Ever since the establishment of Pakistan in 1947, there was great zeal to introduce Islamic institutions in the socio-economic milieu of the country. Muhammad Ali Jinnah, the First Governor General of the country stated in his address at the inauguration of State Bank of Pakistan:
The adoption of Western economic theory and practice will not help us in achieving our goal of creating a happy and contented people. We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice. We will thereby be fulfilling our mission as Muslims and giving to humanity the message of peace which alone can save and secure the welfare, happiness and prosperity of mankind.
Nonetheless, political turmoil in the early years did not allow adequate attention to this vision. Afterwards, given the increased focus in 1970s around the Muslim world to develop an Islamic financial system for Muslims, positive effects were also felt in Pakistan. On the regulatory front, the 1973 constitution of Pakistan in Section 38(f) stated that Riba should be eliminated as early as possible. On the theoretical front, the Pakistan Council of Islamic Ideology in its 1980 report on the elimination of interest from the Pakistan economy clearly defined Riba and suggested that steps should be taken to replace Riba based banking with an Islamic alternative. The report stated: “The term Riba encompasses interest in all its manifestations irrespective of whether it relates to loans for consumption purposes or for productive purposes, whether the loans are of a personal nature or of a commercial type, whether the borrower is a government, a private individual or a concern, and whether the rate of interest is low or high.” Later on, the Historic Judgment on Interest in 1991 by the Supreme Court of Pakistan settled the debate both in academics as well as in legal sphere. However, lack of political will by the subsequent governments has still remained as a hurdle in the way of replacing the interest based banking system with an Islamic one. Nonetheless, Islamic banking had begun its journey. The country’s first full-fledged Islamic bank, i.e. Meezan Bank was established in 2002.
TO READ THE FULL STORY, SUBSCRIBE NOW THE LATEST ISLAMICBANKER ISSUE 25