DESPITE criticism from some circles about slow progress, the authorities concerned are moving firmly and steadily to realize the goal of a Riba-free system in the country in a gradual manner. This was highlighted in a report titled “Strategy Paper Post 2027 Financial System in Pakistan”, released by the Ministry of Finance, which says all new transactions, including loans, will be contracted on a Shariah-compliant basis from Jan 1, 2028, while existing arrangements will continue until maturity. The strategy envisages the post-2027 financial system landscape and highlights key actions, risks and milestones during the transition to remove uncertainty about the shape and environment of the financial system after 2027. It also defines the roles and responsibilities of different stakeholders.
Preparation of the Strategy Paper in consultation with stakeholders, regulators, banks, financial institutions and religious scholars is, indeed, a clear declaration of intent by the Government to fulfill legal and constitutional obligations vis-à-vis establishment of Riba-free system in the country. The strategy has been formulated in light of the Federal Shariat Court’s April 28, 2022, judgement, which declared that “Riba is absolutely prohibited in all its forms and manifestations” and mandated its elimination from Pakistan by Dec 31, 2027. The 26th Amendment to the Constitution, adopted in October 2024, also set a timeline for the earlier constitutional provision and envisaged the elimination of Riba “before the first day of January, two thousand twenty-eight”. This newspaper has also been playing an active role in promoting discussions on the subject with a view to creating an enabling environment and exploring ways and means to get rid of the interest system, which runs contrary to the clear injunctions of Quran. Pakistan Observer organized a series of Roundtable Conferences (RTCs), participated by planners, decision-makers, stake-holders, economists and religious scholars, providing a platform for meaningful exchange of views on different aspects of the issue.
In this backdrop, the timeline issued by the Ministry of Finance is a welcome development and it is now the responsibility of all stakeholders to contribute their share in implementation of the strategy for a noble cause. Under the plan, the government and regulators will ensure that enabling legal, taxation, regulatory and supervisory frameworks are in place and that Shariah-compliant liquidity management instruments are available at regular intervals. The absence of such instruments has remained a key challenge for banks interested in conversion and transformation into Shariah-compliant institutions. This work will be completed over 12 months. The strategy understandably takes care of existing contractual obligations to ensure there are no disruptions in any manner. With this in view, majority foreign-owned banks and financial institutions will be allowed to continue with a hybrid system offering both conventional and Islamic modes. The plan envisages during and after the transition, all existing commitments and obligations towards domestic and international counterparties and stakeholders will continue to be honoured as per the terms of the contracts, and that conventional financing would be replaced with Shariah-compliant financing on respective maturities. This would preserve contractual sanctity, enhance investor confidence and ensure a smooth transition towards a Riba-free financial system. Majority foreign-owned banks and financial institutions may opt to offer both Islamic and conventional products but majority domestically owned financial institutions will pursue transformation in line with the prevailing legal, regulatory and business environment and the availability of Shariah-compliant liquidity management systems. Conventional public debt outstanding as of December 2027 will be replaced with Shariah-compliant financing on respective maturities, while the government will continue to service conventional debt maturing after 2027 as per contractual commitments. As all this is a Herculean task, the process might not be as smooth as envisaged but hopefully planners and stakeholders will work in unison to address the challenges and clear road-blocks.
