Prohibition of Interest and Initiative of Islamic Banking: A Historical Review of Pakistan

Abstract

The constitution of Pakistan has disowned the interest-based transactions because of the conceptual foundation of Riba-prohibition as per the tenets of Quran and Sunnah. Since the Objectives Resolution in 1949, people of Pakistan have denied any transaction that keeps them on war against Allah Almighty and Beloved Prophet (PBUH). Over the time, legislative assemblies, courts, regulatory bodies, academia, and Islamic NGOs have worked to introduce Islamic economic system over the decades till the FSC’s verdict on Riba on April 28, 2022 and initiative of Islamic banking system in 2002 under supervision of Islamic banking division of State Bank of Pakistan. Currently in Pakistan, market share of Islamic banking assets and deposits to the overall banking industry stood at 19.5 percent (PKR 6,781billion) and 20.5 percent (PKR 4,856 billion), respectively by end of June 2022. We present historical background of Riba elimination and initiative of Islamic banking practices in context of Pakistan. This study provides a short background and current trends of Islamic banking market. Further, some important issues are also explored in context of Islamic banking institutions. Similarly, it would be beneficial for academicians, investors and policy makers to move forward in domain of Islamic banking and finance with conceptual and constitutional support in Pakistan.