At the end of December 1999 the Shariat Appellate Bench of the Supreme Court of Pakistan delivered a judgment in exercise of its jurisdiction to examine and strike down laws found to be contrary to the Injunctions of Islam. The court concluded that any amount, big or small, over the principal, in a contract of loan or debt is riba (interest), regardless of whether the loan is taken for consumption or for some productive activity, and is prohibited by Islamic law. The court said that all prevailing forms of interest, either in banking transactions or in private transactions, fall within the definition of riba and that all laws held to be contrary to the Injunctions of Islam shall cease to have effect from 30 June 2001.

The Pakistani Government, fearing chaos in the financial system, has alternated between claiming that the court exceeded its authority and asking for an extension of the deadline for implementation. The Minister of Finance noted the need to keep linkages with the global economy and the necessity of honouring existing commitments to local and foreign investors.

The court, while not reconsidering its judgment, did delay its implementation to 30 June 2002 and indicated it would monitor progress until that time. The Finance Minister has assured the IMF that the Government will prepare a clear strategy for transition to an Islamic financial system but that this will not endanger financial stability and efficiency, the conduct of monetary policy and domestic financing of the budget. He has reiterated that under any circumstances all foreign and existing domestic debts and loan contracts will be honoured.

This article does not necessarily represent the views of ICC or the other partners in DC-PRO.