Page 48 - CMA Journal (Mar-Apr 2025)

Focus Section

Table 3: Global Experience

Country System Type Key Strengths Main Challenges

Iran Fully Islamic Complete legal abolition of riba Isolation, lack of innovation
Sudan Fully Islamic Broad-based use of Islamic Weak regulation and political
contracts instability
Malaysia Dual banking Global leader in sukuk and Managing the balance
model Islamic fintech between two systems

GCC States Hybrid integration Strong international standards Conventional dominance in
and innovation some areas

Given Pakistan's ongoing financial instabilities and exposure because the current efforts appear aspirational instead of
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to external disruptions, it is crucial for the country to adopt a executable .
resilient and sound financial system. Islamic banks Key Challenges to Establishing a Riba-Free
contribute to financial stability through their Economy in Pakistan
risk-assessment methods and transaction requirements
based on asset ownership. Under the interest-free model, Pakistan funds its fiscal deficits through conventional
interest-based instruments, including government bonds and
investments can be directed toward practical needs due to a
treasury bills. Severe financial insecurity could emerge if the
favorable framework that channels funds into sectors such
as agriculture, manufacturing, and social infrastructure. country attempts a swift disentanglement from its current
dependency. Islamic financial institutions in Pakistan struggle
Through its operations, Islamic banking also reaches
population segments that typically lack access to to locate sufficient valid Shariah-compliant avenues to
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manage their liquidity and to make sovereign investments.
conventional banking institutions.
This imbalance reduces operational efficiency and diminishes
The upcoming years leading to 2028 will require full-scale the competitive advantage of these institutions.
improvements of financial instruments with concurrent
The regulatory environments and supervisory procedures for
reforms of banking regulations and fiscal policies. A Islamic and conventional banking systems reflect different
well-planned execution of this transformation would achieve interpretations. A lack of standardized Shariah governance
more than interest withdrawal from the economy by leads to confusion among customers, eroding their trust in
establishing a moral and accessible future for Pakistan's Islamic finance products. Contract enforcement within Islamic
finance, which aims for sustained development . 6 law shows inefficiency because of insufficient legal
procedures, and judges lack experience with
Pakistan has established January 1, 2028, as its target date to
remove Riba (interest-based finance) from its economic Shariah-compliant finance. As a result, the prolonged
dispute-resolution process negatively affects institutional
system. The national goal emanates directly from Clause (f)
confidence. The total interest-bearing debt in Pakistan
of Article 38 of the Constitution, establishing the "promotion exceeds 75% of its national debt portfolio. Achieving an
of the social and economic well-being of the people." The
Islamic financial system through sukuk and mudarabah
amendment represents a decisive national transition toward methods requires careful execution of multiple phases,
establishing an economy based on Islamic principles
legislative adjustments, and international cooperation.
focusing on equality and universal prosperity among all
Professional expertise is a crucial deficit because it combines
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people . Today, Pakistan's economy depends heavily on conventional financial systems with Islamic finance principles.
consumption and debt-based growth portfolios, which fail
A shortage of professional expertise also presents a critical
to comply with Islamic financial principles. The primary
economic management component is interest-bearing barrier, as the successful integration of Islamic finance
demands knowledge of both conventional financial systems
loans, including domestic and international ones. The
and Islamic principles. The limited number of Shariah
framework of a Shariah-compliant economy depends
entirely on savings alongside equity-based investments, scholars familiar with modern finance—and the lack of
banking professionals trained in Islamic models—hinders
which share risks to the point that such a system cannot be innovation, standardization, and sustainable growth of the
created by passing laws. Pakistan needs to transform its
sector. Muslim nations, including Pakistan, find their
borrowing behaviour into a society-wide practice of saving
interests restricted by their agreement with IMF and World
money to accomplish its economic transformation. The Bank institutions and base their operations on
transition process proves difficult because Pakistani people
interest-based frameworks, thus hindering complete
hold weak confidence in financial institutions and display departure from Riba . The bond to conventional financial
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limited financial comprehension. Several policy-making
standards through debt responsibilities, credit assessments,
adjustments, infrastructural developments, and behavioural
and capital movements requires Pakistan to move forward
transformations should work synchronously to achieve with sensitivity while maintaining strategy .
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Pakistan's goal of a completely Islamic financial system
46 ICMA’s Chartered Management Accountant, Mar-Apr 2025