Legal reforms for an Islamic banking transformation

Article Type

Article

Description

Pakistan’s banking sector is poised for a major transformation as the Federal Shariat Court and the 26th Constitutional Amendment mandate the elimination of interest by 2027–2028. While Islamic banking assets have grown to over Rs11.5 trillion, the current legal framework remains largely interest-based, creating ambiguity, undermining investor confidence, and complicating dispute resolution. Islamic finance, based on trade, partnership, and risk-sharing contracts like Murabaha and Mudarabah, requires recognition and clarity in statutory law to ensure enforceability and market stability.

The authors emphasize urgent legal reforms, including enacting an Islamic Financial Services Act, mandating Sukuk for government borrowing, establishing a Centralised Shariah Supervisory Board (CSSB) with binding authority, and setting up Specialised Shariah Finance Tribunals (SFTs) to resolve disputes efficiently. Proactive, phased legislative action is critical to meet constitutional obligations, enhance investor confidence, and position Pakistan as a global hub in the $5 trillion Islamic finance industry. Delay could jeopardize the transition, making timely reforms essential.

Publication Source

DAWN

Publication Date

10-6-2025

Pages

04

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