riba elimination strategy

Riba elimination ‘strategy paper’

The Post-2027 Financial System in Pakistan strategy paper, released by the Ministry of Finance, is an important acknowledgement that the elimination of Riba [Quranic term for unjust gain and enrichment by exploitative use of capital without any real underlying economic activity] can no longer remain an open-ended constitutional promise. The paper correctly links the transition to the Federal Shariat Court judgment of April 28, 2022, and the Constitution (Twenty-sixth Amendment) Act, 2024, which inserted a deadline into Article 38(f) for the complete elimination of Riba before January 1, 2028.

The main weakness is that the paper converts a binding constitutional requirement into a gradual, conditional and partly voluntary programme. The strategy therefore supports the objective of eliminating Riba while simultaneously preserving routes through which interest-based finance could continue after the constitutional deadline.

The Islamic legal standard is stricter than the strategy’s policy language. The Federal Shariat Court held in Shariat Petition No. 30-L of 1991 and connected matters that Riba is prohibited in all its forms and manifestations, while the International Islamic Fiqh Academy’s Resolution No. 10 (10/2) of 1985 treats any stipulated increase on a loan or overdue debt as prohibited Riba.

The Qur’anic rule permits the creditor to recover the principal but not an agreed increase merely because time has passed, while Sahih Muslim 1598 condemns the receiver, payer, recorder and witnesses of an interest transaction. The legal test is therefore based on economic substance rather than terminology. The contract does not become Islamic merely because interest is renamed as profit or mark-up where the financier receives a predetermined debt increase without genuine ownership or risk.

The strategy’s most serious contradiction concerns foreign-owned financial institutions. The paper expects most domestically owned institutions to convert, but it makes the transformation of majority foreign-owned banks voluntary and later suggests that such banks may continue offering both conventional and Islamic products.

The exemption is inconsistent with Article 38(f) of the Constitution because the constitutional character of Riba cannot depend on the nationality of shareholders. The same interest-bearing loan cannot be prohibited when issued by a Pakistani-controlled bank and acceptable when issued by a foreign-controlled bank [Rethinking Pakistan’s economic model—III: Banking, debt & Illusion of Reform, Minute Mirror, May 3, 2026]

The exemption would create a two-tier market in which domestic banks bear conversion costs while foreign institutions retain conventional products. The strategy should instead impose an activity-based rule under which no licensed institution, regardless of ownership, may originate a new interest-bearing contract in Pakistan after December 31, 2027.

 

The treatment of existing conventional debt creates a second constitutional problem. The strategy promises that obligations contracted before the deadline will continue according to their original terms and that conventional public debt will be replaced only when each instrument matures.  The approach may preserve interest payments for years after January 1, 2028, where sovereign bonds, multilateral loans or syndicated facilities have long residual maturities.

The concern does not mean that Pakistan should repudiate contracts, because unilateral default could trigger litigation, acceleration, cross-default and loss of market access. The Government must distinguish unavoidable transitional obligations from liabilities that can be refinanced, converted or redeemed early. The policy should require a debt-by-debt register showing principal, interest, maturity, governing law, conversion options, creditor consent and final sunset dates rather than granting a blanket exception until maturity.

The language governing new finance is also too weak. The strategy says that the Government will “explore all options” for Shariah-compliant domestic funding and will “strive” to obtain Islamic foreign financing where reasonable and commercially viable options are available. The constitutional obligation is not a best-efforts commitment conditioned on pricing convenience.

The revised policy should prohibit new interest-bearing public borrowing after the cut-off and require every proposed Murabaha, Ijarah, Istisna, Salam, Musharakah, Mudarabah or Wakalah structure to receive documented legal, fiscal and Shariah approval.

The legislative programme must also identify the precise amendments required to the State Bank of Pakistan Act, 1956, the Banking Companies Ordinance, 1962, the Financial Institutions (Recovery of Finances) Ordinance, 2001, the Government Securities Act, 2006, the Securities Act, 2015, the Companies Act, 2017, the Deposit Protection Corporation Act, 2016, the Insurance Ordinance, 2000 and relevant tax, insolvency and provincial laws. The paper’s assertion that banking-law amendments are “minor” understates the scale of the required transformation.

The monetary policy framework requires scrutiny because Shariah compliance cannot be achieved merely by relabeling conventional central bank instruments [Who will draft Riba Prohibition Law? Minute Mirror, April 7, 2026]. The strategy states that the State Bank will use Shariah compliant open market operations and standing facilities, yet SBP’s DMMD Circular No. 24 of 2021 provides that the expected return on its Mudarabah based standing facility equals the conventional overnight reverse repo ceiling rate.

