Finance Minister Ishaq Dar on Wednesday said that Pakistan could become interest-free in five years as he urged the banking sector to move towards and promote Islamic banking.

He expressed the views while addressing a seminar at the Federation of Pakistan Chambers of Commerce and Industry in Karachi where speakers spoke at length about interest-free banking.

In April, the Federal Shariat Court (FSC) had declared the prevailing interest-based banking system as against the Sharia and directed the government to facilitate all loans under an interest-free system.

The court had ruled that the federal government and provincial governments must amend relevant laws and issued directives that the country’s banking system should be free of interest by December 2027.

Commercial banks and the central bank had subsequently filed an appeal before the Sup­reme Court (SC) challenging the FSC verdict.

However, earlier this month, Dar announced the government would be withdrawing the State Bank (SBP) and National Bank’s (NBP) appeals against the FSC’s directives and would “try to as quickly as possible implement an Islamic system in Pakistan”.

Speaking during today’s seminar, the finance minister said his government was working on converting the existing banking system to an interest-free one.

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“Our government has an interest in Islamic banking […] I will not say that we have achieved it.” He recalled that Meezan Bank had only 100 Islamic banking branches in 2013-2017 which had now increased to 1,000.

Dar said that the assets of Islamic banks as of September 2022 were Rs7 trillion while their deposits were at Rs5tr. “So a base has been created [and] we have to make this a successful system.”

The minister said that in addition to Islamic banking, mutual funds, capital funds and insurance businesses should also be promoted on an “Islamic basis”.

Dar called on the central bank and the Securities and Exchange Commission of Pakistan (SECP) to work in this regard in a “positive” manner. “This is not something that cannot be done within five years. It can be done within five years.”

The finance minister went on to say that the government should have been “walking down this path” even before the FSC’s verdict in April.

“The losses incurred by the country of that are in front of us. Every person is crying that the inflation has reached the sky.”

The minister said he had been informed about issues being faced in opening Islamic bank accounts and said he had directed officials to investigate the branches that were refusing to do so.