Interim government on Islamic banking and finance

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Caretaker Minister for Finance Dr Shamshad Akhtar has reiterated that to promote both industry as well as the regulators of Islamic Banking in the country. “When I was governor of State Bank of Pakistan (SBP) few years back, we were promoting the Islamic finance industry in very aggressive manner, and the subsequent governments were also engaged in promoting the industry,” the minister said

She said in order to promote the Islamic Banking, close to $3.6 billion worth of Sukuk bonds had already been floated in the international market. “Islamic financial banks have been growing at a fairly decent rate of 14.5 percent which is fairly decent for an industry that took off in early 2000s,” she added.
“We have five full-fledged banks and 16 conventional banks that are involved in this business.”

She was making this statement against a resolution moved in the Senate asking government to take necessary steps to abolish Riba at the earliest and at least 30 percent of all new government debts should be replaced with sharia compliant mode. The resolution also recommended that the funds of the ministry of Religious Affairs and Inter-Faith Harmony related to Hajj, Zakat and Usher should be replaced or invested under sharia compliant mode.

Dr Shamshad Akhtar said the government had not any problem to replace 30 percent of government debts with sharia compliance mode but expanding the Islamic banking at fast pace would be detrimental because we have to let the market grow naturally. She said the past governments had been trying to float Sukuk but much more government properties were required for the volume that was required. “There is no dispute currently also in fact that I have met the Islamic banking heads who also highlighted lack of Sukuk underlined issues for being able to meet the liquidity reserve requirement which is the real problem,” she added.

She further said that in order to prepare for additional Sukuk instruments it would take a long time.

In the 1973 constitution, it is mentioned that Riba system would be abolished as soon as possible, however despite laps of 45 years it could not be abolished.

On the one hand non-Islamic Western countries are moving towards soft interest rate due to flawed high interest rate system, while on the other hand in Pakistan, the interest rate is going higher.

Senator Ata ur Rehman said Riba was a prohibited system in Islam which had been strictly prohibited in the holy Quran. He also urged the government to put deposits of Hajj, Zakar, and Usher in current accounts rather than in Riba based saving accounts. He questioned that whether the government was planning to replicate any successful model of any country like Turkey, Argentine to get rid to the rapidly growing foreign debt.

In theory it looks fine but in practice we are seeing nothing on building of Islamic Finance. Every government comes and goes without making any change. Accordingly the banks are working with Islamic Finance on conventional lines. Every institution authorized to define Riba is hesitant to do that. Legislation on Islamic Banking is altogether missing. Public Debt Act has not been replaced with a new Act under new requirements.

Just Talking and Talking and making speeches only have become our strategy to make Islamic Finance workable and this is what every Finance Minister is doing.