The Senate of Pakistan has passed the 26th Constitutional Amendment Bill, 2024, which sets a deadline of January 1, 2028, for the eradication of Riba (interest-based banking) from the country. This significant amendment, added at the suggestion of the Jamiat Ulema-e-Islam-Fazl (JUI-F), marks a decisive step towards implementing an Islamic financial system.
The amendment modifies clause (f) of Article 38 of the Constitution, which previously mandated the elimination of Riba “as early as possible.” The revised clause now specifies a concrete deadline: “as far as practicable, by the 1st of January, 2028.” This change follows the Federal Shariat Court’s 2022 ruling that directed the government to establish an interest-free banking system within five years, asserting that any transaction involving Riba is “wrong” and contrary to Islamic principles.
The Federal Shariat Court’s decision, read by Justice Dr. Syed Muhammad Anwer, emphasized the necessity of abolishing Riba for an Islamic economic system. The court declared that interest on both internal and external loans constitutes Riba, which is strictly prohibited in Islam. Consequently, the government must ensure that all financial transactions, including those with international institutions such as the IMF and World Bank, are interest-free.
In alignment with the court’s verdict, the State Bank of Pakistan (SBP) has made significant strides towards establishing a Shariah-compliant banking system. According to the SBP Governor’s Report 2023-24, released on October 18, 2024, the central bank is collaborating with the government and various stakeholders to implement the Federal Shariat Court’s judgment. The SBP has approved the creation of a digital retail Islamic bank and Shariah-compliant digital banking operations.
The SBP’s commitment to eliminating Riba is further reflected in its fourth strategic plan, “SBP Vision 2028,” which was unveiled in November 2023. This plan includes “Transforming to a Shariah-Compliant Banking System (SG-4)” as one of its strategic goals. The central bank is adopting a multi-faceted approach to achieve this objective. This includes reviewing domestic laws, comparing them with international best practices, assessing the existing regulatory framework, and conducting awareness sessions and capacity-building initiatives on Islamic banking and finance.
The Senate’s approval of the 26th Constitutional Amendment Bill and the SBP’s proactive measures signify a transformative shift towards an Islamic financial system in Pakistan. With the January 2028 deadline now set, the country is poised to embark on a significant journey towards eradicating Riba and establishing a Shariah-compliant economic framework.
