Dr. Anwar Shah
Recently, Federal Shari’ah Court of Pakistan has given its judgement on the Riba case. The verdict reaffirmed the historic judgement on interest first given in 1991. But, the subsequent appeals process reopened the case. Concerns about jurisdiction further delayed the implementation of the historic judgement and delayed the case for several years. Now, finally, the verdict has come. The verdict has declared conventional banking interest to be Riba, which is prohibited in Islamic sources of knowledge categorically including Qur’an and Hadith. The judgement has also asked the government to transform the economic system on interest free basis within a period of 5 years to fulfil the constitutional requirement as well as completing the required implementation of the judgement.
Islamic Economics Project is making a humble effort to collect the views of Shari’ah scholars, regulators, practitioners, lawyers and academic experts to deliberate on the future course of action and generate ideas and debate on how to make this transformation possible.
In this regard, we got the chance to get reaction and response from Dr. Anwar Shah. We hope that the views expressed and shared with relevant audience and stakeholders will generate practicable ideas and keep the momentum towards achieving the end goal of an economy that is in compliance with Shari’ah and is able to utilize the instruments and institutions in the Islamic economic teachings.
Question: What is your take on the decision by Federal Shari’ah Court of Pakistan on Riba?
Dr. Anwar Shah: It is indeed the right decision. It is quite detailed. The decision has summed up the debate by giving authentic references. Every argument that could be conceived for creating room for bank interest has been properly answered and refuted with authentic references. It is worth reading due to its academic rigour and comprehensiveness. The current judges shall be appreciated who had avoided further delay and given this verdict eventually in a clear way.
Question: Do you think that it is possible to implement the verdict on transformation of economy on interest free basis in 5 years?
Dr. Anwar Shah: It is very much possible. There is no need for linear approach. Several institutions can be transformed simultaneously. Policy direction and regulatory impetus needs to be there. This requires political will and commitment.
A task force shall be established and must be given authority. There are two major regulators governing the monetary and fiscal side of private and public finance in Pakistan. Both need to show commitment to reform the monetary and fiscal operations on Riba free basis.
Islamic banking is a reality. It has achieved 20% market share. Even before the verdict, the central bank had envisioned for Islamic banking to achieve 30% market share in next few years. Initial steps take time and the journey for achieving the first one-fifth of the market share from interest based banking has already been successful. With transformation of Faysal Bank, we have a successful story of how to transform a big-size bank into a full-fledged Islamic bank. Such restructuring and conversion in other banks too can expedite the market share growth.
Question: What are the measures which can be taken to implement the verdict on transformation of economy on interest free basis in 5 years?
Dr. Anwar Shah: There should be a task force or committee in the Ministry of Finance as well just like there is an exclusive Islamic banking department at State Bank of Pakistan. The committee shall look to reform the Directorate of National Savings and its schemes to eliminate Riba. Islamic banks offer non-checkable investment schemes for medium to long term maturities. Hence, it is very much possible to reform the interest-based national saving scheme instruments on Riba-free basis.
Secondly, the treasury securities shall be replaced by Sukuk and other feasible alternatives which are free from Riba. The product development work is almost ready in most cases and will not take much time in new directions as well.
There is a need to include those policy experts in the driving seat of major regulatory institutions which have an orientation to use Islamic finance alternatives and who have dedicated their lives in developing Islamic financial alternatives and institutions. If the chief policymaker or policymakers is not convinced and committed to use Islamic finance options and get rid of Riba-based financing options, then things may get stuck and not move beyond books and seminars.
Given the lax in implementation, the Prime Minister Secretariat also need to be proactive to reduce red tapism and steer the reforms to speed up transformation.
Question: What are the important obstacles that can be encountered along the way of transformation process?
Dr. Anwar Shah: Political will and committed efforts are required. These are the most critical factors to achieve successful transition. Islamic finance is not price-free financial intermediation. It allows commercial financial intermediation provided the stipulations of Shari’ah are followed and a real link with economic and productive enterprise is not lost. A lot of non-Muslim majority countries have taken initiative to use Sukuk as an instrument in public finance including United Kingdom, Luxembourg and Hong Kong. Therefore, external sector public finance can also use variety of Sukuk structures in both direct and indirect finance. Pakistan has also issued Sukuk in global markets which have been oversubscribed.
Therefore, the impediment is not so much in product development or in product variety. It is in ensuring committed efforts with political will by policymakers who in their heart must feel the urge to move beyond Riba.
Categories: Articles on Islamic Finance