Riba may go in five years: Ishaq Dar

KARACHI: Finance Minister Ishaq Dar said on Wednesday that the government would look into a proposal to ban the opening of interest-based branches of conventional banks. He hoped that interest-based banking might be done away with in five years, adding that this system was horrendous and badly affects the poor.

Dar said this in response to a suggestion made at a seminar on Hurmat-i-Sood co-hosted by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) and the Center of Islamic Economics.

Following the lengthy proceedings of the seminar, in which religious scholars presented their viewpoints, Dar talked considerably on the subject of riba-free economic and banking system.

He also announced plans to establish an Islamic banking wing in the SBP as well as provide tax relief to companies based on the Islamic economic model. “The SBP and SECP will look into it as both are regulators of the financial and corporate sectors,” he said.

Welcoming the decision of the Federal Shariat Court (FSC) to make laws within five years on the implementation of Islamic banking in the country, Dar said that in his previous tenure as finance minister from 2013 to 2018, considerable work was done on developing an Islamic banking system in the country. It also included the establishment of a special committee consisting of Mufti Taqi Usmani and other scholars. Even an implementation committee was also established, he added.

“But then came the Panama drama, which ruined everything on the economic front, including our work on Islamic banking in the country.”

Dar stated that the banking system was a critical pillar of the financial system and had become a necessity. Financial inclusion meant including even the people in the remotest areas in the banking system, as dealing in cash leads to black money. He said that an inclusive banking system prevents terrorists and black money.

The minister said that Islamic banking had posted handsome growth over the years. Figures for Islamic banks’ assets and deposits showed massive growth in the first quarter of this fiscal year, with assets now at Rs7 trillion and deposits at Rs5 trillion, representing 20-21 percent of the total market share.

Apart from the banking system, Dar noted that other sectors like insurance, mutual funds and capital markets also needed to be developed in the Islamic form of the economy.

He hoped that the FSC’s decision could be implemented in five years or even earlier if all stakeholders worked together to achieve this goal. However, he urged Islamic banks to improve their performance by offering attractive and cheaper products compared to conventional banks. Dar was also critical of the way things were affected in the last five years on the economic front. “When I took over as finance minister in 2013, the country was on the verge of default, but I turned around the situation, and the country was about to enter the G20 group by becoming the 18th largest economy when we were removed unceremoniously,” he stated. Dar recalled that inflation was at four percent and the economy was growing at over six percent with a policy rate of six percent. Pakistan became the 18th largest economy in 2016, and then the same country fell to 46th number in the ranking.

About the twin deficits i.e. current account and budget, Dar said that these have been running for the long term because of our habit to spend more and earn less. That was why loans grew because of the budget deficit and currency devaluation. SBP Governor Jameel Ahmed also welcomed the decision of the FSC for a riba-free economy and said that Islamic banking was now an integral part of the banking system of the country. He said that assets and deposits of Islamic banks had increased by 22 and 25 percent, respectively, in the last five years.

He said that SBP has been working tirelessly to promote Islamic banking in the country and had taken various steps to facilitate this form of banking.

The central bank has started a transformation plan from conventional to Islamic banking and will consult all the stakeholders. The working group has also started functioning in this regard, he added.

Earlier, addressing the seminar, Jamiat Ulema-Islam-Fazl (JUIF) chief Maulana Fazlur Rehman welcomed the government’s announcement that the State Bank of Pakistan and National Bank of Pakistan would withdraw the appeals they had filed before the Supreme Court’s Shariat appellate bench against the Federal Shariat Court’s decision regarding interest.

He stated that this decision was encouraging and a hope that the government was on the right track and that it was now up to it to decide how it should be run, adding that this seminar would provide the government with guidance on how to move forward on the issue of interest.

He maintained that though religious scholars had already been spearheading the efforts to rid the country of interest-based economic system, there was a need for the business community to be a fundamental part of the efforts to send out a clear message that this was not the issue of the clergy but the entire nation.

