On Thursday, the Federal Shariat Court (FSC) declared the prevailing interest-based banking system against the Sharia law. The court directed the government to replace it with an interest-free system by the end of 2027.
The verdict was announced in a long-pending case on Riba (interest). The court directed the government to facilitate all loans under an interest-free system. The FSC gave its verdict after the supreme court had referred the case back to the court in 2002. Followed by the appeals against the decision of the FSC.
The Ruling Of The Case
In its long-awaited verdict, the court ruled that the elimination of interest was a religious and legal obligation. Since the parliament had already agreed to make Sharia-compliant laws.
In the written judgment, the bench said the prohibition of Riba is the cornerstone of the Islamic economic system.
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“We have decided that every loan which extracts any additional amount upon the principal from the debtor is Riba, hence, any transaction that contains Riba even at the slightest level falls within the category of Riba thus prohibited. Furthermore, all the prevailing forms of interest, either in the banking transactions or in private transactions fall within the definition of Riba, according to the verdict.”
“All laws and regulations that facilitate interest are considered illegal and such laws should be abolished from June 1, 2022.” Further adding.
The court further directed the government to take internal and external loans under an interest-free system and added that an interest-free system. Citing that it would be more beneficial. However, it acknowledged that the transition towards an Islamic system would take time but the bank’s deposit “could be cleared of riba immediately.”
Response To The Ruling
Finance Minister Miftah Ismail took to twitter to share his thoughts,
“We welcome the Federal Shariat Court (FSC) decision in the Riba case. The government and SBP will carefully study this important decision and then seek guidance and clarification from the FSC about the process, steps, and time frame to implement this decision.”
Meanwhile, the federal government had argued that the interest-based banking system could not be eradicated as it would damage the already fragile economy. They mentioned that they have supported a parallel interest-free banking system already functioning in Pakistan.
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