On-going war from Allah and His Rasool saws-
The most grievous calamity for Muslim Ummah
Allah permits profit in business and prohibits interest and orders “O ye who believe fear Allah and forgo whatever is left of interest if you are believers, and if you do it not then be warned of war from Allah and His Rasool.” (Surah Al Baqarah). Muhammed saws said that devouring interest is unpardonable sin and that interest and Zina enrage Allah. Allama Iqbal held bank interest to be a tool of exploitation, source of financial miseries and cause of moral degradation and brutal crimes and said:- “Intellect, culture and religion cannot bear any fruit until interest-based system is demolished”. Syed Qutub Shaheed held “interest and Islam cannot co-exist” and “obedience of Allah and Rasool saws is unimaginable where interest-based system prevails”.
Due to prevalence of interest-based system in all Muslim countries, Muslim Ummah as a whole is at war with Allah and earning His wrath. Resultantly, in spite of having very big population and owning vast areas of land with immense natural resources we are weak, despondent and victims of oppression and injustices. For Muslim Ummah to come out of this miserable condition and regain respectability, Muslim countries must get rid of interest as first essential starting step towards recovery. A gist of the acts of commission and omission in promoting and letting interest-based system to persist in Pakistan is as follows.
14th August 1947: In the holy month of Ramadhan on the 27th blessed night Allah created Pakistan fulfilling Indian Muslims’ desire to own a homeland and live under writ of Islam.
1st July 1948: State Bank of Pakistan opened. In his inaugural speech, Quaid-e-Azam urged to evolve banking practices compatible with Islamic ideals. But against the wishes of the people and directive of the founder of Pakistan, our rulers and economy managers have promoted interest-based banking in flagrant defiance of Islamic injunctions.
12th March 1949: Constituent Assembly of Pakistan passed Objective Resolution affirming that in the state of Pakistan Muslims shall be enabled to order their lives in the individual and collective spheres in accordance with the teachings and requirements of Islam as set out in the Holy Quraan and the Sunnah. Even after more than seven hundred months since the Objective Resolution was adopted, un-Islamic laws inherited from foreign rulers remain in force and the writ of Islam runs nowhere in the country in any walk of life!
14th August 1973: Constitution of Islamic Republic of Pakistan came into force. The Constitution required all existing laws to be brought in conformity with the injunctions of Islam as laid down in the Holy Quraan and Sunnah and no law repugnant to such injunctions to be enacted. Until now no fiscal law involving interest has been brought in conformity with Islamic injunctions.
22nd to 24th February 1974: Islamic Summit Conference held in Lahore resolved to promote social and economic co-operation among Muslim countries.
20th October 1975: Islamic Development Bank (IDB) formally opened in Jeddah with the purpose “to foster the economic development and social progress of member countries and Muslim communities individually as well as jointly in accordance with the principles of shariah”.
21st to 26th February 1976 (21st to 26th Safar 1396H): The first International Conference on Islamic Economics held at Makkah Mukarramah attended by two hundred economists and Ulama from all parts of the world. The selected paper on ‘Some Conceptual and Practical Aspects of Interest-Free Banking’ read in the conference held “interest in all its forms is prohibited by the Holy Quraan” and that “the Muslim society in an Islamic state is genuinely interested in eliminating Riba and sincerely desires to introduce a system of interest-free banking, not as supplement to, but as a substitute for the prevalent system of banking”. In the conference communiqué “It was recommended that all Muslim countries should make their laws as well as Social and Economic Institutions conform to the principles of the shariah”. Muslim rulers have so far ignored the conference recommendations and interest still remains lawful and interest-based banking dominates in all Muslim countries. Islamic economists who participated in the conference, excepting one, have so far not cared to produce interest-free banking model for replacing the existing system. Contrary to the conference deliberations, Islamic banks have emerged as supplement to interest-based banks and that is why about 300 Islamic banks prospering in 70 countries have not produced any dent in conventional banking.
5th July 1977: General Zia imposed Martial Law and suspended 1973 Constitution in which it was mandated to transform all laws to conform to Quraan and Sunnah within a period of ten years i.e. by 14th August 1983.
29th September 1977: Council of Islamic Ideology (CII) was given the task to prepare blueprint of interest-free economic system.
November 1977: CII appointed a 15-member Panel of Experts in Economics and Banking to assist in remodeling Economic and Financial systems conforming to the Holy Quraan and Sunnah. Two senior officials of State Bank of Pakistan Research Department were also associated with the work of the Panel.
10th February 1979: Time limit of 3 years set for eliminating interest from the economy.
