Islamic banking a must for financial system

Experts call for aligning banking practices with Islamic values

KARACHI:

Shariah scholars, bankers and business leaders have called for the promotion of Islamic banking by offering interest-free loans.

They argue that Islamic banking has become unavoidable in the current financial landscape when various countries are forming alliances to safeguard their economic interests, strengthen their currencies, and elevate their economies to new heights.

Speaking at the Islamic Banking Seminar, organised by the State Bank of Pakistan (SBP) at the Hyderabad Chamber of Small Traders and Small Industries (HCST&SI) Secretariat, BankIslami Pakistan senior Shariah scholar Mufti Noman emphasised that only financially strong Muslims could build a strong Islamic society.

"Islamic banking is necessary for society as it operates free from interest, gambling and unethical practices. In contrast, conventional banking is interest-based and, therefore, incompatible with Islamic ethics," he said.

He pointed out that according to the Federal Shariat Court's ruling, all commercial banks in Pakistan must switch to the Islamic banking system by December 2027.

Mufti Noman urged the alignment of banking practices with Islamic values, adding that the banking sector in Pakistan was swiftly moving towards Islamic banking. The SBP has taken revolutionary steps and this year alone it has received over 1,000 applications for branch conversions into Islamic banking. Islamic banking operates on a profit-and-loss-sharing basis, with mechanisms like Murabaha, Salam and Istisna contracts governing asset and service exchanges, while Mudarabah and Musharakah are used to share both profits and losses.

Acknowledging that all the suggestions given by the HCST&SI were valuable, SBP Deputy Director Adil Zahoor said the central bank was working tirelessly to promote Islamic banking through revolutionary initiatives.

He noted that the concept of Islamic banking had already been adopted by many Muslim countries, while Pakistan was still in the implementation phase.

Speaking on the occasion, HCST&SI President Muhammad Saleem Memon remarked "as Muslims, conducting interest-free trade is our duty, with no room for compromise. Islamic banking has become an essential need of the time, with its growing trend worldwide."

He stated that Islamic banking could be immensely beneficial for Pakistani traders and industrialists, offering non-interest financial services aligned with Islamic principles, which could enhance trade and allow the business community to expand their activities through Halal means.

HCST&SI Vice President Shan Sehgal pointed out that despite the launch of numerous schemes by the SBP and National Bank of Pakistan (NBP) for the welfare of small and medium-sized enterprises (SMEs), many bank staff members lacked knowledge of the schemes, preventing traders and the public from accessing them.

He said any policy formulated by the central bank had a direct bearing on the business community. Therefore, it is essential to give traders representation in the SBP board of directors to allow them to provide critical recommendations for policy formulation.