. .

Riba prohibition ordinance from July 1?

The minister asserted international dealings would continue on the old basis.

Jan 22 - 28, 2001

Religious Affairs Minister Dr. Mahmud Ahmed Ghazi has declared that the government intends to enforce a Riba Prohibition Ordinance from July 1, 2001. This is the deadline laid down by the Supreme Court in its judgment of December 1999 on the issue.

Under the proposed ordinance, domestic, financial and economic transactions will be conducted strictly in accordance with Shariah. No person, group, association or institution will be able to conduct any riba-oriented transactions after July 1. Violations will attract the penal provisions in the draft ordinance.

The minister asserted international dealings would continue on the old basis. The Supreme Court, he argued in defence of this 'concessions' had not issued any directive concerning such dealings because these are not regulated by any domestic law. The court has restricted itself to striking down certain Pakistani laws which, in its opinion, come under the definition of riba, and are therefore forbidden by Islam. The proposed ordinance takes the difficulty surrounding international dealings into consideration. It has provided, according to Dr. Ghazi, some basic principles for the government to make efforts to reorganize international dealings to conform to Shariah.

Now that the minister has given a deadline for riba-free system, some basic questions will need to be addressed by the government. How much groundwork has been done for such conversion; are the necessary legislations on the anvil; what about the infrastructure for bringing about the proposed change in the economic and financial system of the country? Is that ready and the consensus evolved about the transformation of the economy? These are very important questions and their answers hinge on the future of business, banking and the economy at large.

As the subject has caught nation-wide attention, views are widely divergent. Businessmen have complained that they had not been taken into confidence. Bankers and economists are of the view that conditions are not yet ripe for such a radical change. The anticipated repercussions of the change on Pakistan's relations with the international donor agencies and foreign commercial banks too need to be looked into. Apprehensions are that international lenders and foreign banks may slowly withdraw their investment. In this context Dr. Ghazi said that as for the international transactions, one should bear in mind that the Supreme Court has not issued any directive on them. Hence, he added, international transactions are not directly hit by the judgment of the Supreme Court. But the proposed law take international dealings into consideration and has provided some basic principles under which the government will be bound to make efforts to reorganise international dealings in such a way that they conform with the principles of Shariah.

The task of eliminating the interest-based transactions is formidable. The commission of experts set up by the government at the State Bank of Pakistan for the transformation of the existing financial system to the one conforming to Shariah, the task force at the Ministry of Finance and the special committee at the Law Division have their work cut out of the bounds of clear Qur'anic injunctions on the subject. World over economies are being globalised and this factor cannot be ignored.

Pakistan's recession-hit economy is hardly in a position to take the strains of such a radical restructuring in such a tight time-frame as is suggested by the proposed ordinance. Nor are our dealings with international lenders going to be at our own sweet will. Given Pakistan's dependence on foreign funds flows to keep our external account afloat, any disturbance of the recently agreed Standby Facility with the IMF could impact negatively on the upcoming rescheduling negotiation with the Paris and London Clubs.

The efforts of fundamentalist religious parties and groups to hold the national, political and economic agenda hostage to some of their formulations, has been acquiesced in and even at times promoted by successive governments since Ziaul Haq. These formulations neither enjoy universal acceptance by Islamic scholars, nor have they been subjected to the rigorous examination implied in Ijtihad. Ijtihad in modern times was defined by Allama Iqbal as being possible only through the elected representatives of the people, i.e. through parliament. The present regime, which fostered illusions amongst the gullible and the opportunist since it showed some signs of rational promise when it began, has proved no exception to the rule of pampering such elements and allowing them to dictate policy. If this continues, the country will see further confusion and crises.

Keeping in view the ground realities one is bound to conclude that the government is not yet ready to introduce interest free banking unless it has in mind the some hypocrite style of Gen. Zia by converting interest bearing account into Profit & Loss sharing account with a specific mention of expected annual return." Official circle, however, believe that whatever has been said by Dr. Ghazi cannot be implemented within his time frame mainly because of the anticipated repercussions of the change over on Pakistan relations with the international donor agencies and foreign Commercial Bank operating in Pakistan.

The finance ministry officials voice concern over the statement of the religious minister, Dr. Mahmud Ahmed Ghazi, published by almost all the Urdu and English newspapers last week. "The World Bank and the IMF tell us nothing directly on this matter as they only assess and monitor our economic policies. But the statement given by the minister for religious affairs would not have gone well with them," a source said. The Islamization of the economy, they said, might not be officially opposed by the international lenders and foreign banks but they would certainly prefer to gradually withdraw their investments in Pakistan in case the new ordinance was promulgated by July 2001.