28th January 1980: The Panel finalized its report and submitted it to CII in February 1980 with the note: “No serious attempt has been made so far in any Muslim country to get rid of interest. Muslim thought also has remained nearly dormant in the field of money and banking for centuries so that there is very little in the available literature on which the Panel could draw in its work related to an interest-free economic and financial system”. This note demonstrates (i) Muslim rulers’ lack of will to eliminate interest (ii) Lack of will and ability of contemporary Islamic economists and bankers to produce interest-free banking model for replacing conventional banking system. Professor Sheikh Mahmud Ahmad, a member of the Panel who had participated in the 1976 International Conference, devised and presented before the Panel members an interest-free banking model based on a novel interest-free lending device TMCL (Time Multiple Counter Loan). All Panel members were convinced that TMCL was potentially useful in eliminating interest and in their report TMCL was endorsed in the following words “It has been suggested here in view of its potential usefulness for consideration of the Council subject to its permissibility under the Shariah”.
15th June 1980: CII finalized its report and submitted it to the Government on 25th June 1980. Following contents of the report show that instead of producing a blueprint of interest-free economic system CII made only general recommendations many of which were for maintaining and not eliminating interest:-
< i. “Ideally the real alternatives to interest under our Islamic economic system are profit/loss sharing or qard-i-hasan i.e. loaning without additional charge over and above the principal amount. Although the recommendations are based largely on the principle of profit/loss sharing, yet some of the recommendations lean on other methods in view of the difficulties faced in the practical application of the profit/loss sharing system in its pure form on account of the prevalent standards of morality in the society. These alternative methods are, however, no more than a second best solution from the viewpoint of an ideal Islamic economic system”. It is not understood why CII avoided the best solution and did not make recommendations based on TMCL principle of interest-free loan endorsed by the panel of experts in economics and banking.
iii. “The operations of foreign branches of Pakistani banks, foreign currency deposits held with commercial banks in Pakistan and certain other transactions of banks with banks abroad would have to continue on the basis of interest”.
iiii. “Government borrowing from external sources will have to be continued, for the time being on the basis of interest”.
iiv. “Interest-bearing foreign loans channeled by the Government to these bodies would, however, need to be continued on the existing basis”.
< v. “PICIC’s foreign currency borrowings may continue to be on interest-basis until a viable alternative conforming to shariah is available”.
vvi. “Borrowings from International agencies may continue to be interest-bearing until alternative arrangements compatible with shariah become available”.
vvii. “State Bank’s transactions with International Financial institutions and foreign aid agencies would have to be continued on the basis of interest until a viable solution is evolved in consultation with the parties concerned”.
vviii. “The interest-bearing foreign loans channeled by the Federal Government to the Provincial Governments may, however, continue on the basis of interest till a viable alternative compatible with shariah is found in respect of borrowings from abroad”.
iix. “Elimination of interest from transactions relating to international trade and aid, which poses the most difficult problems, should be covered in the third phase”.
Despite holding interest-free loan to be ideally real alternative to interest and finding no defect in TMCL, Council of Islamic Ideology approved very limited use of TMCL principle by banks for giving loans to their account holders only for personal and non-productive purposes. Ignoring the unanimous view on TMCL of the 17-member panel of experts in Economics and Banking and without stating what was wrong in eliminating interest by way of adopting TMCL as permanent alternative of interest, CII arbitrarily held “It would not be correct to use this (TMCL) method by way of a permanent alternative system to the interest-based system”. Had CII not given this short single sentence un-argued and unsubstantiated wrong verdict, Pakistan and subsequently other Muslim countries would have got rid of interest long ago.
26th June 1980: Federal Shariat Court (FSC) constituted but financial matters including Riba were excluded from its jurisdiction until 25th June 1983.
19th May 1983: Restriction on jurisdiction of FSC extended up to 25th June 1984.
26th April 1984: Restriction on jurisdiction of FSC extended up to 25th June 1985.
2nd March 1985: Restriction on jurisdiction of FSC extended up to 25th June 1990.
10th February 1986: Professor Khurshid Ahmad in his speech in the Senate said “Today we have with us a clear outline plan showing how a new system can be structured. If it is in our power we will finish interest in 24 hours. Has not the time come for us to at least have cease-fire in the war with Allah?” During about 5 years’ MMA Rule in NWFP with Professor Khurshid Ahmad as Financial advisor there was no cease-fire in the war with Allah!
17th August 1988: General Zia was killed in air crash. After his demise there came no further extension in the date of restoration of FSC jurisdiction regarding financial matters.
26th June 1990: Jurisdiction of FSC restored to examine fiscal laws.
7h February to 24th October 1991: FSC heard petitions challenging provisions of laws relating to interest.
14th November 1991: FSC delivered judgment deciding provisions of the laws relating to interest to be repugnant to the injunctions of Islam to take effect on 1st July 1992.
12th January 1992: The Agricultural Development Bank of Pakistan filed appeal in the Supreme Court Shariat Appellant Bench against the judgment of FSC.
1st July 1997: Government submitted an application to FSC seeking a workable solution to prevent the country from becoming international defaulter and allow functioning of the banking system complying with Islamic injunctions.
28th May 1998: Pakistan detonated nuclear device and became Atomic Power. In subsequent financial crisis, against Pakistan’s urgent need of funds, Islamic Development Bank together with several other Islamic banks offered a loan at interest rate 5% above LIBOR! This shows Islamicity of so called Islamic banks.
