Pak government to implement 'interest-free' banking system by 2027

Islamabad: In a significant move, Pakistan's Finance Minister Ishaq Dhar on Wednesday announced that the country would move towards an 'interest-free' banking system under the Islamic law by 2027.

The announcement came with Finance Minister Dhar conveying the government's intention of withdrawing its appeals against the Federal Shariat Court's April decision of eliminating interest from the country in five years, the Dawn newspaper reported.

According to the Federal Shariat Court (FSC), the prevailing interest-based banking system in Pakistan was against the Sharia law as interest was absolute in all its forms according to the injunctions of Islam.

"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 was quoted as saying in a news conference by the report.

He 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 by the FSC, the report said.

The top Islamic court's decision came after the matter was pending for 20 years.

"We are of the view that a five years period is reasonably enough time for the implementation of our decision completely i.E. Convert the economy of Pakistan into, an equitable, asset-based, risk-sharing, and interest-fee economy,read the 298-page judgment passed in April by the FSC.

"Therefore, we would specify the 31st day of December 2027 on which the decision shall take effect by way of the complete elimination of Riba (interest) from Pakistan,? it said in its long-awaited verdict.

In June, the State Bank of Pakistan - the country's apex bank - filed a petition against the FSC's decision with the Ministry of Finance, Ministry of Law, and the Banking Council chairman among others, stating that the FSC did not heed the orders of the Supreme Court remand order, the report said.

It requested that the appeal against the decision of the Federal Shariat Court be allowed, and the extent of the points raised in the decision be amended.

According to the Dawn newspaper, the first petition for the abolition of the interest-based banking system in the country was filed in the FSC on June 30, 1990. A three-member bench delivered its judgment and sought its implementation by April 30, 1992.

The then Pakistan Muslim League-Nawaz government challenged the decision in the apex court.

On December 23, 1999, the Supreme Court upheld the decision of the FSC and again directed authorities to ensure its implementation by June 30, 2000.

Subsequently, a review appeal was filed in 2002 with the top court, and on June 24, 2002, the decision of the Federal Shariat Court was suspended and the case was referred back to the FSC for interpretation of interest.