Pakistani scholars call for 'roadmap' to transform financial system as Islamic banking assets boom

This photograph taken on March 4, 2015 shows a Pakistani resident waiting to withdraw currency from an ATM in Islamabad. (AFP/File)

• Federal Shariat Court directed the government in April to introduce interest-free economy within five years
• Chairman SECP wants ‘impactful roadmap’ for Pakistan’s financial future after the recent court ruling

KARACHI: Pakistan’s religious scholars and economic experts on Monday called for transforming the country’s financial system by making it interest-free after a recent court ruling on the subject, as Islamic banking industry posted a robust growth of about Rs6 trillion earlier this year.
In a verdict issued in April, the Federal Shariat Court (FSC) directed the government to eliminate “riba” (interest) within five years, saying that Islam prohibited it in all forms and manifestations.
The court was established in May 1980 and was empowered to evaluate various laws in the country to determine if their compliance with the fundamental principles of religion.
Supporting the verdict, Islamic scholars in Pakistan demanded a complete transformation of the financial system while contending that riba-free economy could also provide solution to a number of present-day global problems.
“The Federal Shariat Court has given a historic judgment and banned riba-based transactions in the country,” Mufti Taqi Usmani said while addressing a gathering organized by the Center for Excellence in Islamic Finance at the Institute of Business Administration in Karachi. “It is now time for us to think and develop a roadmap to achieve this goal.”
“In our financial system, riba is the basic cause of evil,” he continued. “Riba is prohibited in all religious scriptures. The Jews, Christians and Muslims all agree that usury was prohibited by Allah from the very beginning.”
Another prominent Islamic scholar, Mufti Muneeb ur Rehman, also agreed with him while asking the government to set up a body to deal with the issue.
“An empowered task force or steering committee must be formed to guide the government and offer solutions to wherever problems arise [out of the implementation of the court ruling],” he said. “This should be a continuous process.”
“The Federal Board of Revenue and provincial revenue board should immediately amend their legal framework to pave the way for real Islamic financial system,” he added.
Addressing the gathering, Sima Kamil, deputy governor of the State Bank of Pakistan, said the Islamic banking industry in Pakistan had acquired a market share of 19.4 and 20 percent in assets and deposits, respectively, by the end of March.
“During the last five years, the compound annual growth rate of Islamic baking assets and deposits was 25.2 and 22.3 percent while in absolute terms the assets and deposits had increased to Rs5.9 trillion and Rs4.25 trillion at the end of March this year,” she informed.
The deputy governor told the event the share of Islamic financial instruments in the recently introduced incentives had also substantially increased in the country.
“This is because 98 percent of Pakistani Muslims prefer Islamic form of banking,” she noted. “It clearly shows that we can use Islamic finance to improve lives of people around us, not just in Pakistan but on the global level as well.”
Financial experts said a majority of Pakistanis believed that riba was prohibited, adding that conventional banks should view the recent court directive as an opportunity.
“The court ruling provides a huge opportunity to conventional banks to increase their Islamic banking presence in the next five years,” Ahmed Ali Siddiqui, the center’s director, told Arab News. “There is a huge demand for a riba-free financial system.”
“If the conventional banks consider this opportunity, don’t oppose the verdict and adopt the recommended system within five years, we will have 100 percent Islamic banking in Pakistan,” he continued. “We need to convert about 16 percent per year to achieve the target.”
Speaking at the event, Aamir Khan, the chairman of Securities and Exchange Commission of Pakistan (SECP), emphasized the necessity of “charting an impactful roadmap for the future, encompassing all aspects of Islamic finance ecosystem” to promote the new system in the country.
The SECP chairman also recommended tax incentives for companies whose financial needs were principally met through capital market Islamic instruments.