Pakistan`s top Islamic court calls banking system against Sharia, tells govt to make it interest-free by 2027

Announcing the verdict in a long-pending case on Riba (interest), the Federal Shariat Court (FSC) directed the government to facilitate all loans under an interest-free system.

New Delhi: The Federal Shariat Court (FSC) on Thursday (April 28, 2022) declared the prevailing interest-based banking system as against the Sharia law. Pakistan's top Islamic court directed the government to replace it with an interest-free system by the end of 2027.

In the ruling, the court has told the federal government and provincial governments to facilitate all loans under an interest-free system. The FSC has also directed the government to provide loans under an interest-free system.

The court gave its verdict after the Supreme Court had referred the case back to the court in 2002 following the appeals against the decision of the FSC.

The bench, comprising Chief Justice Muhammad Noor Meskanzai, Justice Syed Muhammad Anwar and Justice Khadim Hussain M Shaikh, heard many constitutional petitions and reserved the verdict on April 12 after the conclusion of the case.

The FSC, in its long-awaited verdict, ruled that the elimination of interest was a religious and legal obligation as parliament had already agreed to make Sharia-compliant laws. The bench, in the written judgment, said the prohibition of Riba is the "cornerstone of the Islamic economic system".

"Therefore, we have decided that every loan which extracts any additional amount upon the principal from the debtor is Riba, hence, any transaction that contains Riba even at the slightest level, falls within the category of Riba thus prohibited. Furthermore, all the prevailing forms of interest, either in the banking transactions or in private transactions fall within the definition of Riba,?” according to the verdict.

The ruling read out by Justice Anwar said the amount received by the banks that exceeded the actual loan fell under the category of interest. "Every kind of interest of banks is called riba," it added.

The ruling said that the Islamic banking system was "risk-free and against exploitation."

"All laws and regulations that facilitate interest are considered illegal," the court said, adding that such laws should be abolished from June 1, 2022.

The court also banned the payment of interest over the late payment of bank loans. "The government should immediately remove the word ‘interest' from all laws," the decision said.

The court further directed the government to take internal and external loans under an interest-free system and added that an interest-free system would be more beneficial. However, it acknowledged that the transition towards an Islamic system would take time but the bank's deposit "could be cleared of riba immediately".

However, it said that the government can fully make the economic system free of interest by the end of 2027.

(With PTI inputs)