The answer to this question lies in the statement
of the question itself: ‘The Pakistani “banks” and some “financial institutions”
“finance” their clients on the basis of….’ And ‘the “bank” “purports” to
As is obvious from the words in quotation marks, and as is
the case in reality, there is no sale. There is only credit. For there is no
trader. There is a bank, which ‘finances’ (extends credit to) its clients, not
sells anything as such. It only ‘purports’ to sell. And the bank and the client
both know this. The client does not go to the bank to buy goods. He goes there
to obtain credit. The real purport of the whole deal is clear to all involved,
which is extension credit.
Those who sincerely believe that devices as Mark-up solve
the problem need to analyse the mechanism seriously, and those who use them as
subterfuges should know that fancy names as Mark-up and Arabic terms as
Murābahah (‘Sale on profit’), which were termed as Islamic Fudge even by the
Economist, can deceive no one for
long, least of all God.
As Muslims, we should guard ourselves fully against the
trap that the Jews laid down for themselves when they broke the sabbath by
violating its spirit with their subterfuges.
A bank is not into the business of buying and selling
goods as such. It is by no means a typical trader, who buys goods, bears the
costs and risks of marketing those goods, and typically cannot bind the
customers to buy those goods. The bank on the other hand is bound to have this
‘buy-back’ agreement, not to mention other safeguards as collateral security
simply because, not being a trader, it cannot afford the costs and risks that
make a trader’s business true entrepreneurship. What the trader does is
doubtlessly entrepreneurship. What the bank does is without doubt lending. The
difference is manifest.
Since the object of analysis in this question is an
arrangement of credit, that is the arrangement of a loan for a specific period
of time, the gain on that loan at a predetermined rate (which is still expressed
in many cases as ‘so many paisas per thousand per day’ – the way interest rate
on working capital loans used to be expressed) is by definition Ribā.
It is important to remember that the Islamic jurists and
scholars who laid down various rules for Murābahah did not have in mind the
Murābahah which is now used as a term for a mechanism of credit extention.
They had ‘sale’ in mind. The purpose
of these rules (laid down not by Sharī‘ah but by scholars) was to ensure that no
element of exploitation (Darar ‘aw Gharar: damage or deception) or Ribā should
creep into a transaction of sale. This cautiousness is important as extension of
Ribā based credit in the guise of ‘credit sale’ has always been easy and
popular. Whenever ‘credit sales’ is used as a device to extend a loan, the
difference in the prices of ‘spot sale’ and ‘credit sale’ becomes
indistinguishable from Ribā. In fact, the word Ribā has been defined as Al-‘īnah
as well as Al-Fadl in ‘Aqrabu’l mawārid’, one of the most authentic and
well-known dictionaries of Arabic. Bay‘u’l-‘īnah (transaction of ‘īnah) has been
explained in this dictionary as follows:
A man asks another for a loan, but the lender is not
interested in extending the loan as he cannot charge any extra amount on that
loan. So he says: ‘I shall sell you this cloth for, say, twelve dirhams [on
credit]’ while its actual price is ten dirhams. Thus, he gains two dirhrams for
that period of time.
It can be clearly seen that, in effect, there is hardly
any difference between this form of Ribā and the one a bank gets in the name of
It is therefore ironic that the precautionary measures
suggested by Islamic jurists and scholars to ensure that a sale contract remain
free of exploitative elements as damage, fraud and Ribā are, intentionally or
unintentionally, laid down by many scholars of late as conditions for justifying
the extension of Ribā based credit.
An Islamic state reserves the right to prohibit – and
indeed gradually and ultimately it should prohibit – all such arrangements as
can be used as subterfuges in the above mentioned ways so that it is ensured
that Ribā does not enter the economy through the back door, just as the Prophet
(sws), for the same purpose, gave certain directives regarding barter on credit
(see Appendix 2).