...At the dawn of Islam, fourteen centuries ago, mankind
was facing one of the greatest ordeals of its history: the institution of
slavery. Man had become the master of man. He was subjected to inhuman treatment
at the hands of his master. Islam launched an extensive campaign to eradicate
this evil from the society and it was not long before mankind heaved a sigh of
relief when the institution of human bondage was condemned and stood abolished.
Today, fourteen centuries later, with the advent of the institution of Banking,
the institution of slavery has emerged once again, though in a different garb.
This time its effects are even more devastating: nation after nation has become
slave to a few nations. Once again, Islam has the solution to mankind’s
grievances...
O
Since the past many years, Muslim scholars have been
endeavouring to establish the economy of Pakistan on interest-free lines. Many
solutions have been suggested in this regard as well. However, all these
attempts have proceeded by first accepting and acknowledging certain premises of
a capitalistic economy. Since these premises are in direct contradiction with
those laid down by Islam, the result of this cross-breeding is a species
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
primarily operate 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
something which disregards both these causes and, therefore, is in contradiction
with the very nature of Banking. Trying to operate a bank on interest-free
lines, we are afraid, is like trying to keep a person alive after cutting his
life-vein.
A cursory look at the formation of Banks reveals that
individuals who establish and run a Bank have very little at stake in the
accumulated money. In fact, the lesser 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, risk their future by entering in a profit and loss agreement with
investors, trouble themselves with all the affairs of such concerns and face 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
depositers’ point of view of the also, if one is not given surety of a fixed
return, why at all should one deposit money with an institution having a
‘vague-future’ and face the chances of totally loosing ones money? Should they
not opt for a more safer investment like land or gold or perhaps even directly
enter in a business and take the risk? ‘Interest-free Banking’, in short, is a
fantastic production of man’s romance with economic concepts. This romance 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. I
take this opportunity to introduce a humble effort undertaken in this regard by
a meritorious scholar of our country, 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
Security,
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 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. It creates a debt-based economy in which a country plans its
annual expenditures well beyond its income and covers the deficit mostly through
loans acquired on interest. Each year this deficit increases and a country is
forced to beg for more and more money. The net result is that this institution
becomes 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 perhaps be better appreciated
if some moments are spared to view the havoc caused by Banks in the economy a
country.
0
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 few hands.
The result is economic disparity and perpetual widening of the gap between the
rich and the poor. Through the courtesy of Interest and Collateral Security, the
two pillars of Banking, an extremely large amount of money is rendered at the
disposal of few individuals, who, consequently, decisively influence the economy
of a country. They become the beneficiaries of a major portion of the country’s
wealth, and with this ‘deadly weapon’ virtually 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 depositors. The fact that a lucrative project might be harmful
for the country’s well-being finds little consideration in their
‘feasibilities’. 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 on 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 economy all measures which can cure this price hike are those
that cause unemployment and vice versa.
Thirdly, since most of the wealth of the general masses
nourishes few people, 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 businessmen 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 reserves to meet sudden increases in the withdrawl 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 virtual restriction on
the availability of credit to 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 towards ‘rich’
domestic borrowers only 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 in certain industrial
centres only, 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 these industrialists are the main buyers also, they
determine the demand pattern in a country, which has no relationship between the
actual requirements of a country. The country may be needing investments in the
agricultural sector whilst, quite inevitably, these people may be insisting on
high-tech goods. Moreover, their money brings the whole leadership of their
country at their doors. It is they who reign supreme in the institutions of
science and technology, art and literature and 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 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 salute and serve its cause. Greed and selfishness, fraud and
deception reign supreme. Evil rules 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’anic
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!
O
Despite the above mentioned evils of Banking which are
apparent to every observant eye, there has remained a group of intellectuals in
our society that insists that Islam has not prohibited ‘Commercial Interest’ ie,
the interest given by Banks for commercial purposes; it has only forbidden
interest acquired for personal use because this often becomes a means of severe
exploitation of the borrowers. The argument they give in support of their view
is that in Arabia, at the dawn of Islam, commercial interest was non-existent;
cruel money-lenders used to lend money at exorbitant rates to the needy who, as
a result, had to suffer at their hands.