“The Constitution clearly states that no law will be made to negate the Quran and Sunnah, yet interest-based financial bills and budgets are passed every year, which is a major violation of it,” he lamented.

He said Finance Minister Ishaq Dar stayed abroad for a long time and lived a life of exile as the country teetered on the brink of default.

“This is the first person that the state needed to steer it out of the economic quagmire, and the state had to make arrangements for his return, and as he landed at the airport, the dollar dropped while the stock exchange rose,” he added.

Jamaat-i-Islami Amir Sirajul Haq regretted that the last five finance ministers went to the International Monetary Fund (IMF) soon after taking oaths because it controlled the country’s economic system and the government had no say in determining the rupee’s value.

He believed that the interest-free financial system was not just an Islamic banking system, but the entire system based on what the religion permitted and prohibited.

“The first step the Prophet (PBUH) had taken after the migration was to build a mosque, and the second step was to lay the foundation of a market system in Madina because non-Muslims had control over the city and exploited the people through the interest-based system,” he said, adding that this system dominated the world and terming the struggle against it a jihad.

“We cannot enjoy freedom in the true sense if we are not free financially,” Siraj said, adding that the Federal Shariat Court’s decision has provided a path for purging the country of interest and establishing a zakat and usher system. He suggested that the State Bank bar private banks from further expanding interest-based banking by opening new branches and that they be given a deadline to do away with interest-based loans. Besides, he proposed that state-owned enterprises like Pakistan State Oil keep their money in Islamic banks, which would help increase Islamic banking’s share to 40 percent from the current 18 percent.

Religious Affairs Minister Mufti Abdul Shakoor asked the religious scholars to give a call for a protest outside the Supreme Court to force it to decide the appeals against the Federal Shariat Court’s decision and not to let the judges leave the premises until the matter is decided.

Mufti Muneebur Rehman demanded that private banks also withdraw their appeals and if they didn’t do so, then the Supreme Court would decide on a priority basis within a week. He said the State Bank operated on an interest-based system, so the root of the evil must be eradicated for conventional banks to follow suit.

He lamented that a steering committee formed during Dar’s previous tenure had worked out several proposals on the issue but no progress was made thereafter. He pointed out that tax laws were in contravention of the essence of Islamic banking and needed to be amended.

Arif Habib said the people wished to get rid of interest, which was evident from the fact that Islamic banking was proliferating in comparison to conventional banking. He added that private banks also felt the need to pursue Islamic banking for their growth. It appeared that the people often go with the flow and become part of the interest-based system, but they had regret in their hearts that this wasn’t the right thing and they should opt for an Islamic system. He asked the scholars to suggest how those people could address the mistake they had made. In his welcome speech, Mufti Taqi Usmani said this seminar was aimed at unanimously raising voices for the elimination of interest from the country and demanded that the government take effective and practical steps towards that end. Most of the issues the Muslim Ummah was facing at the international and national levels were consensual and could be resolved quickly if they together focused all their capabilities and energies on solving them.

“I had a desire for a long time to have a forum where all schools of thought and religious organisations unite on the burning issues by raising above their political, party, and sectarian differences and presen a unanimous opinion,” he said, adding that the past was evident of the fact that the unity of all schools of thought on a single issue always yielded positive results.

“This seminar, as a first step, is a representative gathering of all schools of thought and is being held to launch struggle for the elimination of riba,” he said. Suleman Chawla, acting president of FPCCI, said the country’s business community had been taking steps to rid the country of interest, adding that the interest-based loans had crippled the country’s economy. He said the Quaid-i-Azam, at the inauguration of the State Bank in 1948, called for the establishment of an interest-free system in the country, and the country’s 1973 Constitution also prohibited riba.

He questioned why if banks could have an Islamic banking window and all banks were struggling against interest, an interest-free system could not be completely enforced in the country. Other religious scholars also spoke.