It must have surprised people when Finance Minister Ishaq Dar announced that the ruling coalition would drop its legal challenge to the Federal Shariat Court’s April ruling giving the government until the end of 2027 to end interest-based banking.According to Mr. Dar, the government aims to end riba as quickly as feasible. Additionally, he stated that the appeals against the FSC ruling would be immediately retracted by the State Bank and the state-controlled National Bank.
However, it is still unclear how the government intends to accomplish this objective and adhere to the court’s timetable. It’s also unclear whether the private banks that have already appealed the ruling, which considers interest-based banking to be against Islamic teachings “in all its forms and expressions,” would do so.
Due to its significant implications for the banking and financial system, as well as the nation’s interactions with the outside world, the issue has persisted since the FSC first declared in 1991 that “simple interest” charged on all types of financial transactions — domestic and international — is riba and against the precepts of Islam.
Islam forbids riba because it leads to what has been called “profiteering and money-making in a multiplication mode of economic transaction,” which doesn’t require the owner of economic resources to put in any work or effort.
However, as has been previously noted in this space, many scholars contend that riba shouldn’t be equated with the straightforward interest levied on contemporary financial transactions because it is based on sane, amicably agreed-upon contracts of economic exchange and the sharing of risks, liabilities, and profits.How would we know that the new system complies with Islamic laws, even if the banking system has been “rid” of riba?
In Pakistan, Islamic banking has expanded very quickly over the past 20 years, and many people have switched over because they believe the fatwas issued by the banks’ purported Sharia boards.
However, many people question whether the Islamic financial instruments being offered genuinely adhere to the guidelines established by Islam’s top schools of thought or are riba-free.
To convert to a riba-free financial system, or what some refer to as Islamic finance, requires in-depth analysis to determine what riba actually is. It is crucial to understand this because making the transition to an interest-free economy in a sophisticated, globally integrated financial system can be extremely difficult, if not impossible.
Sadly, in more than three decades, neither the FSC nor succeeding governments or banks have given the matter or its ramifications a thorough analysis. Instead of rushing into it for political purposes, it is advised that the government, the FSC, and other stakeholders proceed on this route thoughtfully.
Whether or not the government drops its objection to the FSC ruling is immaterial. What counts is that whatever choice is made, it should be based on careful investigation.