The use of a conventional benchmark does not automatically invalidate a genuine Mudarabah, but mechanical replication creates a material form over substance risk. The revised framework should require transparent profit pools, ex-post reconciliation of returns, genuine exposure to permissible assets and clear treatment of losses—Is Riba free banking possible?, Dawn, April 27, 2012.

The framework should also explain how reserve requirements, lender-of-last-resort support, liquidity absorption, foreign-exchange operations and monetary transmission will function without continuing dependence on an interest-rate corridor.

The proposed hybrid Ijarah-cum-Murabaha Sukuk and Assets Registry Company are practical responses to the shortage of sovereign assets, but they require stronger safeguards. The paper states that the hybrid structure could support Sukuk issuance approaching twice the value of underlying assets and that registered federal assets would remain in governmental use.

The International Islamic Fiqh Academy requires Sukuk to establish true ownership, effective disposal rights and corresponding liability rather than fictitious or circular asset transfers. The registry should disclose title, valuation, encumbrance, beneficial ownership, usufruct and the exact risk transferred to investors.

The treatment of retained earnings also requires a purification methodology separating lawful capital and trading income from identifiable interest-derived earnings. The paper’s statement that converting banks may keep retained earnings is incomplete unless independent Shariah audit, charitable disposal of prohibited income and transparent shareholder disclosure are mandatory.

The comparative experience of major Gulf jurisdictions demonstrates that strong Shariah governance must be grounded in enforceable regulation. The Saudi Central Bank’s Shariah Governance Framework, issued through Circular No. 41042498 under the Saudi Central Bank Law and Banking Control Law, assigns responsibility to boards, management, Shariah committees, compliance, risk management and internal audit.

The UAE’s Decretal Federal Law No. 14 of 2018 establishes the Higher Shari’ah Authority as the ultimate interpretive authority for Islamic finance. The Central Bank of Bahrain and Financial Institutions Law, promulgated by Decree No. 64 of 2006, supports a separate CBB Rulebook Volume 2 for Islamic banks.

The Kuwait model adds a dedicated Islamic-banking section to Law No. 32 of 1968 through Law No. 30 of 2003. The jurisdictions operate dual systems, however, and therefore cannot justify Pakistan’s continuation of conventional finance after a constitutionally mandated elimination date.

The wider international comparison reinforces the need for statutory clarity. The Omani Banking Law issued under Royal Decree No. 2/2025 expressly regulates Islamic, digital and investment banking. The Malaysian Central Bank Act 2009 gives Bank Negara Malaysia’s Shariah Advisory Council authoritative status and makes its rulings binding in relevant court and arbitration proceedings.

The Indonesian Law No. 21 of 2008 provides a dedicated framework for Sharia banking, licensing, ownership, activities and prudential supervision. The Brunei Islamic Banking Order, 2008, S 96/2008, similarly establishes a distinct statutory regime. The lesson is not to copy any single jurisdiction because most comparison countries permit conventional and Islamic finance to coexist.

The lesson is that Pakistan requires clearer primary legislation, a binding national Shariah authority, judicial consistency, external Shariah audit and enforceable remediation where non-compliance occurs.

The strategy should therefore be revised around a binding prohibition on new interest-bearing contracts after December 31, 2027, a uniform rule for domestic and foreign institutions, and a transparent conversion plan for every regulated entity. The strategy should establish a National Shariah Authority with jurisdiction across banking, public debt, monetary policy, securities, Takaful, pensions and non-bank finance.

The strategy should require genuine ownership, possession, risk transfer and profit generation in every Islamic structure, together with annual external Shariah audits, publication of non-compliant income and mandatory purification. The strategy should also include measurable objectives for financial inclusion, small-business finance, affordable housing, agricultural risk sharing and Qard Hasan so that the reform advances the justice-based purposes of Islamic finance rather than merely changing product labels.

The strategy is therefore a valuable starting point but not yet a complete policy settlement. Though the strategy correctly recognizes the constitutional deadline, the need for Sukuk infrastructure, legal reform, liquidity facilities, safety nets and institutional capacity.

The strategy, however, weakens its own objective through voluntary foreign-bank conversion, open-ended servicing of conventional debt, commercially conditioned Islamic financing, interest-linked monetary benchmarks and insufficient rules on ownership, purification and enforcement. The transition will become credible only when aspirational language is replaced with binding statutory duties and when Islamic contracts transfer real ownership, risk and responsibility rather than reproducing conventional interest outcomes through different terminology.

