Pakistan is on track to transition to an Islamic economy by 2027

About 20 Islamic banks are currently active in Pakistan (Al Jazeera)

Islamabad

- Pakistan is taking rapid steps to transform the national economy into an interest-free model that is compatible with Islamic Sharia provisions. The Federal Sharia Court of Pakistan approved this in April 2022 and gave the concerned authorities the opportunity for complete transformation within 5 years.

The Central Bank of Pakistan expressed - yesterday, Wednesday - its confidence in meeting the deadline set by the Federal Sharia Court to transform the country's economy, including the banking sector, into an interest-free model, as a senior official said that efforts are progressing rapidly in this regard.

Meezan Bank is the first Islamic bank established independently in 2003 (Al Jazeera)

The decision of the Federal Sharia Court requires the removal of the term “interest” from all applicable legal provisions, and requires amendments to all relevant laws in accordance with the ruling.

On the sidelines of the Second National Islamic Economic Forum in Karachi recently, the Central Bank of Pakistan announced that the decision issued by the Federal Sharia Court is being implemented, and that work is being carried out on a full scale before the date set by the court, indicating that various committees have been developed and formed for this purpose.

He added that work is being carried out to review the legal and regulatory frameworks, in addition to developing the new financial products required to convert public debt into debt compatible with Islamic Sharia.

According to the latest statistics, the market share of the assets and deposits of the Islamic banking industry in the public financial sector reached 19.6% and 22.5%, respectively, at the end of last September.

However, the central bank has set a target to increase the share of the Islamic banking system to 35% by 2025.

The court sent a memorandum to the Pakistani government regarding its decision to deal with its internal and external transfers according to the interest-free system, because taking the increase in capital falls under the name of usury.

Mansouri: There is a trend for a number of banks to transform from traditional to Islamic (Al Jazeera)

Sharia oversight

Regarding Pakistan's transition to the Islamic economic system and Islamic banking, Al Jazeera Net met in Islamabad with the Sharia Advisor at the "Ikhlas Askari Islamic Bank", Dr. Muhammad Tahir Mansouri.

He said that the Islamic economy is a financial system that regulates the economic activity of the individual and society in accordance with Islamic instructions. It is based on the exclusion of usury or the concentration of wealth in the hands of a small group and ensuring its circulation.

While the capitalist system is based on the concentration of wealth in the hands of limited people, exploitation and monopoly.

Regarding Islamic banks, Mansouri said that they began in Pakistan in practice in 2003, the first of which was Meezan Bank in the city of Karachi (south of the country), followed by 5 other banks until 2010.

After that, most conventional banks began opening branches as Islamic banks, with independent capital, and under Sharia supervision, until there were 20 Islamic banks in Pakistan.

There is a trend for a number of banks to transform from conventional to Islamic, perhaps the clearest of which is the transformation of Faisal Bank - last year - from a conventional to an Islamic bank.

"Military Bank" opened an Islamic bank called "Ikhlas Military Bank" (Al Jazeera)

Banks converted to Islamic

Regarding the reason for converting traditional banks to Islamic ones or opening an Islamic branch, Mansouri says that it is the state’s tendency to convert to the Islamization of the economy and the Islamization of banks. In addition, Islamic banks find greater demand from Pakistanis, in addition to Islamic banks achieving greater profits than traditional banks.

As an example of high profitability, Mansouri explains that Meezan Islamic Bank, which was established in 2003, has achieved profits of about 70 billion rupees since its inception, that is, 20 years ago, while the largest traditional bank - Habib Bank, which was established more than 75 years ago - has achieved profits of about 45 billion rupees. One billion rupees.

Wadud: Islamic banks showed a much higher growth rate compared to traditional banks (Al Jazeera)

Huge potential

Regarding the experience of Islamic banks in Pakistan, economic analyst and political writer Asima Wadud says that Islamic banking services have shown tremendous potential in Pakistan, which is reflected in its rapid growth.

Speaking to Al Jazeera Net, she added that Islamic banks showed a much higher growth rate compared to traditional banks, noting that Pakistanis prefer Islamic banks, because they are compatible with their religious beliefs and preferences.

Wadud expressed her optimism regarding the experience of Islamic banks, and explained that if these banks follow the right strategy, they will have greater potential for growth in the Pakistani economy compared to other banks.

She pointed out that the size of the Islamic banking industry exceeded $53 billion by the end of 2023. Fitch expects that, in the medium term, Islamic banking will reach 25% of the industry’s assets, while sukuks (Islamic bonds) will reach 20% of the capital market. Debt.

Wadud indicated that the Central Bank of Pakistan aims for Islamic banks to own 30% of total banking assets and deposits by 2025.

The banking system in Pakistan needs to be more efficient so that it can shift to full profit sharing.

Ikramul Haq: The Pakistani experience in activating Islamic banks does not depend on well-thought-out laws (social networking sites)

Criticism of the experience

As for the financial and economic expert, Dr. Ikram Al-Haq, he criticized the Pakistani experience in activating Islamic banks, and said that the experience does not depend on well-studied laws, considering that the Islamic banking system adopted by the Central Bank of Pakistan is a more exploitative traditional banking system.

When asked about the Federal Sharia Court in Pakistan issuing a decision to ban usury in all its forms in 2022, Ikramul Haq told Al Jazeera Net that the matter is being appealed before the Sharia Appellate Body of the Supreme Court.

Regarding the future of Islamic banks, Ikramul Haq believes that any government will not implement the Sharia Court’s order, as the State Bank itself receives huge income from interest, and the government-owned National Bank of Pakistan also manages its finances relying on 100% interest.

Source: Al Jazeera