Though this view has been challenged by many scholars on
various grounds, we are afraid that the strongest verdict in this regard---the
verdict of the Qur’an has been ignored. If one studies the Qur’anic verses
related to interest, it becomes obvious that the historical picture of economic
activity un that period is entirely different from the one imagined by most of
our ‘intellectuals’ as well as ‘scholars’ who believe that commercial interest
did not exist in those times. The fact is that Arabs seldom borrowed for their
personal needs; it was mainly for their business and commercial requirements
that they borrowed money.
The Qur’an says:
That which ye give in riba in order that it may increase
on other people’s wealth has no increase with Allah; but that which you give as
zakah, seeking Allah’s countenance, it is these people who will get manifold [in
the Hereafter] of what they gave. (30:39)
It is clear that the words ‘that it may increase on other
people’s wealth’ are inappropriate for interest taken for personal purposes, and
imply that in those times loans were usually acquired for commercial and
business use. Interest taken for personal purposes, it is more than obvious,
does not ‘increase on other people’s wealth’.
Historically also, it is known that the Arabs were a
tribal nation. In the Arabian tribal system in particualr, a person’s tribe was
like his family. His needs and requirements were considered as the needs and
requirements of the tribe. If a person was in any sort of distress, the members
of his tribe considered it their duty to help him and he himself felt proud in
asking for their assistance. It was a matter of shame for the tribe if any of
its member had to go to a ‘professional’ money-lender for his personal needs.
Furthermore, it should be borne in mind that whether a
loan is acquired for personal use or for business and welfare purposes, the real
meaning of riba cannot not be ascertained on these bases. It is an indisputable
fact that in the Arabic language the word riba, irrespective of the aim of the
lender and the condition of the borrower, just implies the fixed increase
acquired on a loan.
The Qur’an itself has clarified this in the following verse:
"If the debtor is in difficulty grant him respite until it
is easy for him to repay and if you write off [the debt], it is better for you,
if you only knew." (2:280)
Imaam Amin Ahsan Islahi comments on this verse in the
following words:
"Today some naive people claim that the type of interest
which prevailed in Arabia before the advent of Islam was usury. The poor and the
destitute had to borrow money from a few rich money-lenders to fulfil their
personal needs. These money-lenders exploited the poor and used to lend them
money at high interest rates. It is only this type of interest which the Qur’an
has termed as ribaa and forbidden. As far as commercial interest is concerned,
it neither existed at that time nor did the Qur’an prohibit it.
The verse categorically refutes this ‘allegation’. When
the Qur’an says that if a debtor who is in difficulty should be given respite
until he is able to pay back his debt, it clearly points out that in those times
even the rich used to acquire loans. In fact, if the style of the verse is
appreciated and its stress correctly appreciated, it becomes clear that it was
mostly the rich who used to procure loans. Indeed, there was a strong chance
that the debtor would find himself in difficulty even to pay the original
amount. The money-lender, therefore, is directed to give him more time and if he
forgoes the original amount it would be better for him. The words of this verse
strongly indicate this meaning. The actual Arabic words of the verse are: wa in
kaana zoo ‘usratin fa naziratun ilaa maisarah. The particle of condition in (if)
is not used for general, but, in fact, is used for rare and unusual
circumstances. For general circumstances, the particle izaa is used. In the
light of this, it is clear that the debtors in those times generally belonged to
the affluent class (zoo maisarah); in some cases, however, they were poor or had
become poor after acquiring the loan and in such case, the Qur’an has directed
the money-lenders to give them a time rebate." ("Tadabbur-i-Qur’an", Vol 1, Pgs
638-639)
He has concluded this discussion by saying:
Obviously, the affluent would have turned to the
money-lenders to fulfil not their personal, but business needs. So what is the
difference between these loans and the commercial loans of today? ("Tadabbur-i-Qur’an",
Vol I, Pg 639)
It is a matter of great appreciation that our men of
learning and erudition have been greatly touched by the exploitation of a few
people at the hands of cruel money-lenders, but it seems rather strange that the
large-scale exploitation of a whole country at the hands of this institution has
failed to stir any emotions of sympathy in their hearts!
