Riba and the FSC verdict

While on the one hand, the FSC took too long to pen down its verdict on issue of riba, on the other, it then gave the existing riba-based practices an unrealistically prolonged leverage to continue indulging in this un-Islamic (and unethical) practice for further five years before converting them into a Shariah-based mode. This has killed the very essence of the verdict. There is a serious apprehension that towards the end of these five long years, any financial institution may file an appeal, obtain an interim injunction and thereafter let the issue linger on until its implementation will have been lost in oblivion.
It may be recalled that way back in 1991 too, the then honourable judges of the Federal Shariat Court had given a similar judgement declaring the practice of Riba by the financial institutions as illegal. The decree directed “… that all kinds of transactions, whether national or international and whether governmental or private, had to take place on a non-interest basis…”. Nonetheless, the then government, as well as several financial institutions immediately filed appeals against this judgement. The only silver lining along this entire ‘delaying and avoiding’ episode has been that sensing the enormous potential of Islamic form of financial transactions in virtually all the spheres of our economy, several corporate entrepreneurs as well as certain ‘conventional’ financial institutions started seriously considering setting up Islamic modes of finance either on a standalone basis or in parallel with their existing riba-based businesses. Thus, between the years 2000 and 2010, at least four dedicated Islamic banks were set up in the country that are now doing thriving business. In the same period of time, three dedicated Takaful companies as well as scores of Modaraba companies also sprung up. On seeing their phenomenal success in attracting a large number of depositors, it was not long before even the conventional banks and DFIs, despite their scepticism and inclination towards their riba-based practices, set up their ‘Islamic banking Windows’. Conventional insurance companies too adopted a similar line by setting up ‘Takaful Windows’ within their ambits of operations. There is now hardly any commercial bank in the country that does not have such an Islamic banking operation too. This was greatly facilitated by the regulators (the SBP and the SECP) who took the plea that “consumers want a choice”. However, by doing so, they have tended merely to confuse the general public who keep wondering that if the Islamic Financial system is equally viable and fully Shariah-compliant, then why still keep adhering to the ‘conventional’ riba-based system too?
As of now, at least one leading commercial bank has taken a commendable initiative by quietly but swiftly converting all its conventional operations into 100 percent Shariah-compliant, riba-free mode. There is no reason why other conventional banks, insurers and DFIs cannot follow suit when there is nothing in the law that hinders them from doing so. With regards to any concern for the Karachi Interbank Offered Rate (KIBOR), let it be clear that KIBOR (like the London Interbank Offered Rate, or LIBOR) is merely a yardstick. Once all the commercial banks in the country start operating on a riba-free mode, then the KIBOR too shall be derived on a comparable basis with reference to those Islamic banks. The regulators too, instead of patronising the conventional riba-based transactions, should actively encourage, and in fact require all those operating such Islamic/Takaful-windows to either fully convert themselves into Shariah-compliant mode within a run-off period of twelve months (even this will be too long a period), or else, they should be told to shut off their Islamic/Takaful-windows operations so as not to confuse the general public. It is hoped that the top-managements, as well as the respective boards of our financial institutions, shall not wait to have such a riba-free mode implemented from the above/regulators. Rather they should themselves take the initiative to convert their existing conventional operations into a fully shariah-compliant mode within a planned period of twelve months or even less.

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