Pakistan’s banking sector has been working toward a deadline since April 2022. That was when the Federal Shariat Court gave its ruling on riba, after a legal dispute that had gone on for more than 40 years. The court held that interest-based banking was against Islamic injunctions and gave the country until the end of 2027 to remove it from the financial system. The State Bank of Pakistan and the National Bank of Pakistan later withdrew their appeals. In 2024, the 26th Constitutional Amendment added a requirement under Article 38(f) to eliminate riba before January 1, 2028.
The court did not make a specific ruling on currency speculation, but the subject has come up in discussions among Pakistani traders. On Urdu-language YouTube channels and Telegram groups, people discussing forex trading sometimes ask whether it is permissible under Islamic law. The ruling has added to those concerns. For some, the issue now goes beyond their own religious views, since Pakistan has also committed to removing riba from its financial system.
The role of overnight swaps is at the center of the discussion. Holding a forex position overnight can result in a charge or credit based on the interest-rate difference between the two currencies, and many scholars consider interest-based swaps to be a form of riba. Offshore brokers have offered Islamic or swap-free accounts for years, which some providers market to Pakistani traders. Some providers charge a flat administrative fee after a position has remained open for a short period of time, a fee that critics argue may serve the same purpose as an interest-based swap charge.
There are rules on currency exchange as well, following classical principles. The exchange of money for money, known as bay al-sarf, generally requires both parties to take possession of the exchanged currencies during the transaction. A number of scholars in Pakistan have argued that margin trading, delayed settlement, and contracts for difference do not satisfy the requirements of bay al-sarf. They say the problem remains even if a broker offers a swap-free account. An alternative interpretation is that certain electronic spot transactions can satisfy the requirement of immediate or recognized constructive possession. The disagreement is real and remains unresolved across different interpretations, leaving traders to seek guidance on the particular products they use.
That uncertainty is manifested in subtle ways in market behavior. Some brokers who promote their services to Pakistan make traders aware of swap-free options, and educational material accompanying trading tutorials sometimes includes short lectures on Islamic finance principles. Some would-be traders decide to walk away completely after seeking advice from religious leaders. Others continue trading but avoid keeping positions open overnight. Others continue trading but avoid keeping positions open overnight. Some may choose to trade only during the day because of this. The situation is different in institutional finance. Islamic banks in Pakistan also conduct foreign exchange activities, though these are generally connected to trade finance and managing currency exposure. Their Shariah boards review the spot transactions and other arrangements used by the banks. The purpose is usually to meet the foreign currency needs of businesses, not to speculate on exchange rates.
Pakistan’s banks have until the end of 2027 to remove interest-based practices from their operations. The government has also been using sukuk and other Islamic financing instruments. Offshore brokers, meanwhile, continue to offer trading accounts that may not meet the same religious requirements. For Pakistanis interested in forex trading, the question of whether an account is permissible under Islamic finance rules may matter just as much as the chance of making a profit.