
Interest-free banking is set to be enacted across Pakistan from January 1, 2028, as the recently passed 26th Constitutional Amendment Bill, 2024, set the aforementioned date as the deadline to end interest-based banking.
The Senate approved the amendment to the clause (f) of Article 38 of the Constitution suggested by Jamiat Ulema-e-Islam-Fazl (JUI-F) to bring an end to Riba (interest-based banking).
The clause in question previously stated: "Eliminate Riba as early as possible," which the incumbent government replaced with "as far as practicable, by the 1st of January, 2028," as reported by The News"
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The former government in 2022 was given five years by the Federal Shariat Court (FSC) to make an Islamic and interest-free banking system effective in the country, in line with the economic system of an Islamic country like Pakistan.
Reserved by a three-member bench of the FSC, the verdict was declared by Justice Dr Syed Muhammad Anwer, stating that an Islamic system should be free from Riba. He added transactions involving Riba are “wrong”.
“The abolition of Riba and its prevention is in accordance with Islam. The interest taken in any case, including debt, falls into Riba, which is completely forbidden in Islam,” said the FSC.
According to the verdict, interest given on external and internal loans by the government is also considered Riba.
“The government should ensure that internal, and external loans and transactions should be made interest-free. Transactions with international institutions, including the IMF and World Bank, should be made interest-free as well,” said the court.
In line with the Shariat Court’s ruling on Riba, the State Bank of Pakistan (SBP) has also approved the formation of a digital retail Islamic bank and Shariah-compliant digital banking through Islamic window operations.