Pak plans abolition of interest rates

The move follows a government decision to withdraw a long pending challenge before an appellate Supreme Court bench to a 1991 FSC ruling against interest-based Islamic banking that sent shock waves through Pakistani banks and foreign lenders.

The FSC’s November 1991 ruling rejected 32 financial laws it says are not sufficiently Islamic,including one that supplies the framework for mark-up, an Islamic alternative to interest payments by borrowers that has proved compatible with Western banking.

The government decided to withdraw the appeal, which had called the earlier court interpretation of the Koran incorrect, in an apparent move to appease orthodox Islamic scholars angered by the challenge.

The new move comes amid a controversy over Sharif’s move to make the Islamic Sharia code Pakistan’s "supreme law" by a constitutional amendment, which has been passed by the National Assembly (lower house) but awaits an uncertain fate in the Senate (upper house), where the government lacks two-thirds majority needed for its passage.

Foreign bankers say most of the FSC-rejected laws had little or no impact on commercial banking. The crucial ruling is against mark-up, which is seen as still too close to riba, which orthodox Moslems equate with usury and is outlawed by Islam.