O
To appreciate the economic framework proposed by Mr
Ghamidi, it is essential to have a clear understanding of the true concept of
zakah. Unfortunately, this concept has, over the years, altogether vanished from
our religion-political scenario. Without its correct delineation the economic
framework envisaged by Islam is totally incomplete.
According to the Qur’an, zakah is the only tax an Islamic
government can impose upon its Muslim citizens. It is not merely a charity fund
but can be spent on the collective needs of the people as well: The zakah money
can be used to pay the salaries of all government officials including that of
the head of state, to build all works of public interest, to cater for defence
requirements and to establish an Islamic system of Insurance. In short, the
system of zakah envisaged by the Qur’an and Sunnah totally meets the
requirements of running a welfare state.
History bears witness that the right of a state to impose
taxes on its public has created an unending rift between the rulers and the
ruled. An institution which apparently began as a voluntary contribution by the
people to relieve a few individuals of their financial responsibilities and
entrust them with the development and progress of their collectivity gradually
became the most effective means of their own exploitation and persecution.
Islam, therefore, has actually taken away the right to impose taxes and divinely
ordained the statutes of this institution because they are, in fact, beyond the
reach of human intellect.
The Islamic concept of zakah shall be discussed under the
following three topics:
(1) The Nature of Zakah
(2) The Rates of Zakah
(3) The Heads of Zakah
We now take up these in order:
(1) The Nature of Zakah
According to the Qur’an, zakah has a dual nature: (a)
intrinsic and (b) extrinsic.
(a) The Intrinsic Nature: Viewed thus, zakah is an act of
worship. This is evident from a number of Qur’anic verses in which it is
mentioned adjacent to salat (prayers), the most important form of worship. The
word ‘zakah’ means both ‘to purify’ and ‘to grow’: paying zakah purifys one’s
wealth and soul, and it actually increases ones wealth in his afterlife. The
Qur’an stresses both these aspects of zakah:
"[O Prophet!] Take zakah out of their wealth---thou would
cleanse them and purify them thereby." (9:103)
and
"That which ye give in riba in order that it may increase
on [other] people’s wealth has no increase with Allah; but that which you give
as zakah, seeking Allah’s countenance, it is these people who will get manifold
[in the Hereafter] of what they gave." (30:39)
(b) The Extrinsic Nature: Viewed thus, it is the only tax
an Islamic State can impose on its Muslim subjects.
While declaring the conditions for citizenship of an Islamic State, the Qur’an
says:
"And if they repent [from all un-Islamic beliefs],
establish salat and pay zakah, leave them alone." (9:5)
The above mentioned verse clearly points out that salat
and zakah are the only two things which an Islamic government can positively
demand from its Muslim citizens. As far as zakah is concerned, after a Muslim
has paid it to the government, not a single penny can be further exacted from
him.
This is furher illustrated by the following two Ahadith:
"There is no [legal] share [for the society] in the wealth
[of people] except zakah." (Ibni Maajah: Kitab-uz-Zakah)
and
"After you have paid the zakah of your wealth you have
paid [all] that was [legally] required of you." (Ibni Maajah: Kitab-uz-Zakah)
In this regard, the severe warning sounded by the Prophet
(sws) to those who impose taxes other than those ordained by the Almighty must
also be kept in mind:
"No tax-imposer shall enter paradise." (Abu-Daud:
Kitab-ul-Kharaaj)
(2) Rates of Zakah
Before we mention the rates of zakah, a mention seems
necessary of the items which are exempt from zakah. Nothing except the following
three are exempt:
(i) Means of production: eg. tools, machinery etc.
(ii) Personal items of daily use: eg. personal belongings
as house, car etc.
(iii) A statutory exemption called nisaab.
However, an Islamic government can give relaxation on any
item in the interest of the public or because of any constraint in the
collection of zakah on a particular item.
As far as the various rates of zakah are concerned, three
distinct categories can be classified:
1. Wealth: After deducting the nisaab and taking into
consideration other exemptions mentioned above, the wealth of a person shall be
taxed annually at the rate of 2%. Tax on trade capital shall also be levied at
the same rate by considering this capital to be the sum of cash in hand and cash
in trade.
