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A big challenge for economists as well as religious scholars

July 08 - 14, 2002

The religious scholars, economists and financial system experts faced a mammoth job when the Supreme Court of Pakistan gave its verdict for elimination of Riba from the prevailing economic system in the country. Even at time two were split in two groups, 1) those who believed that Riba could not be eliminated due to the linkage of Pakistan with international financial institutions and 2) those who were ready to undertake this difficult task for slow and gradual shift to completely Riba free system.

The local financial system was required to eliminate Riba by June 30, 2001. However, taking into consideration the quantum of work, the deadline was extended for one more year, to June 30, 2002. While the intellectual deliberations continued, the battle in courts of law became more focused. The result being that the court ordered for determination afresh in the light of contentions of the parties and the observations. The financial system may no longer face the pressure to re-engineer the system, at least for the time being. However, one may ask, Is the court order more important or the Islamic injunctions demanding elimination of Riba ?

Before going forward, it is necessary to make two points clear: 1) Islam prohibits Riba and 2) borrower should pay a cost to financial institutions. The Riba free system does not mean cost free funds for commercial borrowers. The most important point for all deliberations is, does the modern banking system fall under the connotation of Riba ? The deliberations must be made with clarity about the driving spirit, Islam prohibits all types of exploitation including exploitation of haves-not by those who have ample money.

The proposed deliberations must address some of the questions like: 1) what is the real definition of Riba ? 2) Does the prevailing system guard the borrowers from exploitation by the lenders? 3) Are the borrowers paying market-based rates? 4) Are the fixed lending/borrowing rates only notional? There are host of other issues which have to be dealt with. However, both the sides, religious scholars and economists, must not enter into due diligence with rigid stands. This is an academic discussion of the highest importance as it deals with the basic teaching of Islam, Rizzaq-e-Halal.

The process of Islamization of financial system in Pakistan was initiated nearly two decades ago. While some people may say that financial experts have failed completely in transforming the system, a fact must also be recognized that among the Muslim countries Pakistan has emerged a front liner. A lot of work has been done but a lot more has to be done.

Maulana Taqi Usmani has been the driving force. He recently organized a conference in Karachi and invited scholars and financial sector experts to participate in due diligence. He is trying to revive the institution of Ijhtehad and all others must join him. The more people are able to interact with each other and discuss the details with open mind, the sooner Pakistan will be able to eliminitate the forbidden element Riba from the financial system.

Some critics say that religious scholars have stepped down by consenting prevailing of the two systems side by side. It is a matter of perception as some people say glass is half empty and others say it is half filled. The intellectuals influenced by the west have been saying that elimination of Riba is just not possible. Pakistan made the first breakthrough by allowing Modarabas to operate in the country. It is on record that a foreign bank was among the first few to float a Modaraba in Pakistan. It is also on record that International Finance Corporation (IFC) entered into Musharika agreement with some Modarabas to extend credit. Faysal Bank is the pioneer of Riba free banking system in Pakistan. The most recent entrant is Meezan Bank in which a French commercial bank is an equity participant. A lot of work has been done by both NCBs and private commercial banks to launch Riba free financial products.

As the saying goes, the real taste of pudding is in eating, unless new products and systems are launched one cannot say anything about the teething problems. Some one has to take the initiative and rest will follow. Who could be the first? Only that who can dare. The country has lived with Riba system totally opposed to Islam for decades. One should not shy away fearing his product or system may not be fully compliant with Islamic injunctions. One should not be afraid of committing mistake but must learn from past mistakes and should not commit the same mistake again. This is called, the learning process.