ISLAMIC banking is growing rapidly worldwide, not just in Muslim-majority countries but across the globe. Governor State Bank of Pakistan (SBP) Jameel Ahmad highlighted this trend, noting that the global Islamic Banking Industry (IBI) has reached $3.7 trillion. As Pakistan looks to integrate Islamic finance into its banking system, the Governor’s vision of a riba-free financial system by 2028 is essential for the country’s economic prosperity.
Speaking at an event, the Governor SBP pointed out challenges in eliminating riba. The fact of matter is that challenges need urgent attention from regulators, financial institutions and, most importantly, Shariah experts. The first challenge is ensuring compliance with Shariah principles across the banking system. To address this, SBP must enforce stricter oversight and ensure that Shariah advisory boards are closely involved. Financial institutions also need ongoing education on Islamic finance principles to avoid errors and maintain consumer trust. The second challenge is transitioning government bonds from conventional, interest-based systems to Shariah-compliant instruments like Sukuk. This shift is crucial as the government’s bond market is a key component of Pakistan’s financial landscape.
The government, in collaboration with the SBP and the Securities and Exchange Commission of Pakistan (SECP), must introduce legal and market reforms to promote Sukuk. These efforts can help meet the country’s financing needs while staying true to Islamic financial principles. The Governor further discussed the importance of creating an inter-bank market for Islamic banking, ensuring liquidity for Islamic banks and improving awareness and skill development among staff members. It is crucial to educate Islamic bank employees about Islamic financial products in detail. To meet all these challenges, the active involvement of Shariah experts is crucial. Their expertise in Islamic finance can help shape solutions and guide the transition. By addressing these issues, we can unlock new avenues for sustainable economic growth.
