Pakistan aims to eliminate interest by 2027 as part of Islamic banking: State Bank Governor

PTI | Islamabad | Updated: 29-05-2023 21:44 IST | Created: 29-05-2023 21:44 IST
Pakistan aims to eliminate interest by 2027 as part of Islamic banking: State Bank Governor

Pakistan aims to eliminate interest from its banking system under the Islamic Sharia law by 2027, the country's top banker said on Monday.

Addressing the Islamic Capital Markets conference here, State Bank of Pakistan (SBP) Governor Jameel Ahmad said that the Security and Exchange Commission of Pakistan (SECP) and the central bank were working together on reforms to promote the Islamic finance sector.

''In the past decade, the country has seen a 24 per cent rise/growth in Islamic banking, with the Islamic capital market growing to around USD 3 trillion," he was quoted as saying by the Express Tribune newspaper.

Asserting that the growth has reflected positively in the overall state of the country's economy, Ahmad said, ''Islamic banking now makes up 20 per cent of the banking sector in Pakistan." The SBP governor said that there are ongoing discussions for funding from the capital market through Sharia compliance and added that the financial requirements of the government could also be met through Sukuk (Sharia-compliant bonds) issuance.

Islamic banking is defined as a banking system which is in consonance with the spirit, ethos and value system of Islam and governed by the principles laid down by Islamic Sharia.

According to Ahmad, Pakistan has issued Sukuk bonds worth PKR 2.8 trillion, and a committee has been formed within the SBP to convert government debt into Sukuk.

"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 Sukuk," Ahmad said.

In November last, Finance Minister Ishaq Dar said that Pakistan will abolish in five years the interest in the banking system and replace it with the Islamic mode of banking. He had said that mutual funds, capital funds, and insurance businesses should also be promoted on an Islamic model.

Dar's announcement came months after the Federal Shariat Court (FSC) in April 2022 declared the prevailing interest-based banking system against the rule of Sharia.

The FSC ruled that the federal government and provincial governments must amend laws and ordered that the country's banking system should be free of interest by December 2027.

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

SECP Chairperson Akif Mian said that after the FSC ruling last year, important measures were taken to promote an Islamic financial system within the country, and the goal is to promote the capital market.

Pakistan, currently in the throes of a major political as well as economic crisis, is grappling with high external debt, a weak local currency and dwindling foreign exchange reserves.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

Give Feedback