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KARACHI: Known Islamic scholar and former judge of the Federal Shariat Court (FSC) Mufti Muhammad Taqi Usmani on Monday urged Islamic banking professionals and other stakeholders of financial institutions to replace interest-based banking with a Shariah-compliant system, saying the dream of serving the humanity at large and a fair distribution of wealth will remain unfulfilled without adopting a Riba-free financial system.

Addressing the opening session of the Third World Islamic Finance Forum-2022 as a chief guest via Zoom, Mr Usmani said that the abolition of Riba from the financial system is not just the need of an Islamic system, rather it is the need of the humanity and the world at large.

Read more: Government asked to end riba-based banking system by 2027

Themed ‘Development of Islamic finance ecosystem for global prosperity’ the two-day mega event has been organised by the Institute of Business Administration’s Centre for Excellence in Islamic Finance (IBA, CEIF) here at a hotel.

The former judge of FSC said: “Without going into the depth of this topic, I will discuss only some points that need our consideration. The financial system developed today has not succeeded in catering to the needs of the global society and humanity, and many scholars of economy and financial experts have accepted and admitted to this very fact.

“Because of this [interest-based financial] system... the economies of the world very frequently have had shocks, and due to these shocks the whole economy gets shattered, as happened in the crisis of 2008.”

He went on to say that scholars at times suggested solutions, made their efforts to bring reforms through mere patchworks within the existing system, without eradicating the biggest evil, the Riba, from it.

Riba, or interest, has been prohibited in all divine books like the Bible and finally the holy Quran. Jews, Christians and Muslims all agree that usury was prohibited by Allah. But, unfortunately, this has been the most evil practice in commercial transactions.

FSC order on riba

“Allah has given clear-cut instructions about the prohibition of Riba, and the Holy Quran has conveyed these directives about its prohibition. Hazrat Muhammad [Peace be Upon Him] also announced the total prohibition of Riba at the time of Hujjatul Wida,” said Mr Usmani.

He said he had explained this concept in a number of writings, and it was confirmed and ratified by many scholars of the day that Riba is the biggest evil that has spoilt the whole system of finance in the society.

“I request the participants of the forum... to discuss and study this aspect of our financial system, if we really want Islamic finance (to) serve humanity for global prosperity,” he added.

“It is very fortunate [that] this august conference is being held at a time when the Federal Shariat Court of Pakistan has given a historic judgment about the ban on Riba-based transactions.

Some 35 years ago, a similar judgment was given by the FSC. However, later on the decision was challenged before the Supreme Court’s Shariat Appellate Bench which gave a detailed judgment consisting of around 1100 pages (that) discussed different aspects of Riba and interest.

This judgment was reviewed by another Shariat Appellate Bench of the apex court, and the case was sent back to FSC for fresh thinking on the issues involved.

The case had been pending in the FSC for the last 20 years, until a verdict was announced on April 27, 2022. Now the FSC has declared that prohibition of Riba is absolute in all its forms and manifestations according to the injunctions of Islam and in accordance with the Holy Quran and Sunnah. Therefore, it should be eliminated in five years.

Mr Usmani said it is high time to ponder over the matter and develop a roadmap to achieve this goal, as ordered by the FSC. “It is imperative for all of us, and persons involved in Islamic finance, that we make the roadmap to ensure an interest-free financial system,” said Mr Usmani.

He requested the participants of the conference to come up with workable recommendations to achieve total elimination of Riba, and make Pakistan an example for the rest of world to follow.

On the occasion Sima Kamil, the deputy governor of State Bank of Pakistan (SBP), highlighted six strategic pillars of the Islamic Banking Industry under the Third Strategic Plan 2021-25.

She said the plan included strengthening the local landscape, enhancing conduciveness of regulatory framework, reinforcing comprehensive Shariah governance framework, improving liquidity management framework, expanding outreach and market development, and bolstering human capital.

She said the banking regulator has taken some key steps for promotion of Islamic banking in the country, including establishment of three centres of excellence, regular issuance of five-year strategic plans to guide the industry, and Shariah-compliant standing ceiling facility and open market operations.

In her detailed presentation, she informed the participants about issues and challenges faced by the Islamic Banking Industry. She said that perception and capacity-building issues, lack of regular supply of sovereign sukuk, lower penetration in strategic sectors like SMEs and agriculture, lack of research and development of innovative products and services and adoption of technology and digital transformations are some challenges that need to be addressed.

Irfan Siddiqui, the president and CEO of Meezan Bank, said some 22 players are operating in the Islamic Banking Industry. Its market share is increasing with each passing year.

In March 2018, the Islamic Banking Market share of deposits was around 14.5 percent, which grew to 19.4 percent by December 2021. He said the SBP’s vision for Islamic Banking is to achieve some 30 percent market share of deposits by 2025.

As of December 2021, the deposits of conventional banks were around 80 percent, deposits of fully fledged Islamic Banks were 11 percent, and Islamic Windows 9 percent or Rs 1.86 trillion.

He said if a minimum of 5 percent incremental growth is achieved then the Islamic Windows’s deposits will go up to 30 percent or Rs 10 trillion by 2025.

Pakistan's Islamic banking sector to have 30% market share by 2026: Moody’s

Aamir Khan, the chairman of Securities and Exchange Commission of Pakistan (SECP), said the commission is promoting Islamic finance under its principles of protection, circulation, justice and fairness, promoting real economic activity, and enhancing the wellbeing of society.

In line with these goals, he said SECP has been facilitating sustainable growth of Islamic Finance in different sectors.

Chairman of IBA-CEIF Dr Ishrat Husain, its Director Ahmed Ali Siddiqui, and Executive Director of IBA Dr S. Akbar Zaidi also spoke on the occasion.

The two-day conference has brought together Islamic scholars, academics, leading Islamic bankers, regulators, and prominent personalities from global Islamic financial and infrastructural institutions to deliberate on issues and challenges faced by the industry.

Copyright Business Recorder, 2022

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