ISLAMABAD: The government on Thursday requested the Federal Shariat Court (FSC), which is seized with a long-pending case on Riba (interest), to leave the matter to the democratic process, including parliament, for achieving the constitutional mandate under Article 227 of the Constitution by bringing all existing laws in conformity with the injunctions of Islam.

“The parliament, executive and other institutions of the state are actively engaged in the process of discharging the obligation of bringing laws of the country including the banking and financial laws in conformity with the injunctions of Islam,” said a six-page reply furnished by Attorney General of Pakistan (AGP) before the FSC.

Without prejudice to the questions of the jurisdiction of the FSC, the government pleaded for exercising judicial restraint given the fact that the question was not whether the laws have to be brought in conformity with the injunctions of Islam but how best to achieve this highly desirable constitutional mandate.

Subsequently, FSC asked the petitioners to furnish rejoinders on the stance taken by the government within two weeks.

The case was remanded back to FSC by the Supreme Court in 2002 to reconsider the matter though the Shariat Court had in 1992 held interest or riba as repugnant to Islam.

Consequently, some banks and financial institutions moved 67 appeals against the judgment before the Shariat appellate bench of the Supreme Court which it took years to hear and eventually upheld the FSC verdict with a direction to the government to amend all banking laws and statutes in the light of the FSC judgment.

Some banks then instituted a review petition before the Supreme Court which was in 2002 remanded back to the FSC.

In its reply, the federal government stated that any person in Pakistan desirous of engaging banking and other financial transactions in the Islamic mode can adequately do so as there was a robust and growing Islamic banking sector operating under the laws of Pakistan.

A number of banking/financial institutions are operating and providing services in the Islamic mode under the guidance of prominent ulema and religious scholars. This is an ongoing process and fully consistent with transformation of the banking sector from conventional to Islamic mode without creating any schism in the financial sector, which is inextricably linked with the global financial market, the reply said.

Given its success and attraction, Islamic banking and financing is being adopted in many countries other than Muslim countries as is evident from developments in Canada and other western countries, the government said.

After the 2008 global financial crisis, the Western world observed the resilience the Islamic banking sector had shown and was proving itself as a safer alternative compared to the western banking system, it added.

Since then, the Islamic banking has spread to Europe, North America and Africa, the government said, adding the Islamic banks were in operation in countries such as Denmark, France, Luxembourg, Nigeria, South Africa, Germany, Switzerland and the United Kingdom.

There has also been a growing potential for Sukuk bonds, Luxembourg, Hong Kong, South Africa and the United Kingdom are some countries that have issued the bonds in recent years, it stated, adding as per the Islamic Finance Development Report 2020, the Islamic finance industry saw a growth of 14pc in 2019 to a total $2.88 trillion in assets and was predicted to reach $3.69 trillion by 2024.

The banking in the Islamic mode now accounts for approximately 17pc of the country’s overall banking system in terms of assets while in terms of deposits the share was about 18.3pc as of December 2020, the government said.

At present, 22 Islamic banking institutions with five fully-fledged Islamic banks and 17 conventional banks having Islamic banking branches are providing Shariah compliant products and services through their 3,456 branches along with 1,683 windows at Islamic banking counters at conventional branches across the country.

The government reminded the FSC that through legislative and executive measures, a robust interest free banking sector had developed in the country and was successfully providing services to the people.

Appropriate amendments have also been made by the legislature to the State Bank of Pakistan Act 1956, the Banking Companies Ordinance 1962 and a newly enacted Companies Act 2017.

Published in Dawn, May 28th, 2021