2. Produce: Zakah on produce is deducted at the time of
produce and depending upon the various items has three rates: 5%; 10%; 20%
i) 5%: On items which are produced by the interaction of
both labour and capital: eg. produce from irrigated lands and industrial produce
from factorie.
ii) 10%: On items which are produced such that the major
factor in producing them is either labour or capital, but not both. Examples of
the former include an artist’s creation as paintings and the works of scholars
and intellectuals, while examples of the latter include rented houses, and
produce from rainy lands.
iii) 20%: On items which are produced neither as a result
of labour nor capital but are actually a gift of God, eg treasures that are
discovered etc.
3. Animals: Only those animals which are bred and reared
for the purpose of trade and business are subject to zakah. The details of the
rates of zakah on animals can be consulted from any book of fiqh.
(3) Heads of Zakah
The following Qur’anic verse spells out the heads under
which the zakah fund can be expended:
"Zakah is only for the poor and the needy, and for those
who are ‘aamils over it, and for those whose hearts are to be reconciled [to the
truth], and for the emancipation of the slaves and for those who have been
inflicted with losses and for the way of Allah and for the wayfarers." (9:60)
We take up these heads in order:
1) The Poor and Needy (Fuqaraa and Masaaqeen): The poor
and the needy are the foremost recipients of zakah because they are the primary
responsibility of the state. It must cater for their basic needs as food,
clothing, shelter, health and education. In this regard, the Prophet (sws) is
said to have said:
"It [ie zakah] should be taken from their rich and
returned to their poor." (Bukhari, Kitab-uz-Zakah)
2) The ‘Aamils over Zakah (‘aamileen-a-’alaihaa): Under
this head, the salaries of all employees of the government including the head of
the state can be paid.
3) Those whose hearts are to be reconciled (Muallafatul
Quloob): Under this head come all forms of political expenditure in the interest
of Islam. There may be many instances, when the affiliation of certain
influential people must be obtained, particularly in border areas where their
role can be decisive in the safety of a country. During the time of the Prophet
(sws) many tribes were given money under this head to deter them from harming
the newly founded Islamic State.
4) Slaves (Riqaab): The institution of slavery was
eliminated by Islam fourteen centuries ago. From this particular head money was
given to free slaves. Today, by analogy, this head can be extended to include
other recipients. For example, prisoners of war and other prisoners who are
unable to pay the fine imposed by the courts can be freed by giving money
through this head.
5) Those inflicted with losses (Ghaarimeen): Under this
head, an Islamic system of Insurance can be established and all those who are
inflicted with economic losses can be compensated. Whether rich or poor the real
criterion is that their means of living and its role in the national economy
have been destroyed. People who have acquired a loan and are unable to pay it
back may also be helped from this head so that they may start afresh and the
society can benefit from their abilities.
6) In the Way of Allah (Fee Sabeelillaah): Under this head
defence expenditures of a state can be met and institutions for religious
propagation as well as all works of public interest as mosques, hospitals,
educational institutions and libraries can be built.
7) The Wayfarer (Ibnussabeel): This implies the welfare of
the wayfarer. Highways, roads, bridges and lodgings can be built under this
head.
This is the concept of zakah envisaged by the Qur’an and
Sunnah. From the above details it is clear that zakah is the only tax which an
Islamic government can impose on its Muslim subjects
and that it is not merely a fund for the destitute. Moreover, since there is no
basis for necessarily giving it in the possession of an individual (tamleek),
it can be spent on the collective needs of the people as well.
O
With this concept of zakah in the background, Mr Ghamidi,
has proposed the following 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 by
the government only in the public sector on industrial, commercial, agricultural
and welfare projects with the pre-condition that without being given any profit
on the original amount, the depositors 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) selling a certain quantity of
shares to the private sector, (ii) imposing kharaaj (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, as 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 penal 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 framework:
(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 have the same standard of living so that the non-developmental
expenditures of a country are cut down to a minimum.
(3) To run the machinery of the state, the government
should rely only on the income obtained from its lands, industries, mineral
reserves, trade and zakah.
O
This framework is by no means the ultimate solution in
this regard: it is merely the first rung of the ladder which has the potential
to scale the hitherto unsurmountable fort of one of the greatest challenges of
current times---Capitalism.
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, however, that no claim is being
made. Only an earnest request to weigh every new idea in the scales of ‘Reason
and Revelation’.
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