A RECENT Senate committee debate on the government’s plan – if you can call it that – to introduce a fish-free banking and financial system over the next five years has brought to the fore the serious challenges that will need to be overcome before a federal Sharia court order can be enforced. The Ministry of Finance and the State Bank seem to have no idea how to implement the transformation and what consequences it would have for the country’s economy and its financial dealings with the rest of the world. This reinforces the perception that the decision to withdraw legal challenges to the FSC ruling was intended to appease and win over right-wing elements rather than being based on logical reasoning. PPP Senator Saleem Mandviwalla’s revelation that some foreign banks, including the People’s Bank of China, have informed him that it will not be easy for them to operate in Pakistan if they introduce interest-free banking underscores the risks the transformation plan poses to the economy. The SBP itself has admitted that the road to interest-free banking is beset with hurdles related to public and external debt, monetary policy, etc.
Defining a fish in this age of a complex and globally connected financial system is not as simple as some clerics would have us believe. It is also not easy to have 100% interest-free banking within five years, as the Minister of State for Finance Ayesha Ghaus Pasha indicated during a Senate hearing. Even if the existing Islamic banking system is accepted as “Sharia-compliant”, it may be fish-free but not necessarily interest-free, as a member of the commission pointed out. Therefore, the government should heed the board’s advice to tread carefully on this path so as not to hamper efforts to integrate Pakistan into the global financial system and attract foreign financial institutions and investors. The FSC should also review its decision and allow the government and the SBP to take a decision based on extensive research and in line with the realities of the current global financial system.
Posted in Dawn, December 11, 2022