The Senate has recently approved an amendment to clause (f) of Article 38, aimed at promoting social and economic well-being.
This amendment, part of the 26th Constitutional Amendment Bill, 2024, sets a deadline of January 1, 2028, for the complete abolition of Riba (interest-based banking) in the country.
The proposal to include this clause came from the Jamiat Ulema-e-Islam-Fazl (JUI-F), a political party led by Maulana Fazl-ur-Rehman, which challenged the government’s efforts in advancing the amendment bill.
The updated clause replaces the original statement of “eliminate Riba as early as possible” with a more defined goal of “as far as practicable, by the 1st of January, 2028.”
In 2022, the Federal Shariat Court mandated a five-year timeline for the government to transition to an Islamic, interest-free banking system, asserting that an Islamic country like Pakistan must operate without Riba. Justice Dr. Syed Muhammad Anwer announced this ruling from a three-member bench, emphasizing the necessity of abolishing Riba for a legitimate Islamic financial system.
The court highlighted that any transaction involving Riba is fundamentally incorrect, stating, “The abolition of Riba and its prevention is in accordance with Islam.” This includes interest accrued on both internal and external loans.
The ruling instructed the government to ensure all loans and transactions, including those with international entities like the IMF and World Bank, remain interest-free.
In alignment with the Federal Shariat Court’s ruling, the State Bank of Pakistan (SBP) has provisionally approved the establishment of a digital retail Islamic bank and Shariah-compliant digital banking through Islamic window operations.
According to the SBP Governor’s Report 2023-24, released on October 18, 2024, the court’s judgment provides clear guidance, prompting the SBP to collaborate with the government and stakeholders for its implementation.
The report outlines a multi-faceted approach under the oversight of a high-level “Committee for Transformation of Conventional Banking into Islamic,” which includes reviewing existing domestic laws against international best practices, evaluating the current regulatory framework, and providing training on Islamic banking and finance.
The central bank is committed to fulfilling its legal obligation to eliminate Riba from the banking system. As part of this commitment, the SBP’s fourth strategic plan, titled “SBP Vision 2028,” includes “Transforming to a Shariah-Compliant Banking System (SG-4)” as a key strategic goal.
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