Shariah compliant ethics need to be integral part of all Islamic banking transactions.

Byline: Akram Khatoon

In compliance of constitutional requirement, that limitation of Riba will be state policy of Pakistan, It has been ambitious program of all succeeding governments since late seventies to Islamise all banking transaction to get rid of Riba from the economy as a whole.

At earlier stage, efforts were made to eliminate interest by shifting to non-interest based modes of financing mostly relying on those which are trade related and involve deferred payments like Morahaba, Muajjala (mark up), leasing and hire purchase etc, and to some extent, real Islamic modes of financing were made use of, which are investment related like Musharakah, Mudaraba and participation term certificates etc, but due to non-availability of basic infrastructure and non-adherence to ethics forming integral part of the system rendered all alternates of interest applicable to both deposit taking and financing, ineffective in getting rid of injustice, unbridled widening gap between rich and poor and all exploitation's relating to interest-based system.

Lack of sincere efforts to cover foreign exchange transactions, money market operations and government and government finance both internal and external, within the scope of Islamisation process by developing new instruments and irregularities committed in the system in vogue attracted note of dissatisfaction from all quarters and became basis of verdict of Supreme Court, forbidding use of interest based and non interest-based modes of financing in the entire financial system after 30th June 2001 (later on relaxation allowed for sometime). Accordingly State Bank of Pakistan came up to set modalities to enable banking sector to make use of all permissible modes of financing according to requirement of Shariah in each case and to remove anomalies from the system. At the same time all out efforts were made to put in place necessary infrastructure and legal frame work in order to eliminate chances of all risks and losses vehemently advocated by banks in the absence of required number of banking courts, shortage of judges and delayed execution of decreed cases.

Further to ensure moral and economic justice both for financial institutions and their clients, reforms envisaged for Islamic banking transactions need to be implemented in letter and spirit. Banks while doing financing to clients project under any authorised mode of financing doing financing must treat the role of client of participative nature. In...

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