The 26th Constitutional Amendment Bill, 2024, passed today in the early hours has provided a time frame of 1st January 2028 for the eradication of Riba (interest-based banking) from Pakistan.
This amendment was put forward by Jamiat Ulema-e-Islam-Fazl (JUI-F), headed by Maulana Fazl-ur-Rehman, who came under opposition before joining the draft. The Senate passed an amendment to clause (f) of Article 38 of the Constitution which deals with social and economic rights.
The previous condition mandated the elimination of Riba “as soon as possible,” whereas the current provision requires it to be accomplished “as far as possible by 1st January 2028.” In 2022, the Federal Shariat Court mandated the government to establish an interest-free Islamic banking system within five years.
Justice Dr. Syed Muhammad Anwer of the three-member bench said that the prohibition of Riba is essential to an Islamic system, and said, “The abolition of Riba and its prevention is in Islam.” Any interest taken in any case, including debt, falls in Riba, and Riba is prohibited in Islamic law.
The court also pointed out that interest on internal and external loans by the government is Riba and directed that in future dealings with the IMF, World Bank and other international institutions, the transactions should be free of interest.
Following the court’s decision, the SBP has moved to set up a digital retail Islamic bank and Shariah-compliant digital banking through Islamic windows. As per the SBP Governor’s Report 2023-24 presented on October 18th, 2024, the SBP is engaging with the government and other relevant stakeholders to enforce the Federal Shariat Court’s decision.
“A three-dimensional strategy has been implemented under the supervision of a ‘Committee for Transformation of Conventional Banking into Islamic’ at the apex level,” the report added. This approach entails the following; analysis of domestic laws, compliance with international standards, and capacity development for Islamic banking.
SBP’s fourth strategic plan known as “SBP Vision 2028” launched in November 2023 also includes the goal “Transforming to a Shariah-Compliant Banking System (SG-4)” as one of its strategic goals, which shows that the central bank is determined to eliminate Riba from the country’s financial system.
