank’s deposit “could be cleared of Riba immediately”.
However, it said that the government can fully make the economic system free of interest by the end of 2027.
The central bank, along with the state-run National Bank of Pakistan lodged an appeal with the Supreme Court against the judgment of FSC to conduct a “detailed review”.
Minister Dar acknowledged that there will be challenges in implementing the FSC’s verdict and that the entire banking system and its practices could not be immediately shifted to a new system but nonetheless, the government had decided to withdraw the appeals in the next few days and pivot Pakistan to an interest-free direction within the stipulated time as given by the FSC.
Islamic banking system follows religious principles such as bans on interest and pure monetary speculation, ruling out the use of interest-based financial instruments such as bonds and treasury bills. Pakistan has introduced legislation to encourage Islamic banking and the Islamic bond, or sukuk market.
And as the popularity of Islamic banking grows, bankers are racing to find a greater range of products, both to meet consumer demand and that of Islamic scholars, who say decades-old Islamic banking practices are now due for a review.
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