Realising true Islamic economic system requires complete overhaul of financial industry: SBP deputy chief

KARACHI: State Bank of Pakistan Deputy Governor Saleem Ullah said on Tuesday that transforming the entire banking ecosystem is crucial for achieving the shared objective of establishing a real Islamic economic system.

“While the focus has been on offering Sharia-compliant alternatives to conventional banking products, we must go beyond that,” the SBP’s deputy governor said at the 8th International Conference on Islamic Banking and Finance.

The event was hosted by the Institute of Business Management (IoBM).“We need to provide a genuine Sharia alternative,” he said.He stressed the importance of believing in the true value of the Islamic financial system being pursued by the government.

The SBP’s deputy chief made these comments as Pakistan’s parliament passed the 26th constitutional amendment bill last month, which calls for the elimination of all forms of ‘riba’, or interest, by January 1, 2028. The measure is expected to promote Islamic banking in the country.

According to the SBP, Pakistan’s Islamic banking has experienced considerable growth since its inception. The assets of Islamic banking institutions (IBIs) expanded by 19.3 per cent to Rs9.69 trillion by the end of June 2024. Islamic banking deposits also witnessed a significant increase of 25.4 per cent to Rs7.363 trillion in FY24.

According to the deputy governor, Islamic finance is a morally and ethically sound financial system that is founded on Islamic principles and forbids partnerships with businesses that cause environmental harm.

“Transforming the entire banking ecosystem is essential to achieving the collective goal of realising a true Islamic economic system. We must move beyond this mindset and embrace the Islamic economic system for the greater good,” Saleem Ullah said.

Former SBP Governor Dr Ishrat Husain sent a wake-up call to the banking and financial sector, cautioning that a fragmented approach by the appropriate authorities could jeopardise the core principles of Islamic banking. He highlighted that the current tax system is arbitrary and regressive, penalising honest taxpayers while encouraging evasion, fake receipts and other malpractices.

In his welcome address, Talib Karim, president of IoBM stated that, as an educational institution, it is our responsibility to guide students, our future leaders, towards transforming financial institutions from traditional to Islamic models. He highlighted that one of the biggest challenges we face is the shortage of skilled manpower, which we must work to overcome.