Federal Sharia Court declares interest-based banking system against Sharia

The Federal Shariah Court (FSC) on Thursday announced a verdict in a long-pending Riba (interest) case, declaring the prevailing interest-based banking system against Shariah and ordered the government to facilitate all lending in under an interest-free system. .

In its long-awaited verdict, the court ruled that the federal and provincial governments must amend relevant laws and issued guidelines that the country’s banking system should be interest-free by December 2027.

The court observed that banks received more than the loan amount when they fell under the category of usury. “Islamic banking is risk-free and against exploitation,” Judge Dr. Syed Muhammad Anwar remarked.

“Nearly two decades have passed, but governments have not taken any action against the interest system,” Judge Anwar said.

The court also declared illegal all provisions of the Interest Act 1839, which facilitate interest.

The FSC had reserved its verdict in the case on April 12.

The full bench of the FSC, consisting of Chief Justice Muhammad Noor Meskanzai, Justice Dr Syed Muhammad Anwar and Justice Khadim Hussain M Shaikh, had heard a number of constitutional petitions filed against the interest-based banking system in the country and had reserved the decision of the case after the completion of the pleadings of the lawyers for the parties.

In the written judgement, the bench said that banning Riba is the “cornerstone of the Islamic economic system”.

“Therefore, we have decided that every loan which extracts an additional amount on the debtor’s principal is Riba, therefore, any transaction which contains Riba, even at a lesser level, falls under the category of Riba thus prohibited. Further, all transactions in force forms of interest, either in banking transactions or in private transactions, fall within the definition of the Riba.”

The FSC said the “rapid proliferation and exponential growth” of interest-free banking not only in Pakistan but throughout the Islamic world and indeed the world is “a reality which has established that the interest-free banking system is not only practicable but also doable”. “.

“With this fact-based background, we disagree with the federal government’s apprehensions that the introduction of interest-free banking into the economic system of Pakistan may have a negative impact on the overall economic system of Pakistan. “, concluded the judges. .

The decision added that “the elimination of Riba from our economic system is our religious duty as well as our constitutional duty; therefore, he must be eliminated from Pakistan.”

Meanwhile, Finance Minister Miftah Ismail welcomed the court’s decision. He said the government and the central bank would “consider this important decision carefully and then seek advice and clarification from the FSC on the process, steps and timing” for its implementation.

The case

The first petition for the abolition of the interest-based banking system in the country was filed with the FSC on June 30, 1990.

The then Chief Justice of the FSC, Dr. Tanzeelur Rehman, constituted a three-member bench which rendered judgment in the case on November 14, 1991 and called for its implementation by April 30, 1992. The government PML-N at the time challenged the Supreme Court’s decision.

Lily: An overview of Islamic banking

Years later, on December 23, 1999, the Supreme Court upheld the FSC decision and ordered authorities to ensure its implementation by June 30, 2000.

Subsequently, a review petition was filed in 2002 with the highest court, and on June 24, 2002, the Sharia court’s decision was suspended and the case was referred to the FSC for Riba’s interpretation.

The case against the interest rate system had been pending in the Sharia court for 19 years. About nine FSC chief justices have completed their terms since then, but the case remained undecided until its verdict was announced today.

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