_____________________________________________________________

Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, environment, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws.  He holds an LLD in tax laws with specialization in transfer pricing. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996.

He established Huzaima & Ikram in 1996 and is presently its chief partner. He studied journalism, English literature and law. He is Chief Editor of TaxationHe is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA).  He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).

He has coauthored with Huzaima Bukhari many books that include, Tax Reforms in Pakistan: Historic & Critical Review, Towards Broad, Flat, Low-rate, and Predictable Taxes (third edition, 2024),  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).

He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 3000 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.

_______________________________________________________________

Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan.  His areas of expertise include legal, strategic planning, cross-border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).

Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to ensure knowledge transfer.

His notable publications are Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan and Rauf’s Research on Labour Laws and Income Tax and others.

His articles include: Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF secretariat and Financial Monitoring Unit. The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge, Countering corrupt practices .

The recent publication, coauthored by these writes with Huzaima Bukhari is:                       

Pakistan Tackling FATF: Challenges & Solutions, available at:

https://aacp.com.pk/book-detail/pakistan-tackling-fatf-challenges-and-solutions-35

https://www.amazon.com/dp/B08RXH8W46  

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It earned the honourable distinction of the Fortress of Islam, particularly through its longstanding commitment to safeguarding the Haramain Sharifain. Pakistani troops have served in Saudi Arabia since the 1970s, with deployments in training, advisory, and protective roles—often numbering over 10,000 at peaks, including during the 1990-91 Gulf War. This sacred duty reflects not mere strategy but a religious obligation deeply felt by the nation.  Adversaries, notably neighbouring India, seized every opportunity to portray Pakistan as a failing state. Yet at moments of trial, unseen help arrived. In May 2025, Pakistan demonstrated military prowess that astonished observers, restoring its lost prestige through resolute leadership that honoured the divine trust placed upon it. A landmark Strategic Mutual Defence Agreement with Saudi Arabia, signed on 17 September 2025 in Riyadh by Prime Minister Shehbaz Sharif and Crown Prince Mohammed bin Salman, formalised decades of brotherhood. This pact declares that any aggression against one is an aggression against both, encompassing comprehensive cooperation in defence, training, technology, and joint deterrence. Reports suggest potential deployment of up to thousands of Pakistani personnel and assets, including JF-17 aircraft, underscoring Pakistan’s role as a steadfast guardian.  Building upon this success, Pakistan has played a constructive mediating role in Gulf tensions, earning widespread appreciation for its balanced diplomacy. Cooperation with Turkey has deepened through bilateral deals in defence and trade, while Kuwait and other regional states have expressed interest in similar partnerships. Pakistan’s armed forces, with approximately 650,000–685,000 active personnel—one of the world’s largest standing armies—alongside an estimated hundreds of nuclear warheads and modern platforms like JF-17 fighters and advanced missiles, provide credible strength to these endeavours.  Looking to the future, Pakistan’s perspective remains one of hope anchored in unity and good intentions. The day is not distant when an alliance of Islamic countries, forged through mutual respect and shared values, may emerge—bearing precedents in the European Union or NATO yet rooted firmly in Islamic principles of solidarity. Such a framework would face formidable obstacles: historical differences, external influences, and economic disparities. Yet with the spirit that carried Pakistan through partition, the 1971 trials, and recent triumphs, it remains achievable. Pakistan, with its strategic location, military capability, and diplomatic bridges—linking South Asia, the Gulf, and beyond—can serve as a pivotal node in this vision. It continues to champion economic cooperation within the OIC, advocate for peace with justice on issues like Palestine and Kashmir, and promote connectivity that benefits the wider ummah. Pakistan’s journey, from ideological birth to its current resurgence, exemplifies faith sustained against the odds. As it advances, the nation carries not only the aspirations of its 250 million people but the hopes of many who see in its endurance a beacon for the Muslim world. With trust in Allah, unity among its ranks, and steadfast resolve, Pakistan is poised to fulfil a greater role in fostering stability, prosperity, and brotherhood across Islamic lands. The future beckons with challenge and opportunity alike; guided by its founding principles, the nation shall meet both with honour.

