Main features of the interest‐free banking movement in Pakistan (1980‐2006)

Abstract

Purpose

The main objective of this paper is to highlight the main features of interest‐free banking theory and practice in Pakistan over the last three decades. It explores the country‐wide interest‐free banking movement since its inception in 1980 to its demise in 2002, and the reasons for such outcome. Moreover, it addresses the question why interest‐free banking has been recently reinstated by the government of Pakistan under the dual banking system and more importantly, would it be any real and big success?

Design/methodology/approach

The paper explores concepts, model, strategies and practical issues related with the Islamic banking and finance system. It holds a conceptual approach. It is designed as a case study that provides comprehensive analysis over the contributions made by political, government, financial, legislative and religious institutions of Pakistan in setting‐up the interest‐free banking and finance system in the country.

Findings

The findings of the paper hold that all intellectual, practical, institutional, political, constitutional and regulatory measures undertaken by the government and top policy makers of Pakistan to transform the banking system of the country Shariah compliant were devoid of real urge and effectiveness, only piecemeal solutions. The interest institution got very firm roots in the financial sector of Pakistan and strongly supported by other exploitative agents and systems that prevail in the socio‐economic life of the country. There is a dire need to take revolutionary steps with strong political and public support and commitment to uproot interest along with its allies from Pakistan economy and society. After all, Pakistan is an ideologically‐based Muslim country that holds the constitutional responsibility to eliminate interest from its economy and establish a fair and just socio‐economic order.

Research limitations/implications

The paper envisages the main concepts, models and strategies adopted in implementing the Islamic economic and finance system in Pakistan. However, it does not deal in quantitative data and statistical tools to support its findings by empirical evidence. Rather it entails subjective analysis and critique work.

Originality/value

The paper provides the deeper insight of highly technical, complex and mammoth job of eradicating interest from Pakistan economy that was deeply rooted and also strongly supported by other exploitative forces prevailing in the socio‐economic life of the country, causing gross distribution of wealth and concentration of resources and powers in the hands of few. It explains that the need for a major change in one institution or system entails the demand for bringing radical changes in the whole set‐up of country. This paper undertakes longitudinal view to analyze the institutional, financial, judicial and political developments that took place in Pakistan to restructure its economy on Islamic lines. It lays down all relevant facts and issues systematically to provide a clear‐cut assessment over the past, present and future of interest‐free banking movement in Pakistan.

Citation

Mansoor Khan, M. (2008), "Main features of the interest‐free banking movement in Pakistan (1980‐2006)", Managerial Finance, Vol. 34 No. 9, pp. 660-674. https://doi.org/10.1108/03074350810890994