Report on Riba Case Judgment of Pakistan

The first appeal challenges many judicial laws which were related to financial system of the country in Dec 1990. Only 119 Cases were focused by Federal Shariah Court FSC and the day of hearing came on 24th October 1994. On 14th November 1991, FSC gave a final decision on Riba and Banking system.This judgement recovered the lost importance of Islamic banking. Main areas which were covered by this judgement ware:-

  • Definition and nature of Riba
  • Indexation of loans
  • Legality of markup
  • Leasing transaction
  • Interest in international transactions

Justice Tanzilur Rehman stated that the interest is inconsistent with Shariah. The judgement was based on Quran, Sunnah, Islamic scholars, economists, bankers and jurists. And finally FSC prohibited interest.FSC observed that interest includes any increase on capital whether it is:-

  • High or Low
  • Simple or compound
  • Personal or private
  • Productive or consumption
  • Short or long term
  • Between two Muslims or Muslim and non-Muslim
  • Between citizen and state or two states
  1. H Chaudhary stated that the judgement was appropriate and Quran does not leave any room for more explanation. Shaukat Aziz stated that Riba has no universally acceptable definition for testation of financial practices. Almost 22 Legislative Laws declared as unlawful including bonds, securities and certificates.

The judgement affected almost 204 debt projects. The reaction to the judgement was as under:-

  • Financial institutions and depositors were against it
  • Borrowers supported it
  • Foreign investors were confused

In response of this judgement, government formed a committee called Commission for the Islamization of the Economy CIE. Its purpose was to implement and for improving interest free banking.

  • The first report, “Report on Banks and Financial Institutions”was submitted in 1992 thatidentified some non-Islamic features being practiced.CIE made recommendations on elimination on Riba but government did not give any attention.
  • The second report was given in May 1997 by Raja ZafarulHaq who gives the idea of development of Islamic economy and tells that changes should be made in transactions.

67 Appeals were made by the Federal Government of Pakistan and different banks and financial institutions against FSC to Shariah Appellate Bench SAB of the Supreme Court SC.Mr. Nawaz Sharif tried to withdraw the appeal but it was rejected. The hearing started in February 1999 on a day to day basis until July 1999. SAB gave decision on 23rd December 1999. This judgement was of 1100 Pages and longest judgement ever given by court. The government was ordered to setup a shariah board in SBP. In January 2000, Commission for Transformation of Financial System CTFS was setup at SBP.

Two interim reports were submitted on October 2000 and May 2001. The first report outlined the basic features of Islamic financial system and second report gave a legal framework of Shariah compliant system. The final report was submitted in August 2001 which was the combination of first two reports and gives idea of credit card and type of bank accounts.

In June 2002, an appeal was filed to SAB. Government requested to suspend previous ruling and approve a dual system of banking. After 10 days of hearing, the decision was reversed by the court on 24th June 2002. The case was sent back to FSC for review and the response was mixed as under:-

  • Jamait e Ialami criticized the government for misrepresenting Shariah.
  • Government stated that they need Islamic financial system but at a gradual speed and intended to have a dual system.
  • Financial institutions were emphasized the need for parallel system in the country.

The judgement of 2002 was considered to be preplanned and received with doubt due to:-

  • Hearing was not being open for everyone.
  • Opposition to the government was not provided a proper chance to present their stance.
  • Justice MoulanaTaqiUsmani was given a forced premature retirement.
  • Appointment of two Islamic scholars was suspicious.

It can be considered as huge setback for Islamic banking in the country. The case is still waiting to be reviewed and no progress has been made by FSC. Currently, dual system is running in the country.

The writer is the student of Masters of Business Administration in Banking and Finance in University of Agriculture, Faisalabad, Pakistan.


The views expressed in this article are those of the author and not necessarily those of The Lahore Times.

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