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Mahesh

11/11/22 13:30 PM IST

Pakistan govt to implement 'interest-free' banking system by 2027

In News 
  • Pakistan's Finance Minister Ishaq Dhar recently announced that the country would move towards an 'interest-free' banking system under the Islamic law by 2027.
Interest Free banking 
  • The concept of interest free banking system is derived from the Islamic form of banking.
  • It operates based on ethical standards and prevents Muslims from paying or receiving any kind of interest.
  • It is considered to be an effective tool to achieve the economic objectives of Islam.
Journey of Interest free Banking 
  • The first petition to abolish the existing interest-based banking system in Pakistan was filed in 1990 at the Federal Shariat Court (FSC) – the constitutional court that has the power to examine and determine whether the Pakistani laws comply with the Sharia law.
  • In 1992, a three-member bench at the FSC sought the implementation of the interest-free banking system in the country.
  • The government of Pakistan challenged this decision in the country’s Supreme Court.
  • In 1999, the Supreme Court upheld the FSC’s decision and again directed the government authorities to implement the system by June 30, 2000.
  • In 2002, a review appeal was filed at the apex court and the decision of the FSC was suspended. The case was referred back for the FSC’s interpretation.
  • In April 2022, the FSC again called for abolishing interest-based system in five years since it goes against the Sharia law.
  • It called on the government to eliminate Riba – the Islamic term for interest – from the country’s banking system by December 31, 2027.
  • Government borrowings from domestic and foreign sources also come under the definition of Riba and is prohibited under Islamic law.
Source- Business Standard 

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