The Hindu : Banking system: ruling set aside

Online edition of India's National Newspaper
Tuesday, Jun 25, 2002

International

International

Banking system: ruling set aside

By B. Muralidhar Reddy

ISLAMABAD June 24. The Musharraf regime heaved a sigh of relief today as the sharia Appellate Bench of the Supreme Court set aside its judgment directing the Government to implement, as per Islamic laws, an interest-free banking system (known as Riba) throughout the country.

Disposing of a number of petitions filed by Pakistani banks and other financial institutions seeking review of the earlier verdict, the Appellate Bench referred the Riba cases to the federal sharia court to "determine afresh" various issues involved in the subject.

The verdict came six days before the expiry of the deadline given by the Appellate Bench for the Government to integrate banking and financial institutions as envisaged in Islamic law and pave the way for an "interest free" banking system. The federal sharia court, consisting of experts on Islamic law, is the highest court on matters related to interpretation of Muslim laws.

The judgment of the federal sharia court, delivered in December 1999, had caused concern to banking and financial institutions in the country. Several of the foreign banks operating in Pakistan had threatened to pull out of the country if the "interest free" banking system was made mandatory.

The introduction of interest-free banking is a major cause espoused by religious parties in the country. In fact, during the regime of Zia ul Haq, Pakistan had partially experimented with the system.

Banks and financial institutions then managed to circumvent the law by using terms like "mark up and dividend" as a substitute for interest. The Musharraf Government had initially promised to abide by the verdict of the sharia court and even constituted a high-level committee to ensure a smooth transition to an interest-free banking system.

It is only in recent weeks that the military government has changed its stance and supported the petitions filed by Pakistani banks urging the apex court to reconsider its verdict.

Among others who pleaded with the apex court not to review the judgment included representatives of the Jamaat-e-Islami. The Musharraf Government and the various banks that were party to the review petition sought to convince the judges that the implementation of the interest-free banking system could plunge the country into economic chaos.

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