  • The 4th Shusha Global Media Forum and Azerbaijan?…

    The 4th Shusha Global Media Forum themed “The Mission of the Media in Promoting Peace: Restoring Truth and Rebuilding Trust” was held in the city of Shusha, the Republic of Azerbaijan. More than 160 journalists and media representatives from 54 countries attended the forum, with participants from 30 international news agencies and 60 major media organizations. The forum gave journalists, media experts, editors and public officials a chance to come together and discuss how the media can help build a more peaceful and informed world. This is a very important forum, because it attracted attention to the growing role of Azerbaijan in the world. It was also the reflection of Azerbaijan’s remarkable development under the leadership of His Excellency President Ilham Aliyev. A few days back, Azerbaijan hosted World Urban Forum 2026, then Baku Energy Week 2026, and now the 4th Shusha Global Media Forum was held in Azerbaijan. The success rate and the widespread participation in all these international forums show that Azerbaijan is a trusted member of international community and is emerging as a key regional player. It is worth mentioning that the forum was held in Shusha, a city in Nagorno-Karabakh, Azerbaijan. The choice of holding the forum in Karabakh region is extremely significant. Thanks to the forum that journalists from around the world were able to see how the government of Azerbaijan managed to rebuild this war-torn region within just five years. The city of Shusha served as the symbol of renewal. The 4th Shusha Global Media Forum is important as it brought together voices from different countries to discuss the future of global media. The discussions focused on how the social media and news are changing. What new challenges are being faced by the journalists and media across the world and how all countries can work together to address these challenges. At the same time forum also explored how journalism is adapting to artificial intelligence, disinformation and declining public trust, with discussions focusing on responsible reporting, media ethics and international dialogue. It provided a great opportunity to journalists and media experts from across the globe to directly engage with the President of Azerbaijan and ask him questions directly. The forum highlighted how today’s media is being transformed by AI, digital communication, and the growing spread of misinformation. Participants also discussed how they can uphold principles of ethical journalism and ensure factual and accurate reporting in this era of technological advancement. They also discussed how they can make people trust the media more, in what ways media and governments should respond to false or misleading information. It should be noted that the experts highlighted both the challenges and opportunities presented by digital media and the artificial intelligence. When they discussed the misuse of AI, they also talked about how AI should be used responsibly in journalism and media. It shows the responsible attitude of both the participants and the leadership of Azerbaijan that they brought such important topic under discussion. The forum also underscored that media is not just for reporting events but it plays a pivotal role in building trust encouraging dialogue and promoting understanding between nations. The role of the leadership of Azerbaijan in hosting the Global Media Forum for the 4th time is highly commendable. Creating such an engaging international platform at a time when the global information environment is becoming more complex deserves immense praise. The forum also paved the way for cultural exchange, dialogue, and increased human connectivity as people from diverse backgrounds attended the event. The most interesting and the strongest feature of the Shusha Global Media Forum, I believe, is its openness to different viewpoints. It provides equal opportunity to all the participants to ask questions, share their experiences, give new ideas, and discuss pressing global issues in a professional environment. Such opportunities encourage honest conversations and result in some pragmatic ideas that can actually help address various challenges and fight disinformation. These discussions are very important as news travels faster than ever before and public trust in media remains a global concern. Another highlight of the forum was the use of artificial intelligence in journalism, how is AI both an opportunity and a challenge for the journalism. At the forum, experts discussed the role of AI in news production, fact-checking and content creation. They agreed that technology is helpful in improving efficiency but it can never replace human judgment, moral standards, and accurate reporting done by humans. The exchange of ideas on these topics reflected Azerbaijan’s readiness to host conversations on issues that are shaping the future of global communication. A particularly positive aspect of the event was the participation of media representatives from wide range of countries. All of them came together to discuss common challenges, exchange ideas and share knowledge. Such platforms, dialogues, and collaborations help reduce misunderstanding between societies. Professional connections are built and already existing networks are strengthened. Meanwhile, such platforms also open new areas of cooperation and create opportunities for future collaborations. It also allows participants to learn from one another’s experiences in dealing with rapidly changing media environments. When His Excellency President Ilham Aliyev addressed the forum he talked about peace, regional advancements, connectivity and the increasing importance of dialogue and communication. H.E.’s participation made it clear that Azerbaijani leadership will always support international discussions on media and global affairs. Moreover, the senior government officials were also present at the forum. Their presence demonstrated Azerbaijan’s efforts to maintain direct engagement with the international media community. With the passage of time, the Shusha Global Media Forum has evolved into a respected international platform for discussing the future of journalism and strengthening media cooperation. Its significance lies in the fact that it offers an opportunity to media professionals to come together and discuss and timely resolve the pressing challenges global media is facing. The continued success of the forum showcases Azerbaijan’s commitment to promoting dialogue, responsible journalism, and global engagement.

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