The 26th Constitutional Amendment Bill, 2024, recently passed by the Senate, has set a deadline of January 1, 2028, to end the practice of usury (interest-based banking) in the country.
This clause was added to the draft amendments on the suggestion of Jamiat Ulema-e-Islam Fazl (JUI-F), a regional political party led by Maulana Fazlur Rehman, which gave the government a difficult time in introducing the bill. Amendment Bill.
To eliminate this form of usury, the Senate approved the amendment in Clause (f) of Article 38 of the Constitution, which relates to promoting social and economic well-being.
The current clause stipulates “the elimination of usury as soon as possible,” and the government replaced that with “as far as possible, by January 1, 2028.”
Earlier in 2022, the Federal Sharia Court gave the government five years to implement an interest-free Islamic banking system in the country, as the economic system of an Islamic country like Pakistan should be interest-free.
Judge Dr. Syed Muhammad Anwar read the ruling, which was reserved by a three-member panel of the Federal Sharia Court.
The ruling stated that the abolition of usury is fundamental to the Islamic system, adding that “any transaction involving usury is wrong.”
“Abolishing usury and preventing it is part of Islam. The Federal Sharia Court said that interest taken in any case, including debts, falls under usury, which is completely forbidden in Islam.
The Sharia Court ruling also stated that interest granted on external and internal loans by the government also falls under usury.
“The government must ensure that loans and internal and external transactions must be interest-free. Transactions with international institutions, including the IMF and World Bank, must also be interest-free,” the court said.
It may be noted that in line with the Federal Sharia Court ruling on usury, the State Bank of Pakistan (SBP) has granted in-principle approval to set up an Islamic digital retail bank and Shariah-compliant digital banking services through Islamic window operations.
According to the Bank of Sharjah Pakistan Governor’s Report 2023-24, issued on October 18, 2024, the Federal Sharia Court’s ruling on usury provides a clear direction, as Bank of Sharjah Pakistan cooperates with the government and other stakeholders, and is actively working to implement the ruling. .
“In this regard, a multi-pronged approach has been adopted under the guidance of the high-level ‘Committee on Conversion of Conventional to Islamic Banking’,” the report said.
This includes reviewing existing local laws and comparing them to international best practices, assessing the current regulatory framework, holding awareness sessions on Islamic banking and finance, and building the capacity of stakeholders, according to the Bank of Pakistan Strategic Report.
The central bank says it is committed to fulfilling its legal obligation to eliminate usury from the country’s banking system.
Accordingly, the Central Bank’s fourth strategic plan, “Central Bank of Sudan Vision 2028” in November 2023, includes “transformation to a banking system compatible with Islamic law (SG-4)” as one of the strategic objectives.