Finance Minister Ishaq Dar has announced that the government would be taking back the appeals against the Federal Shariat Court decision declaring the banking system based on interest illegal as per Sharia law. He has thus committed to a mode of banking that would be Shariah-compliant. There is a catch, however, something which goes to the heart of the banking system’s troubled history of riding the banking system of interest: the system which is being held up to so much obloquy as un-islamic was introduced by the Zia Martial Law as an Islamic mode of banking. There is thus no guarantee that this decision will stand the test of time. True, the existing system was not based on a court decision, but the fiat of a military ruler. However, the present decision is based on the court’s interpretation of the Quran and Sunnah. If a differing interpretation is made by future scholars, what is to prevent the court from adopting that opinion? It is a little discouraging that Zia introduced the current system not arbitrarily, but after an extensive consultation of experts in banking and Islamic law, only to have that system stigmatized as unIslamic. Is there any guarantee that the new system will receive permanent approval, and that it might not end up on the scrapheap, condemned as unIslamic?
One of the issues that remains to be decided is what is the relationship between Pakistan and its foreign creditors. The road has been opened for an examination of the country’s transactions on the basis of compliance with Shariah, which seems at odds with the desperation shown to be compliant with IMF conditionalities and to maintain access to global money markets by moving off the FATF grey list. It should be remembered that both international financial institutions and global money markets are firmly interest-based, and adding this new dimension to the equation will only disturb it.
There is the danger of the government ending up doing what it did last time: giving interest-bearing instruments non-interest-bearing labels. This has to do with the kind of education bankers have had, which is predicated on the system being based on interest. There is the dimension of the banking system’s role in money creation, which is both immense and interest-based. It is not so much what solution is thought up, as what other solutions have been thought up by critics willing to denounce any other solutions as not Islamic.