Islamic Banking-Pakistan, the Pioneer, but No More a Leader

Abstract

Though not formally acknowledged/recognized, Pakistan (and its institutions like Islamic Ideology Council and central bank-State Bank of Pakistan (SBP) played pioneering role in initiating the idea of Islamic banking and finance in the modern world, providing operational guidelines, regulatory basis and trainings in Islamic banking. Pakistan started the process of Islamisation of banking system in late 1970s much before than any other country and gradually shifted over to interest free banking system in 1984. The first ever blueprint on how to eliminate interest from the economy and replace it with Islamic was provided by the Pakistan’s Council of Islamic Ideology in its “Report on Elimination of Interest from the Economy” in June 1980. To launch/offer Islamic banking and finance products, the central Bank of the country provided detailed regulations in early 1980s (through its Banking Control Department (BCD) circulars) suggesting more than thirteen modes for Interest free banking to replace conventional set up. Other countries inspired by the Pakistan’s efforts, while deciding to introduce Islamic banking, sent their officials to Pakistan for learning and orientation in Islamic banking.