...the deadline is June 30th 1992. The government must
come up with an alternative economic framework before this date. For on July
1st, in compliance with the recently delivered verdict of the Federal Shariat
Court, all institutions operating on interest would cease to exist. Barring any
foul play on the government’s part, if a viable framework is not presented, the
consequences could be very serious, in fact, disasterous, for the economic
structure of a country whose life vein is interest...
Since the past many years, Muslim scholars have been
endeavouring to establish the economy of Pakistan on interest-free lines. A lot
of solutions have also been presented in this regard. However, all these
attempts have proceeded by first accepting and acknowledging certain premesis of
a capitalistic economy. Since these premesis are in direct contradiction with
those laid down by Islam, the result of this cross-breeding is a sui generis
malformed beyond perception. Regrettably, our scholars insist on branding it as
the golden economic model of Islam.
One of the main limbs of this bizarre species is
‘Interest-free Banking’, which actually amounts to a contradiction in terms. It
must be appreciated that Banking owes its existence to the creation of a large
amount of capital with a fair amount of ease, and to an almost total elimination
of the element of risk in the mode of its operation. These two factors, in fact,
define the very nature of Banking. It must be borne in mind, that Banks
on the interest they receive upon the loans they advance against collateral
securities. Interest and Security ensure a guaranteed return well over the money
lent. Without the two, a Bank can neither readily draw in a huge amount of money
nor continue to be an institution with a ‘certain-future’---the two causes of
its creation. ‘Interest-free Banking’ is a concept which disregards both these
causes and, therefore, is in contradiction with the very nature of Banking.
A cursory look at the formation of Banks reveals that an
individual or a group of individuals who establish and run a bank have very
little of their own in the accumulated money. In fact, the little their own
investment in the total sum, the more a Bank is considered successful. Without
entering into any sort of a business venture and by simply manipulating the
accumulated money in a certain manner, they are able to earn unimaginable
amounts of ‘easy’ money. As ‘Interest-free Bankers’ why at all should they set
up enterprises and business ventures, risking their future by entering in a
profit and loss agreement with investors, troubling themselves with all the
affairs of such concerns, facing the next to impossible task of dealing
simultaneously with thousands of investors when, as ‘Interest-based Bankers’,
they can earn much much more without taking all these pains and risks, simply by
lending the secured money at a higher interest rate and returning the depositers
a relatively low one? From the point of view of the depositers also, if they are
not given surety of a fixed return, why at all should they deposit money with an
institution having a ‘vague-future’ and face the chances of totally loosing
their money? Should they not opt for a more safer investment like land or gold
or perhaps even directly entering in a business and taking the risk themselves?
‘Interest-free Banking’, in short, is a fantastic production of man’s romance
with economic concepts. This romanticism might be enthralling, but, we are
afraid, it can find no place in the world of reality.
Perhaps, the solution lies in rethinking the whole set-up
which emanates from the laws and principles Islam sets forth in this matter. We
take this opportunity to introduce our readers to a humble effort undertaken in
this regard by our mentor, Mr Javed Ahmad Ghamidi. His innovative approach to
the whole problem has placed it in an entirely new perspective. He has proposed
an alternative which can best be described as a new economic order, considering
its staggering implications.
Mr Ghamidi asserts that by prohibiting both Interest and
Islam has once and for all put an end to all institutions which are established
and run on these bases. It has prohibited the two because both of them promote
economic injustice and inequity---the very antithesis of an economy envisaged by
Islam. Also, at the very outset, it condemns those who live beyond their means
and rely on loans for their livelihood. Banking, on the contrary,
institutionalizes what Islam condemns and in fact goes even further: it induces
a country to live beyond its means. The net result is that it has become the
centre of many economic evils. Mr Ghamidi, therefore, stresses that an Islamic
economic framework is not just ‘Interest-free’, it is ‘Banking-free’ as well.
This may be a startling premise, but can be better appreciated if some moments
are spared to view the havoc caused by banks in the economy a country.
An objective analysis reveals some glaring evils in
Banking, an institution, which, actually, developed from the guiles of the
goldsmith a few hundred years ago.
