The newly-passed 26th Constitutional Amendment Bill, 2024, has set a January 1, 2028, deadline to eliminate Riba (interest-based banking) in the country.
The clause was added to the draft amendments at the suggestion of Jamiat Ulema-e-Islam-Fazl (JUI-F), the Maulana Fazl-ur-Rehman-led regio-political party, which gave the government a tough time in presenting the draft of the amendment bill.
To eradicate this form of usury, the Senate approved the amendment in clause (f) of Article 38 of the Constitution, which pertains to the promotion of social and economic well-being.
The current clause states that “eliminate Riba as early as possible,” and the government replaced this with “as far as practicable, by the 1st of January, 2028.”
Earlier in 2022, the Federal Shariat Court gave the government five years to implement an Islamic and interest-free banking system in the country, as the economic system of an Islamic country like Pakistan should be free of interest.
Justice Dr Syed Muhammad Anwer read out the verdict that was reserved by a three-member bench of the Federal Shariat Court.
The verdict stated that abolition of Riba is fundamental for an Islamic system, adding that any transaction involving Riba is “wrong”.
“The abolition of Riba and its prevention is in accordance with Islam. The interest taken in any case, including debt, falls into Riba, which is completely forbidden in Islam,” said the Federal Shariat Court.
The Shariat court’s verdict also stated that interest given on external and internal loans by the government also falls under Riba.
“The government should ensure that internal, external loans and transactions should be made interest-free. Transactions with international institutions, including the IMF and World Bank, should be made interest free as well,” said the court.
It must be noted that in line with the Federal Shariat Court’s ruling on Riba, the SBP has granted in-principle approval for establishing a digital retail Islamic bank and Shariah compliant digital banking through Islamic window operations.
According to SBP’s Governor’s Report 2023-24, released on October 18, 2024, the Federal Shariat Court’s judgement on Riba provides a clear direction, for which SBP is collaborating with the government and other stakeholders, and is actively working for the implementation of the judgment.
“In this regard, a multi-pronged approach has been adopted under the guidance of a high-level ‘Committee for Transformation of Conventional Banking into Islamic’,” the report said.
This includes a review of existing domestic laws and comparison with international best practices, assessment of existing regulatory framework, awareness sessions on Islamic banking and finance, and capacity building of stakeholders, as per the SBP report.
