The Senate Standing Committee on Finance, chaired by Senator Saleem Mandviwalla, has raised serious concerns about the practice of Islamic banking in Pakistan, alleging that it is being used to defraud the public.

During a meeting on Wednesday, the committee reviewed the Deposit Protection Corporation Amendment Bill 2024 and received a briefing from the State Bank of Pakistan.

Senator Mandviwalla, the committee chairman, highlighted that Islamic banks are charging interest rates of 25-30%, significantly higher than the 20% charged by conventional banks. He alleged that people are being lured into Islamic banking under the guise of religious obligation, but are actually being exploited for financial gain.

“People are going for Islamic banking not because of their love for Islam, but because of financial benefits,” Senator Mandviwalla said. “I have received numerous complaints about the high interest rates charged by Islamic banks.”

The committee has requested a detailed briefing from the State Bank on the practices of Islamic banking in Pakistan, including a comparison with international standards.

The meeting also saw the approval of the Deposit Protection Corporation Amendment Bill 2024, which aims to provide legal protection for deposits up to PKR 500,000 in banks. Previously, only deposits up to PKR 250,000 were protected.

The bill, however, does not include microfinance banks, although the State Bank plans to include them in the future. The bill grants the board the authority to decide whether or not to include microfinance banks in the protection scheme.

The meeting also saw heated discussions regarding the influence of the International Monetary Fund (IMF) on the bill. The committee questioned the State Bank’s reliance on the IMF’s recommendations, suggesting that the bank should be taking more initiative and working independently.

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The State Bank’s Deputy Governor, Dr Inayat Hussain, defended the bill, stating that it was drafted by the State Bank itself, with assistance from the IMF. He also highlighted the formation of a Shariah Advisory Committee within the State Bank, which will oversee the implementation of Islamic banking principles.

The committee also raised concerns about the high fees charged by board members of the State Bank and other banks, suggesting that this practice discourages qualified individuals from joining the banking sector.

The meeting concluded with the approval of the Deposit Protection Corporation Amendment Bill 2024, marking a significant step towards strengthening the protection of depositors in Pakistan. However, the concerns raised regarding Islamic banking practices and the influence of the IMF will likely continue to be debated in the future.