The greatest evil in it, which can rightly be termed as
the source of all the other evils, is the concentration of wealth in a few
hands, necessarily the rich. The result is economic disparity and a perpetual
widening of gap between the rich and the poor. Through the courtesy of Interest
and Security, the two pillars of Banking, an extremely large amount of money is
rendered at the disposal of a few individuals, who, as a consequence, decisively
influence the economy of a country. They become the sole beneficiaries of the
whole country’s wealth, and with this ‘deadly weapon’ literally control the
destiny of their nation. They are at liberty to direct the flow of wealth at any
project they like, as long as they can obtain an interest rate well over the one
they have to pay back to the depositers. The fact that a lucrative project might
be harmful for the country’s well-being finds little consideration in their ‘feasabilities’.
Similarly, other projects which may not promise a high rate of return, yet are
essential for a country’s welfare may be of no significance to them.
Secondly, the rate of interest a Bank sets has a direct
bearing on the cost of living as well as the price levels of various commodities
of general use. House rents are fixed keeping in view the interest the money
invested would fetch if it had been placed in a Bank. Similarly, a typical
factory owner, who, inevitably, sets up his concern from a Bank loan adds the
interest margin in the price of the goods he is manufacturing. Frequently, there
are two, three or even more such interest margins because the loans acquired are
multiple as well. This high debt margin also accounts for the pathetic state of
the factory labour which is employed on meagre wages. The ultimate result is
that the whole country is caught in a perpetually increasing price-gradient.
What adds to this misery is that economists admit that in an interest-based
system all measures which can cure this price hike are the ones which cause
unemployment and vice versa.
Thirdly, since most of the wealth of the general masses
nourishes a few Bankers, the sale of goods in local markets experience a
pronounced decrease. Quite often, this leads to a severe slump in the country’s
economy. Factories are forced to close down creating mass-scale unemployment.
Also the manufacturers are inflicted with severe losses. The government, if
possible, tries to compensate such influenced tradesmen by buying their goods.
As a preventive measure, it also tries to keep the production below a certain
level. In the process, a lot of money is spent .
Moreover, to lessen the burden so caused on the national exchequer, the
government is induced to plan a budget whose deficit runs in billions. To reduce
this deficit, it frequently resorts to a number of activities which further
cripple the national economy. Every year millions of currency notes are
published. This false money is one of the immediate if not the main cause of
inflation. Further taxes are imposed and foreign aid and loans are procured to
increase the national income and reduce the budget deficit. Again, foreign
agencies provide loan and aid on their own conditions and virtually dictate the
future development (ie. the lack of it) of a country.
Needless to say that with economic slavery comes mental servitude, which totally
destroys the moral fibre of a country. Furthermore, once a country starts
relying on foreign loans, the need to repay them on interest starts an unending
sequence of their procurement. Every year a considerable amount of the annual
budget is spent in servicing these debts.
Fourthly, a large quantity of money is retained in banks
as reserve to meet sudden increases in the withdrawal of money. These ‘fits’
continue to occur every now and then as part of trade-cycles of an
interest-based economy. Also, the quantity of money floated for loan advancement
is not allowed to exceed a certain level so that the interest rate should not
fall. As a result, a very large amount of money is left untouched, whilst the
government may be busy procuring foreign loans!
Fifthly, foreign agencies which directly invest in a
developing country are preferred as borrowers by the Banks of such a country
because of their ‘sound’ credibility. This results in a restriction in the
availability of credit for the domestic borrowers. Also, among these domestic
borrowers loans are advanced to only the few who are in a position to pledge the
usually high-valued Securities against them.
Many capable and competent yet not-so-rich young men, from whose skills the
country could benefit, are, inspite of all their own wishes, unable to play a
role in the country’s development. As a consequence, a lot of this indigenous
talent is bought by foreign agencies, who reap all the benefit.
Sixthly, the outflow of secured loans only towards ‘rich’
domestic borrowers brings into existence a particular class in a country, the
industrialists, who, like their progenitors, the Bankers, are provided with the
opportunity to play with the whole country’s wealth. The economic welfare of a
country rests at their mercy. They can disrupt its economic stability and
equilibrium by creating a shortage of goods at one place and producing. them in
abundance at another. They can cause unemployment by replacing the hand-labour
with mechanized techniques wherever and whenever they like because providing the
relieved labour with alternative opportunities is not their headache. By
establishing business ventures and commercial projects only in certain
industrial centres, they are responsible for the creation of large cities which
receive development and service at the expense of the rest of the population.
This naturally promotes an atmosphere of rivalry between the beneficiaries and
the deprived. Since they are the main buyers also, they dictate the demand
pattern in a country, frequently, not taking into account the actual demands in
a country. A country may be needing investments in the agricultural sector
whilst, quite inevitably, they may be insisting on high-tech goods. Moreover,
their money brings the whole leadership of their country at their doors as well.
