Abdul RaufFollow

Degree

Master of Science in Finance

Department

Department of Finance

School

School of Business Studies (SBS)

Date of Submission

Spring 2024

Supervisor

Dr. Azam Ali, Assistant Professor & Faculty Lead - Stanford and IBA Collaboration

Submission Type

Research Project

Document Type

Restricted Access

Pages

ix, 49

Keywords

Islamization of Finance, Riba-Free Economy, Pakistan's Constitution, Islamic Banking, Economic Development

Abstract

This study will discuss the provisions in the constitution of Pakistan that enable the path for implementation and Islamization of the financial system which would eventually require the modification of legal framework to support the transactions. Pakistan is a country that has struggled from its birth to find its true national identity. Although Islam was the driving force in the movement towards the creation of an independent state, there has been much debate about its role in the nation’s life since independence. The movement towards the implementation of an interest-free Islamic financial system has proved to be extremely neccesary. As per the recent decision of Federal Shariat court of Pakistan Riba will be eliminated from Pakistan within 5 years. The elimination of Riba (interest) from the economic system in Pakistan has been a significant endeavor that has spanned several decades. Here is a historical overview of the efforts made to eliminate Riba in Pakistan: 1. Constitutional Provisions: Pakistan's constitution has played a crucial role in advocating for the elimination of Riba. Article 28 of the 1956 Constitution called for the elimination of Riba "as early as possible". The 1962 Constitution provided in the principles of policy mentioned that "usury" should be abolished. Similar provisions were found in the 1973 Constitution. In 1969 the state-sponsored advisory body known as the Council of Islamic Ideology (CII), declared that Pakistan's banking system was "fundamentally based upon Riba", and unanimously called for its elimination. These constitutional provisions reflected the commitment of the Pakistani government to address the issue of Riba. 2. Legislative Measures: In May 1991, the National Assembly of Pakistan established a committee to oversee the process of eliminating Riba from every economic activity. 3. Judicial Decisions: The Shariat Appellate Bench of Pakistan has also played a significant role in addressing the issue of Riba. In one judgment, the bench emphasized the need to eliminate Riba as early as possible. These judicial decisions have further reinforced the commitment to eliminate Riba from the economic system. 4. Government Commitment: The government of Pakistan has shown its commitment to eliminating Riba. In 2022, the Financial Stability Committee (FSC) gave the government a five-year deadline to eliminate Riba and the Government decided not to challenge Federal Shariat court decision and elimination of Riba till 2027.

This study will demonstrate the ongoing efforts to address the issue and move towards a Riba-free economic system to tackle the issue of Riba comprehensively.

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