CORPORATE WINDOW: Conversion towards Islamic finance

The Federal Shariat Court ruling in April 2022 to eliminate interest from the economy by December 2027 marked a pivotal moment in Pakistan’s financial landscape. The judgment declared an unequivocal prohibition of Riba (including banking interest) in all its manifestations and forms, setting a target to transform the nation into an interest-free economy by the end of 2027. This historic decision necessitates amendments to align all laws and regulations with the essence of this judgment. The Federal Shariat Court (FSC) has further ruled that upcoming financial dealings involving Pakistan, be it financing or contracts with international financial bodies, should also adhere to Shariah-compliant financial methods, such as the issuance of Sukuk. This signifies a significant shift towards embracing Islamic finance principles in the country’s financial engagements. In Pakistan, according to the State Bank of Pakistan (SBP), the Islamic banking industry assets have crossed the benchmark of Rs8.1 trillion by June 2023 (approximately $29bn), while the overall Islamic finance industry is reaching close to the Rs10tr mark by adding the market share for the Islamic mutual funds, Sukuk, Modaraba, Islamic Real Estate Investment Trusts and Takaful sectors.