Aiming for interest-free Pakistan by 2027: SBP Governor

SECP, SBP working together on reforms to promote Islamic banking

ISLAMABAD:

The aim is to eliminate interest from the country’s economy by 2027, said State Bank of Pakistan Governor Jameel Ahmad, addressing the Islamic Capital Markets conference in Islamabad on Monday.

The Security and Exchange Commission of Pakistan and SBP are working together on reforms to promote the Islamic finance sector, he added. The governor was seconded by SECP Chairperson Akif Saeed.

“In the past decade the country has seen a 24% rise/growth in Islamic banking, with the Islamic capital market growing to around $3 trillion,” he said, adding that this has reflected positively in the overall state of the country’s economy. “Islamic banking now makes up 20% of the banking sector in Pakistan.”

According to Ahmad, Pakistan has issued Sukuk bonds (Shariah-compliant bonds) worth Rs2.8 trillion. A committee has been formed within the SBP to convert government debt into Sukuk, he informed.

Ahmad said that there are ongoing discussions for funding from the capital market through Shariah compliance. The SBP governor was of the view that financial requirements of the government can also be met through Sukuk issuance.

“The size of the corporate banking sector in Pakistan is very small. There is a need to increase the corporate debt market while the Islamic banking market can be promoted further by promoting Sukook,” added Ahmad.

Meanwhile, SECP Chairperson Akif Mian while addressing the conference said that after the Federal Shariat Court’s (FSC) ruling last year, directing that Pakistan implement a riba-free banking system and transform the economy by 2027 year-end, important measures have been taken to promote a an Islamic financial system within the country. The goal is to promote the capital market, he added.

FSC ruling

In April 2022, the Federal Shariat Court ruled that the prohibition of Riba (interest) is absolute in all its forms and manifestations according to the injunctions of Islam and in accordance with the Holy Quran and Sunnah. Therefore, it should be eliminated from the country in five years.

“We are of the view that five years period is reasonably enough time for the implementation of our decision completely i.e convert economy of Pakistan into, equitable, asset based, risk sharing and interest-fee economy,” read a 298-page judgment authored by Justice Dr Syed Muhammad Anwer and endorsed by two other judges.

“Therefore, we would specify the 31st day of December, 2027 on which the decision shall take effect by way of complete elimination of Riba from Pakistan,” it added.

A three-judge bench, led by FSC Chief Justice Muhammad Noor Meskanzai, had heard the matter, which had been pending before the court for around 20 years.

A senior government functionary had revealed that different banks would move an appeal against the FSC judgment soon. However, the incumbent federal government led by Pakistan Muslim League-Nawaz (PML-N) has endorsed the FSC’s ruling.