Court Orders Govt to End Riba-Based Haram Financial System

The Federal Shariat Court, on Thursday, declared the Interest Act 1839 of Pakistan un-Islamic, directing the government to replace the Riba-based financial system with an Islamic system in five years.

A full bench of the Federal Shariat Court (FSC) headed by Chief Justice Muhammad Noor Meskanzai and comprising Justice Dr. Syed Muhammad Anwar and Mr. Justice Khadim Hussain M. Shaikh reserved the judgment against the Riba case on April 12.

The long-pending Riba case was remanded by the Shariat Appellate Bench Supreme Court of Pakistan in 2002.

Justice Syed Muhammad Anwar announced the verdict, stating that introducing an interest-free banking system in Pakistan is possible as it is being practiced by some institutions in the country.

The court ruled that the elimination of Riba is the base of the Islamic system, adding that interest taken on any type of loan falls within the category of Riba, which is prohibited in Islam.

Interest payment on all internal and external debts by the government is Riba, the court ruled and directed the government that transactions with international institutions, including International Monetary Fund (IMF) and the World Bank, should be made interest-free.

In its decision, the Federal Shariat Court has said that the government should remove the word ‘interest’ related to banking from every law. All government laws that use the word ‘interest’ should be repealed immediately. All laws using the word ‘interest’ are considered contrary to Islamic law, the decision stated.

From 1 June, all legal clauses that contain the word ‘interest’ will be considered null and void, the Shariah court stated.

The court ruled that if Article 38F had been implemented, the ‘interest’ would have ended decades ago. The court observed that, according to the State Bank of Pakistan’s (SBP’s) strategic plan, 30 percent of banking has been transferred to the Islamic system. Five years is enough for an Islamic and interest-free banking system. The government is expected to present an annual report on interest rates in Parliament. Even after two decades, it is incomprehensible for the government to ask for time for an interest-free economic system.

The decision of the Federal Shariat Court also said that the government should take immediate steps to end the interest rate system. The Attorney General stated in the court that it would take time to end the interest rate system. The Supreme Court Shariat Appellate Bench, in 2001, had ordered the implementation of the order to abolish the interest system. The bench instructed the AGP to inform the court of the time required for the abolition of the interest system. The Islamic banking system is against exploitation and is risk-free.

The court observed that 20 percent of the banking has been converted to Islamic banking in Pakistan and the migration from an interest-based economy to Sharia-based is viable in the next five years.

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The bench conducted 34 hearings and heard the petitioners, their counsels, jurisconsults, amicus curiae, economists, experts, scholars, chartered accountants, Attorney General, and Advocate Generals, who gave suggestions for the conversion of the existing banking system into Riba free Islamic Banking system.

Minister of Finance, Mr. Miftah Ismail, welcomed the decision of the Federal Shariah Court. In a tweet, the minister remarked that the government and SBP will undertake a thorough study of the matter and seek relevant guidance from the FSC.

Ahmed Ali Siddiqui, Director Centre of Excellence in Islamic Finance said a comprehensive action plan along with unwavering commitment at the level of the government and public sector institutions could transform the interest-based financial system into an Islamic financial system.

The government should not stop borrowing from conventional banking systems. Instead, it could have financing from Islamic banks and institutions not only in Pakistan but institutions like the International Monetary Fund, Asian Development Bank, and World Bank, which also support the Shariah way of financing.

The government and its department should end its financial and transactional matters with the Riba-based system and continue their operations with Islamic institutions which have already designed alternate solutions, he said.

Islamic Banking Industry consists of 5 full-fledged Islamic banks (IBs) and 17 conventional banks having Islamic banking branches (IBBs). There are nearly 4,000 branches operating countrywide.

Faiz Paracha is a seasoned broadcast journalist with over 15 years’ experience in reporting and e...


  • Guess what? Banks want this Islamic system because it is more profitable for them as it only takes from the consumer and gives nothing. End of savings account but if you need a loan they will disguise an Islamic interest rate which is even more than normal rate. Its just all fraud and it is never the crux of real Islamic principles.


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