Chairman Senate Finance Committee Senator Salim Mandviwala criticizes State Bank of Pakistan for its apparent lack of effective oversight over such high interest, raises red flags over malpractice in the name of Islamic banking
By Asghar Ali Mubarak
ISLAMABAD: The Senate Standing Committee on Finance, chaired by Senator Salim Mandviwala, has raised serious concerns regarding the operations of Islamic banks, alleging that these institutions are engaging in fraudulent practices contrary to their advertised interest-free models. During a recent meeting, Mandviwala revealed significant discrepancies between the principles of Islamic banking and the actual practices observed within these institutions.
Mandviwala disclosed that Islamic banks, despite their claims of operating without interest, are charging rates that far exceed those of conventional banks. “Islamic banks are imposing interest rates ranging from 25 to 30 percent on borrowing,” Mandviwala stated. This is notably higher than the standard 20 percent interest charged by conventional banks, undermining the core principle of interest-free banking that these institutions promote.
In a recent development, the Chairman of the Senate Finance Committee has sharply criticized the State Bank of Pakistan (SBP) for its inadequate oversight regarding excessively high interest rates, raising significant concerns over the integrity of Islamic banking practices. During a heated committee session, the chairman expressed alarm over the SBP’s apparent failure to regulate and control interest rates effectively, which has led to an alarming rise in financial burdens on consumers. This critique highlights a growing concern that the central bank’s supervisory mechanisms are failing to protect the public from exploitative practices in the financial sector.
The chairman also drew attention to the potential malpractice occurring under the guise of Islamic banking. He raised red flags about certain practices that claim to adhere to Islamic financial principles but, in reality, may be exploiting these principles to justify high interest rates and fees. This issue is particularly troubling given the increasing reliance on Islamic banking products, which are meant to offer ethical and interest-free financial solutions.
Critics argue that these malpractices not only undermine the credibility of Islamic banking but also erode public trust in financial institutions. The chairman’s comments reflect a broader call for urgent reforms to ensure that the SBP enforces stricter regulations and addresses these emerging issues effectively. Mandviwala accused the SBP of failing to address the discrepancies and allowing these banks to exploit consumers. “The people are being deceived under the guise of Islamic banking,” Mandviwala asserted, highlighting the numerous complaints from the public about excessive interest rates.
In light of these concerns, the Senate Standing Committee has requested a comprehensive briefing from the SBP to address the practices and regulatory framework governing Islamic banking. The committee’s findings have intensified calls for greater transparency and stringent regulatory measures within the Islamic banking sector to protect consumers and ensure adherence to the fundamental principles of Islamic finance. This development underscores a pressing need for reform and oversight in the Islamic banking industry to align its operations with its foundational principles and uphold the trust of the public.
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