State Bank of Pakistan works towards Sharia-compliant financial system
Karachi, June 19, 2023: In a significant move that aligns with Islamic teachings, Pakistan is on the verge of implementing a Riba-free banking system in the country.
Riba, which refers to any excess compensation without due consideration, is deemed against Islamic principles and is considered Haram.
READ MORE: Private Sector Credit Falls into Negative Zone for the First Time in 10 Years
Since its inception, Pakistan has strived to establish a Sharia-compliant financial system in accordance with its founding principles. The present government has demonstrated a strong commitment to realizing this goal, aiming to enforce the system before completing its tenure in August 2023.
The State Bank of Pakistan (SBP), the country’s central bank, is playing a pivotal role in converting the conventional banking system into a fully-fledged Sharia-compliant system. According to the SBP, the definition of Riba is derived from the Quran and is unanimously accepted by all Islamic scholars. It refers to any excess, increase, or addition that lacks due consideration, excluding the time value of money.
READ MORE: Time is Running Out: Last 15 Days to Redeem Bearer Prize Bonds
The Quranic verses (Surah Al-Baqarah 2:278-9) provide further clarification on the meaning of Riba and emphasize the importance of abstaining from it. The verses state, “O those who believe; fear Allah and give up what still remains of the Riba if you are believers. But if you do not do so, then be warned of war from Allah and His Messenger. If you repent even now, you have the right of the return of your principal; neither will you do wrong nor will you be wronged.”
To address any confusion regarding the distinction between interest and Riba, the SBP explained that the term “interest” originated in the 17th century with the global emergence of the banking system. Interest refers to the giving or taking of any excess amount in exchange for a loan or debt, carrying the same meaning and value as Riba. Islamic scholars from all fiqhs (schools of thought) unanimously agree that interest is Riba in all its forms and manifestations.
READ MORE: Pakistan Aims to Generate Rs870 Billion from Petroleum Levy in 2023-24
By implementing a Riba-free banking system, Pakistan aims to offer its citizens a financial system that aligns with their religious beliefs and values. This move is expected to enhance economic stability and growth, as it promotes fairness, transparency, and ethical financial practices.
As the State Bank of Pakistan continues its efforts to transition the banking sector into a fully Sharia-compliant system, the country is poised to become a pioneer in providing Islamic banking services, attracting both domestic and international investors seeking ethical and religiously compliant financial solutions.
READ MORE: Senate Committee Reviews Customs Duty Proposals in Finance Bill 2023
It is hoped that the implementation of a Riba-free banking system in Pakistan will serve as an inspiration to other countries striving to align their financial systems with Islamic teachings.
