KARACHI: Pakistan’s ban­king sector could become interest-free in five years, Finance Minister Ishaq Dar said on Wednes­day, pledging to set up an Islamic finance wing under his ministry within a week to fast-track the implementation of a court verdict that directed the government to enforce interest-free banking by the end of 2027.

Speaking at a seminar on interest-free banking here, Mr Dar urged the banking sector to move towards promoting Islamic banking. He also called on the central bank and the Securities and Exchange Commission of Pakistan to work in a “positive” manner in this regard.

“This is not something that cannot be done within five years. It can be done within five years,” Mr Dar told participants comprising stakeholders from the government, religious political parties, top Islamic finance institutions, the business community and the banking industry.

“Earning money through interest can be easy, but it is not Islamic,” he said while reading from a paper. He said an interest-based economy was destructive for society as it led to injustice, inequality and frustration.

The seminar — organised by the Federation of Pakistan Chambers of Commerce and Industry and Centre for Islamic Economics (CIE) of Jamia Darul Uloom Karachi — came against the backdrop of a Federal Shariah Court’s (FSC) decision in April that ordered the government to implement interest-free banking by end-2027 and directed the federal and provincial governments to amend relevant laws.

The government and commercial banks subsequently challenged the FSC verdict in the Supreme Court. While the government side — the State Bank of Pakistan (SBP) and the National Bank of Pakistan — submitted an application to the apex court earlier this month to withdraw their appeals, commercial banks have yet to do so.

Speaking at Wednesday’s seminar, Mr Dar said the government was working on converting the existing banking system to an interest-free one. “Our government has an interest in Islamic banking […] I will not say that we have achieved it,” he said.

He recalled that Meezan Bank had only 100 Islamic banking branches until 17, which had now increased to 1,000.

Besides, the assets of Islamic banks were Rs7 trillion as of September while deposits stood at Rs5tr, he said: “So a base has been created [and] we have to make this a successful system.”

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

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

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.

SBP Governor Jameel Ahmed said that the share of Islamic banking in the industry had reached a significant level, with their assets now accounting for 20 per cent and deposits 21pc of the overall amount.

Most importantly, he said, the growth rate of both assets and deposits had outpaced commercial banking in recent years.

Renowned Islamic scholar and CIE Chairman Mufti Taqi Usmani, who presided over the seminar, said that, in accordance with its responsibility, the government should ask commercial banks to take back their appeals against the FSC’s decision to pave the way for the speedy implementation of the court’s ruling.

He expressed his resolve that religious institutions would not let any delaying tactics from vested interests spoil the implementation of the court ruling. He demanded the government set up an oversight committee to monitor the implementation status and guide governmental institutions.

JUI-F President Maulana Fazalur Rehman said that while being a government ally, his party still raised issues of religious and national importance and he was happy that the government paid heed to his demand to take back its appeals against the FSC decision.

He also shared his observation that the finance minister was a willing supporter of the interest-free economy.

Jamaat-i-Islami emir Sirajul Haq said that when he was Khyber Pakhtunkhwa’s finance minister, international donors were reluctant to lend money to his government as they also wanted their value system and culture to be adopted by a country which was taking loans from them. He extended his full support to the government and the business community for the much-needed transition to an interest-free economy.

Acting FPCCI President Suleman Chawla said the country’s business community fully supported the FSC’s decision and the chamber was also willing to take precedence in the efforts to achieve this goal of national importance.

Published in Dawn, December 1st, 2022