In a recent Senate Standing Committee on Finance meeting, Chairman Saleem Mandviwala dropped a bombshell, revealing that Islamic banks in Pakistan are charging interest rates between 25-30% on loans-higher than the 20% typically charged by conventional banks. This revelation has raised eyebrows and sparked a debate about whether Islamic banking is truly living up to its name or simply deceiving customers under the guise of religious principles.
The meeting, which was supposed to focus on the Deposit Protection Corporation Amendment Bill 2024, took an unexpected turn when Senator Mandviwala voiced his concerns. During the session, Deputy Governor of the State Bank of Pakistan, Dr. Inayat Hussain, assured the committee that the bill is designed to protect consumers and that microfinance banks would not be affected. However, Mandviwala’s revelations about Islamic banking quickly became the center of attention.
Mandviwala didn’t hold back. He argued that people aren’t flocking to Islamic banking out of religious devotion but because they believe it offers a better financial deal. Yet, according to Mandviwala, the reality is quite the opposite. He cited numerous cases where the interest rates in Islamic banking were actually higher than those in conventional banks-a claim that strikes at the heart of what Islamic banking is supposed to represent.
The committee has now requested a detailed briefing from the State Bank on how Islamic banking operates in Pakistan, along with a comparison to international practices. This request underscores the need for transparency and a clear understanding of whether Islamic banking is truly providing the ethical and Shariah-compliant financial solutions it promises.
Dr. Hussain highlighted that while conventional banks hold a dominant 75% market share, Islamic banking has secured a respectable 25%. But with these new allegations, Islamic banking’s reputation is at risk. The idea that what was supposed to be a more ethical alternative might actually be more costly is troubling for many.
Is Islamic Banking Really What It Claims to Be?
This controversy raises a critical question: is Islamic banking in Pakistan staying true to its principles, or has it veered off course into the same profit-driven practices it was meant to avoid? Many consumers turn to Islamic banking, believing it to be a fairer and more ethical option. But if these claims of higher interest rates are true, it could seriously damage the trust that Islamic banks have worked hard to build.
Now, it’s up to the State Bank and Islamic financial institutions to prove that they’re not just paying lip service to ethical practices. They need to show that their products are not only Shariah-compliant but also competitive and fair. Otherwise, they risk losing the trust and confidence of their customers, which could be a heavy price to pay.