The article has been adapted Second, what is Riba? Lately, from a speech by the writer at this has generated a lot of discus- a seminar on Elimination of sion. As far as the question of in- Riba from the Economy, held terest on monetary transactions, by Institute of Policy Studies, money lent or borrowed, is con- Islamabad. A book with the Cerned, there has never been any same title is recently published difference of opinion on its defi- by the Institute. The writer is nition. Any addition to the loan amount related to the time of loan constitutes Riba regardless of the ROHIBITION of Riba is an term used for it or the language article of faith with the Mus- in which the concept is translat- lims, and as such we cannot ed. This comes from the Qur’an ture. But what is the rationale be- that whatever is above the loaned hind its prohibition and what amount one has no right to repercussions it will have on the charge it or pay it. As far as finan- economy if it is eliminated are cial dealings are concerned any increase on valid areas of inquiry. the original loan Starting with the first major whether it is simple or com- money which is predetermined, policy speech the Quaid-i-Azam pound, is Riba. Again, any in- at the inauguration of the State crease whether it is Bank of Pakistan in July 1948 borrowed for business purposes on loan which committed itself to the or production and consumption abolition of Riba. and the in- troduction of a Riba-free system, individuals or between individu- purposes, whether it is among the all the three constitutional docu- als and institutions, whether it is ments produced in Pakistan’s herween people and government 46-year history affirm that elimi- or government and government, nation of Riba is an objective of is Riba, forbidden in Islam. the state policy. All the reports of the Council of Islamic Ideology unanimously called for eliminat- ing Riba. The final report of the council, based on the report of the panel of economists and bankers, in 1980, also proposed a three- year programme. Case law at the levels of High Court and Supreme Court is also available and the most important judge- ment, which could come only af- ter the constitutional ban of 10 years on the Federal Shariat Court to examine the legality or otherwise of laws relating to monetary and fiscal issues, was pronounced in December, 1991, and rightly affirms that it is a na- tional resolve and a commitment to abolish interest from the economy.
There had been some side diversions whether bank interest and interest given or charged by individuals is same or different. I would not go into the debate, but the consensus of Muslim scholars and economists, as has also been affirmed by the judgement of the Federal Shariat Court is that bank interest is as much Riba as interest charged by other persons or in- stitutions provided it falls in the category of a predetermined return on money lent. There can be a large number of other serv- ices the banks are engaged in and where service charges are not based on this premise. They may not invoke the mischief of Riba, yet all those bank transactions that relate to this particular area.
Thus the challenge we are fac- Elimination of interest is not the ing is:
a) How to eliminate Riba in all these forms?
b) How to evolve a Riba-free system of financial and econom- ic dealings?
be-all and end-all of Islamic eco- nomic programme. It is one of the key elements of the Islamic economic programme, but it would be incorrect to assume that this is the whole of Islamic socio- economic programme.
Third, Islam is indivisible. Its whole socioeconomic. programme comes from its core HERE are certain people (faith) in the same way as a tree who feel that the elimination grows from the seed. The whole of Riba may lead to the collapse tree is one organic unit, each part of economy. Everyone has a right supporting the other and drawing to his opinion, still I think we sustenance from each other. Any should not go by scare- effort to implement only one part mongering. Instead, we should to the exclusion of the rest is not try to analyse things in their per- going to produce the results, spective. After all, elimination of Thus, the isolationist approach Riba does not mean zero-return would not be a realistic one. This, on capital. What Islam has forbid- however, does not mean that den is a fixed predetermined everything can be done at the return for a certain factor of same time. There can be a gradu- production -one party having alism in the implementation assured return and the whole risk process starting from building of entrepreneurship to be shared faith to education, social motiva- by others. tion, individual motivation, in- stitutional and legal changes.
This is not something as novel Fourth, even at the level of or naive as some people are try- elimination of Riba perhaps, this ing to project. After all, if one is my personal submission, we are looks into history, one finds that faced with a three-tier situation. capital, loan capital as well as ven- How to avoid what is haram? ture capital, has played the role in What is explicit and categorical promoting industrialisation and that our moral, spiritual and so- economic development. Also, we cial conscience abhors? But this find that their relative roles have would be only in the negative been rather different in different aspect. From there we have to parts of the world, in different proceed to the second phase, i e periods of time. For example, in what is our positive vision of eco- the British model of banking, the nomic and financial dealings? role of deposit banking in What is the alternate basis on promoting economic develop- which Islami wants to organise it? Unfortunately, during the last ment was dominant while equity- two centuries the evolution of based investment was limited. But economic financial relationship as against that, in the French tra- has been engineered towards a dition, investment banks had debt-based economy and this in- played a very important role cludes both consumption and throughout the 19th and even in production spectrum of econo- 20th centuries. Similarly in Ger- my. As against this as a basic many, we find that commercial value, Islam abhors a debt-based banking was not allergic to life.
A number of international institu- even a predominant success. As to tions or organisations had shown a few success stories like South an openness that we expect from Korea, Taiwan and Singapore, international organisations, there is no evidence to suggest bankers and investors. In a num- that their developmental efforts ber of studies, the IMF, World owe much to loaned capital or aid Bank and IFC have shown in- in the form of loans; instead, each terest in the alternate arrange- represents a particular case with ment for participation of capital a critical entrepreneurship and ef- and entrepreneurship. Some of fective utilisation of a number of the economists have been voicing factors. great concern over the distorted We do not claim that all the proportion between loaned capi- tal and equity capital even in the questions have been answered. western economic system. The Human efforts must always con- German economist Albach has tinue and commitment must al- produced a number of studies, ways be made. We should be demonstrating that even the pragmatic to face the problems as western economies are not get- they are and not as prisoners of ting enough equity capital. New certain biases. My main concern instruments and institutions are is that some of the western in- needed to put in equity capital. So tellectuals, journalists, scholars when we say that equity-based and politicians instead of trying to banking and finance are possible, understand us in our effort to seck we are not talking in a language our identity and build our socie- foreign to the professionals. in accordance with our own moral and ideological ethos are casting us in the role of adver- saries. We are part of the contem- porary world and want to make for all. the world a better place to live in
We are discussing this issue at a time when very important changes are taking place in the world. We find that there is a lag of seven to eight years in debt recovery. Inflation has dug its teeth deep and unem- If you read Ronald Reagan: An ployment is still a menacing American Life, the autobiography phenomenon. All these are caus- of the former US president, you ing worry to economists, will find that the spectre of “fun- policymakers and politicians. damentalism” seems to be haunt- With the collapse of socialism ing him page by page. In late there is a perceivable optimism Richard Nixon’s book Seize the for the alleged “final victory of the market liberalism.” Still, we Moment, “fundamentalism” is find that the World Bank in its very much there. Even those who latest report on the challenge of are talking of the end of history development cautions that while are searching a new enemy in the market economy should play a Japanese corporate model and in very important role, the state’s the Islamic fundamentalism. positive role should not be total- What I want to submit is that we ly neglected. Realities have to be are not afraid of titles. People are faced. After four decades of de- free to dole out whatever names velopmental experiment in over and titles they want. Yet the Mus- 120 developing countries, we find that the developmental efforts lim world is going through a peri- have not borne real fruits, not od of creative tensions.
