Foreign Branches of Pakistani Banks

Banks operate according to the law of the land where they are located. For instance, American, British or Japanese banks operating in Pakistan have to transact business according to rules and regulations in force in Pakistan. Likewise, Pakistani banks located in foreign countries have to transact their business according to rules and regulations applicable there. Now the branches of Pakistani banks in most foreign countries will be operating on the basis of interest. What solution can be found for this problem? In the foregoing paragraphs suggestions have been given which will safeguard the PLS depositors in Pakistan against the imported components of interest. But what about the shareholders of the banks who will receive a component of interest included in their dividend income?

The question is whether branches of Pakistani banks located abroad can work on an interest-free basis? My first reaction is: yes! But doing this will require a very high level of motivation. I studied the banking laws of some countries where banking system is based on interest and found that an interest-free system for such places can be developed. However, an easy option is that the portion of interest income earned by foreign branches of Pakistani banks be surrendered for charitable purposes so that it is not included in the dividend income distributed to the shareholders of Pakistani banks.

Dr Ziauddin Ahmad

Source: Elimination of Riba, Khurshid Ahmad, Khalid Rahman and Zahed A. Valie. Republished with permission.