Financial system is in transition
Sep 10 - 16, 2001
Under the ruling of the Federal Shariah Court, the
financial experts are endeavouring to switch over from the existing
interest based system to the Ribah free financial system in Pakistan.
Hence, the financial system which, supplies fuel to
any economy is passing through a critical phase of transition, the
uphill task however needed to be accomplished at the earliest to save
the system from uncertainties which may result to delays in
implementation of decisions.
The transformation of government's financial
operations, mainly its borrowing into a mould of Islamic system has been
termed as a formidable challenge by the Federal Finance Minister Shaukat Aziz.
Speaking at an international seminar on Islamic
Banking recently in Karachi, the minister declared that House Building
Finance Corporation has been selected as the first institution to
transform all its operations in compliance with Shariah in next few
It may be mentioned that disbursement of house
building loans has been suspended by HBFC for over a year, which has
badly affected the growth of housing and construction sector in
The finance minister has pointed out three challenges
in this transformation, i.e. how to protect the existing contracts and
obligations, how to draw up a legal framework and the issue of
The minister spelt out difficulties being faced in
replacing interest as the tool of monetary and financial operation and
added that so far not many interest free products have been developed
and minimum risk guaranteeing systems are not in place, he observed.
The government is the biggest borrowers with Rs1.7
trillion liability. It is also involved in many financial operations for
which a mechanism has to set in place to make the process risk free.
At present the work to transform economy in lines of
Islamic system is taking place at three places. One is the Commission in
the SBP, which has given two interim reports, which are under
consideration of the government.
Another Task Force headed by a senior civil servant
is also working in the Finance Ministry to evolve systems that are risk
free and is addressing the issue of government's financial operations.
Another team of experts headed by Dr. Mahmud Ghazi
also looking into the relevant laws to make suitable amendments and
prepare a legal framework.
He said that a draft law is reported to have been
prepared which is being given final shape. The minister termed the
Islamic Banking as a global opportunity for bankers in Pakistan where
much headway can be made. He said that government is in touch with
brotherly Muslim countries where a lot of work is being done to practice
Islamic financial system. He said basic objective of transformation of
financial system into Islamic mould is to create confidence among the
investors both in Pakistan and outside.
Dr. Ishrat Hussain, Governor State Bank of Pakistan (SBP)
who also spoke on the occasion said that there is no model of practicing
the entire Islamic financial system before the government hence it is
facing the difficulty in transformation. The SBP governor said that
there are examples of certain Muslim countries and institutions
practicing the Islamic system in piecemeal of certain aspects of Islamic
finance system but there is no model worth the name adopted for the
Islamic financial system as a whole.
He particularly spoke of the difficulties of putting
Shariah into practice in case of the government's financial operations
which he pointed out would need a lot of innovations and research to
find solutions of many problems that confront officials.
For example, he said, the government through a
variety of debts and public lending is now financing the deficit of the
government budget. But how would you do this in an Islamic system to mob
up finances when there are no assets?
Nonetheless he said that government was striving to
find answers to many questions that arise in implementation of Islamic
principles in operation of a financial system. He also spelt out the
work being done by three task forces working in different directions but
with a sole purpose to find solutions of the problems that ought to
arise in transformation of the financial system.
In other context Dr. Ishrat said that many of those
who have defaulted on payment of their banks' loans have become staunch
supporters of Islamic financial system. He warned that such elements
have no place in the Islamic financial system and those who think they
would be able to escape the wrath of law by taking shelter under Islamic
system are sadly mistaken.
He said that the government's strategy was to move
gradually towards transformation of Islamic financial system without
disrupting the existing system.
Islamic financial system is based on ethical values
where loan defaulters have no place, he said.
He said that any bank or financial institution that has some
innovative product to offer to the investors or general public can seek
SBP permission to open a window for Islamic banking or even a bank we
are ready to give permission to such banks, he said.