Abstract

Purpose: The ribā case that was pending since 2002 when the Shariah Appellate Bench (SAB) of the Supreme Court of Pakistan remanded it back to the Federal Shariat Court (FSC) for review was decided by the FSC on April 27, 2022. This article presents an appraisal of the Judgment (FSC, 2022). The Judgment reaffirms that all types of ‘interest’ in the modern economy and business exchanges are prohibited. The FSC directs for a complete transformation of the country’s economic and financial system in the gradual process of five years. The challenged laws or provisions of the laws have been declared to be having no effect after June 1, 2022, while the entire economy is ordered to be transformed by December 2027. Design/Methodology/Approach: This technical article analyses the issues involved based on the contents of the Judgment and various provisions of the Constitution of the Islamic Republic of Pakistan, and the legal framework for the banking sector. It uses secondary data gathered through analysis of the Judgment and literature relating to the ribā case pending before the Shariat courts in Pakistan since 1990. Findings: The article indicates some gaps in the Judgment and the lacuna and suggests some further decisions to be made by the FSC by taking Suo-moto notice or upon petition by any citizen or institution. It identifies that ribā involved in delayed exchange of currencies or Forex exchange in present-day finance may also be expressly declared as prohibited. Otherwise, salam in currencies that is an invalid replica of bill discounting as per AAOIFI’s Standard on salam, could be allowed by taking benefit of the gap. The article also finds that the FSC has not taken notice of such doubtful products and tools used by the IBIs that are increasingly deteriorating the integrity of Islamic banking among the public. Originality/Significance: It is the first-ever academic study to analyze the Judgment, and identify possible gaps in the Judgment and implications for banks, the economy and the potential of Islamic banking in the country. Research Limitations/Implications: It is a theoretical and analytical study. Because of paucity of data, it does not consider the implications of the Judgment in case of transformation of the public sector financing or banks’ investment portfolio to Islamic principles. That could be the area to be explored in empirical studies by the researchers in future. Practical and Social Implications: The article will enable the regulators of the financial markets, Islamic finance practitioners and the managers of the economy to take proper and timely actions for smooth and effective transformation of the economy to Islamic principles. It also suggests the possible areas of qualitative and empirical research by the academia, social scientists and the professionals working in the areas of Islamic finance.

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Keywords

Riba¯, Islamic Banking and Finance, Pakistan, Shar¯ı‘at Court, Transformation of the Economy