IEP Forum on FSC Verdict on Riba – Experts View
Mufti Dr. Zubair Ahmed Bin Naseem Ahmed
Shari’ah Scholar & Islamic Banking Expert
PhD, National University of Malaysia
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 Mufti Dr. Zubair. 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?
Mufti Zubair: There is no doubt that the judgement is a welcome development to clarify that interest in modern banking is Riba. It is a legal victory for all those Muslims who want to avoid Riba and consider modern bank interest as one form of Riba. Even though the judgement only takes us back to where we were after 1991 judgement on legal front, it nonetheless endorses the historic judgement on interest given in 1991 by Federal Shariah Court.
However, fortunately, before this legal victory in 2022, there have been many developments in the last 30 years. Now, the Islamic banking industry has 20% market share in Pakistan. Islamic mutual funds have more than one-third share of the investment funds market in Pakistan. Even within consumer banking, Islamic banks are steadily raising their market share in housing finance and car finance. One of the reason why there is less financial inclusion and less insurance penetration in the country is that people are faith-conscious and they want Shari’ah compliant financial solutions only.
Therefore, it is in the best interest of the country’s macro economy and financial system to promote Islamic banking which has the potential of expediting financial inclusion, financial development and financial deepening of the whole financial system in the country.
Even though, we have wasted time from 1991 to 2022 in the legal battles to clarify bank interest as one form of Riba, but, Pakistan is unique in even achieving this eventually. In many countries, this debate and legal success has not happened yet.
Question: Do you think that it is possible to implement the verdict on transformation of economy on interest free basis in 5 years?
Mufti Zubair: Yes, it can be achieved, but the success depends on certain pre-conditions. The mind set and approach of stakeholders is key. If they are keen and really want to make a change, then we only need to overcome genuine problems and hiccups and they can be overcome in time with will and determination.
But, if the stakeholders in their heart are themselves not keen in reforms and transformation, then the problems would become enormous and then, there is a fear of complacency and delays in future like witnessed in past.
There is room for optimism given that Islamic banking and finance is not only a reality, but is having greater speed of growth and in some segments, the share of Islamic finance is greater than conventional now.
Question: What are the measures which can be taken to implement the verdict on transformation of economy on interest free basis in 5 years?
Mufti Zubair: The mind set of stakeholders is key to determine the speed and success of reforms. Islamic banking system has four categories of stakeholders, i.e. practitioners, beneficiaries, theorists (or Academicians) and regulators. Regulators hold the key in steering change.
Need to have more collaboration among university academics and Shari’ah scholars to deliberate on workable solutions which are Shari’ah compliant as well as serve the needs of society.
Since Riba is war against Allah and His Messenger (PBUH), as per Al Quran Surah Baqarah Ayah 279, it is not only the responsibility of one category of stakeholders or one segment of Muslim Ummah to do efforts against Riba. It is the responsibility of every member of Muslim Ummah to contribute for this noble cause with their abilities by knowing and understanding at least the basic principles of Islamic finance.
Unfortunately, we make opinions on perceptions. Islamic banking shall not be compared with conventional banking as one is Shari’ah compliant and the other is not. As Muslims, we shall never support conventional banking and we all need to join hands for elimination of interest-based banking as this is one point on which every Muslim agrees.
Question: What are the important obstacles that can be encountered along the way of transformation process?
Mufti Zubair: By and large, our people are very judgmental. Islamic banking is operating mostly in a dual banking system. Most of the stakeholders or potential stakeholders do not have adequate knowledge and understanding of both the financial and Shari’ah aspects simultaneously. But, they are trying to do analysis and even evaluation of Islamic banking system. To do proper analysis or evaluation, one must have adequate knowledge and understanding of that system.
Without adequately understanding Islamic finance principles and contemporary system’s limitations, there cannot be appropriate analysis and evaluation of the struggles of the people who want to do something against the Riba based system. It may lead to opposing the struggle without providing alternates. Ultimately, this can be harmful to the efforts against Riba. Many critics are sceptical even without knowing Islamic banking and finance. They evaluate even when not having clear understanding of Islamic banking. Therefore, we need to create more awareness to make people get better understanding of and confidence in Islamic banking.
Islamic finance is much more than Islamic commercial banking. There are variety of institutions in Islamic social finance, which cater to the needs of people who maybe underserved by commercial financial institutions. Therefore, we need to not put all our hopes and aspirations from Islamic economics with Islamic commercial banking alone. Altogether, Islamic economics has solutions for variety of financial needs even though some institutions due to their structure, regulatory environment and market dynamics may specialize in serving selected segments rather than all segments of society all at once. Not realizing this point, sometimes, people raise their expectations and then get disappointed if they are underserved by one particular institution in Islamic financial system.
Disclaimer: The views shared by the interviewee in this forum are personal opinions and judgements and do not represent the official representation of the principal institution with which they are affiliated.
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