It is they who reign supreme in the institutions of science and technology, art
and literature, learning and education. The mass media is their obedient servant
as indeed is a country’s bureaucracy. At the international level their influence
is even more potent. They can start a war and initiate a peace. At their orders,
governments are brought to power, and at their bidding, they are deposed. Above
all these money-barons and their masters the ‘old’ wall-street capitalists have
once and for all determined MONEY as the ultimate value in a society. Honour,
integrity, piety, competence and hard work are forced to solute and serve its
cause. Greed and selfishness, fraud and deception reign supreme. Evil ruls the
world. Only strangers now tread the path of truth...
Satan and his disciples, it looks, have yet again led the
believers away from Divine Guidance. Fourteen hundred years ago a small Qur’ānic
verse had warned them of the dire consequences of wealth being confined in a few
hands. It still has the same message for us, if we could only care to pay heed!
It is evident from the foregoing analysis that the
institution of Banking cannot be purged from its evils, simply because its own
existence depends on them. The only remedy is to extract it from its roots and
reshape the whole economy ab initio.
This brings us to the ‘Banking-free’ economic framework
proposed by Mr Ghamidi. It is essentially based on a three-faceted scheme:
(1) All institutions which provide capital on loan should
be completely abolished, and all Banks should be converted into various branches
of the Public Treasury (the Bait-ul-Maal), where people can deposit their
savings. These branches shall provide protection, exchange and other similar
facilities. In return for this service, the deposited money will be invested
only in the public sector on industrial, commercial, agricultural and welfare
projects with the precondition that without being given any profit on the
original amount, the depositers would be returned their money whenever they
demand it. This broad-based public sector shall be planned by the government
keeping in view the collective requirement and welfare of all the people. It
shall finance all projects which need huge investments as part of its basic
obligation towards the public.
(2) The public sector so created shall not be run by the
government. Leaving it in state ownership, its running and management shall be
entrusted to the private sector by adopting either or both of the following two
modes, depending upon the circumstances: (i) by selling a certain quantity of
shares to the private sector, (ii) by imposing khiraaj (tribute) on the party of
the private sector which is entrusted with the job of management.
However, the government can keep certain ventures of public interest, like the
ordinance factories or the mass media under its own management.
(3) Individuals in the private sector who intend to set up
their own business shall be freely allowed to do so. They can pool their money
to form a joint venture and employ other means to procure funds. Joint stock
companies can also play their role in the set up. However, no financial
institution shall be allowed to mediate and advance loans to them. Also the only
form of absentee partnership permitted would be one in which people can directly
become shareholders in various projects of the private and public sector.
The resulting economy, a blend of a broad-based public
sector and a naturally developed private sector, would, perhaps, rightly depict
the moderate set-up of an Islamic Economic System in contrast with the two
extremes of Capitalist and Socialist Economies.
It must be realized that the economic system of a country
cannot be isolated from its political, social, educational and legal systems.
Therefore, a complete overhauling of the above systems must also take place.
However, the government must take the following measures in particular to
reciprocate and facilitate the implementation of this set-up:
(1) Efforts should be made to merge the whole Muslim Ummah
from Morocco in the West to Indonesia in the East in a single geographical
unit---The United Islamic States---so that all Muslims can benefit from the
resources they have been blessed with.
(2) Those in authority including the head of the state
must necessarily (i) have the same standard of living as that of the common man,
(ii) always keep their doors open to hear the grievances of the poor, who can
freely call them to account whenever they like and (iii) lead the Friday
(3) It should be the responsibility of the state to
provide the basic necessities of life which include food, shelter, clothing,
health and education to every needy citizen.
(4) To run the machinery of the state, the government
should be allowed to rely only on the income obtained from its lands,
industries, mineral reserves, trade, zakat and ushr,and
should be imposed on the people.
(5) Ushr should also be levied on industrial produce,
just as it is done on agricultural produce.
It is quite likely that what has been presented above
shall be rejected on grounds of ‘high treason’ against the thoughts and ideas
people are so used to. It is extremely difficult to rise above traditional
views, conventional ideas, and existing frameworks, yet, gentle reader, the
truth, sometimes, may not be very orthodox. It must be clarified that no claim
is being made. Only an earnest request to weigh every new idea in the balance of
Reason and Revelation.