The Governor of the State Bank of Pakistan, Dr. Ishrat Husain gave a comprehensive outline on the evolution of Islamic Banking in Pakistan. He presented his paper at a seminar on Islamic Banking held recently at the Islamic Chamber of Commerce & Industry building, Karachi sponsored by Meezan Bank Limited. Meezan Bank’s senior management had also participated in the occasion, highlighting the vision as the first Islamic bank in Pakistan and key challenges faced. Dr. Ishrat commended the innovative and dedicated professionals involved in Islamic Banking at Meezan Bank and emphasized the further need of amelioration in the sector. The following is complete speech of Dr. Ishrat Husain delivered in the seminar.
EVOLUTION OF ISLAMIC BANKING
Dr. Ishrat Husain, Governor SBP
THE ISLAMIC PERSPECTIVE • Islam is not a new religion; it is the same truth that God revealed through all His prophets. All religions are the same in essence, whether given, for example, to Noah, Abraham, Moses, or Jesus, or to the holy Prophet of Islam. For a fifth of the world’s population, Islam is both a religion and a complete code of life. Economic growth is the main transmission channel for • development. Islam does not contradict growth; it promotes sustainable development and growth. Socio-economic (distributive) justice: The ultimate objective of an • Islamic economy. Achieving development, based on socio-economic justice, care and compassion for all, in terms of complete human personality. The economic policies that facilitate unhindered flows of • international trade, capital and participation in labour flows like reduced tariff and removal of non-tariff barriers, removal of price distortions, flexible regulations and legislation of labour, healthy and sound financial sector and capital markets, investment in skill development and technological assimilation and macroeconomic stability are quite according to the eco0nomic principles of Islam. transmission channels for globalization to development and poverty • reduction are international trade and capital flows, international labour flows and technological change particularly in information technology (IT) and telecommunications. International and regional institutions and arrangements such as WTO and the policies of developed countries and
governments can facilitate or hamper these flows. High economic growth may not automatically result in poverty • reduction. Complementary domestic policies, good governance and institutions delivering public services to make a big difference. Tools prescribed to achieve the socio-economic objectives of the • Islamic economic system are the system of Zakat, prohibition of Riba and the Islamic Law of Inheritance. • year. Zakat redistributes wealth among the existing generation every
Prohibition of Riba is the cornerstone of Islamic financial • transactions; the basis of cooperation between capital and enterprise in Islam is sharing of the risks and gains between the two. The Holy Quran has specifically prescribed a long list of inheritors • in accordance with the degrees of relationship and, as a result, the inherited wealth gets widely distributed among the inheritors including women. The Islamic Law of Inheritance has been in vogue in Pakistan since • the pre-partition days and has been instrumental in achieving the intergenerational redistribution of wealth. Measures taken for Islamisation in Pakistan: • As per Article 2 of the Constitution, Islam is the State Religion of Pakistan. The Objectives Resolution was adopted by the first Constituent Assembly in 1949; it was the preamble of the 1956, 1962 and 1973 Constitutions. It provided that no law should be enacted that is repugnant to the injunctions of Islam. It was made substantive part of the Constitution in 1985. The Eighth Amendment of the 1973 Constitution, adopted by the • National Assembly in 1985, also made room for creation of the Federal Shariat Court (FSC)....