13th February 1999: Government submitted an application to FSC to lay down and declare the principles of Islam on the basis of which the existing banking system can be remodeled so as to bring it in conformity with the requirements of Islam.
22nd February 1999: Supreme Court Shariat Appellate Bench comprising Justice Khalil-ur-Rehman (Chairman), Justice Munir A. Sheikh, Justice Vajeehuddin Ahmad, and two Shariah scholars justice Muhammad Taqi Usmani and Justice Dr. Mahmud Ahmad Ghazi, started hearing appeals against FSC’s judgment of 14th November 1991. Government applied to withdraw its appeal on the plea that the Government wanted to implement the judgment and FSC had been requested to give guidance as to how the system can be remodeled so as to bring it in conformity with Islamic injunctions. Government’s request to withdraw its appeal was rejected and Chairman urged the need to identify Riba and its alternative and said that it was the problem for the entire Muslim Ummah and not only for Pakistan.
22nd February to 6th July 1999: During hearing of the appeals by Supreme Court (SAB) many Islamic scholars, economists and bankers and the writer contented that interest in all its forms is Riba prohibited in Quraan and substantiated this view with ample supporting material from Quraan and Sunnah. The writer presented in the court TMCL-based interest-free baking plan for replacing conventional banking immediately without any disruption. The writer presented his book ‘Interest-Free Banking’ in the court officially and also individually to each judge. The book describes working of TMCL-based interest-free banking system and shows how its implementation will reduce prices and unemployment. The book also shows with supporting calculations how domestic and foreign debts can be cleared after adoption of this system. It was well received and no judge raised any objection on TMCL plan. Nobody else presented any interest-free banking plan for replacing conventional banking.
Dr. Sayyid Tahir, Director General of International Institute of Islamic Economics (IIIE), International Islamic University Islamabad placed on the court record publication titled IIIE’s Blueprint of Islamic Financial system including strategy for elimination of Riba. Like CII Report this so called blueprint also does not include interest-free banking model for replacing the existing system. In this publication frivolous objections on TMCL-based interest-free banking model were raised in the following words: “Time Multiple Counter Loan (TMCL). This transaction requires a bank to give an interest-free loan in return for a similar counter-loan to the bank so that the product of the sum lent and the associated time period is the same at both ends of the exchange – as, for example, Rs. 100,000 for one year in return for a counter-loan of Rs. 10,000 for 10 years or Rs. 12,500 for 8 years. One may argue that the TMCL instrument offers an ingenious solution to the problems of riba, gharar and having two mutually exclusive conditions in one contract. But its viability is questionable for several reasons. Some of these are as follows. Counter-loans would be “liability” of the banks. Therefore, while the sum generated might be used to meet their operating expenses, it would not be distributable as profits among their shareholders or depositors who provide funds on partnership basis. This will compel the banks to turn to trading, leasing and other profitable options. It is also possible that clients may use loans from banks, whether directly or indirectly, to give the counter-loans. This, in turn, casts further doubts on the usefulness of the TMCL option. Last but not the least, a resource to TMCL is also not advisable because ensuing credit expansion is likely to fuel inflation”.
Obviously the above cursory remarks on TMCL have been made without properly understanding the working of the model and without taking into account the following important points. The sum generated by counter-loans will be invested in long-term profitable businesses. The profits earned by the banks will be shared with the depositors in investment accounts. There is no harm in the banks turning to shariah-compliant trading modes. Every loan will be advanced against collateral and will have to be returned on due date. There is no reason why any sensible person will use the loan from bank to give counter-loans for further loans instead of utilizing it in meeting his business requirements. Credit expansion will be controlled by raising or lowering the time multiple ratio in TMCL just as it is controlled in the present system by raising or lowering interest rate. The Blueprint also includes a baseless misleading contention that banks should not be expected to enter into pure lending operations. Loan is indispensable need of mankind and interest prevails only because it meets the needs of all sectors of society for loans. It is not understood why mainstream Islamic economists do not realize that interest cannot be eliminated unless and until interest-free loan facility is made available to loan seekers. It is also not understood why Islamic bankers and their sharia advisors persistently ignore hadeeth qudsi declaring reward for qard to be 18 times implying that Islam wants widespread use of loans in society.
Professor Khurshid Ahmad, without giving any plan or calculations said: “It would take a year to completely transform the domestic debt into the new system, while two to three years in respect of international agreements”.
23rd December 1999: Supreme Court (SAB) passed unanimous judgment holding interest to be Riba prohibited in Quraan and ordered the Government to constitute a fully empowered commission to carry out, control and supervise transformation of the existing financial system to the one conforming to shariah by 30th June 2001. The order related to elimination of interest from Domestic transactions only. As regards foreign transactions the order states: “serious efforts shall be started by the Federal Government to relieve the nation from the burden of foreign debts as soon as possible and to renegotiate the existing loans. Serious efforts shall also be made to structure the future borrowings, if necessary, on the basis of Islamic modes of financing”.
Supreme Court order has two serious flaws. Firstly it covers elimination of Riba from domestic transactions only whereas Quraanic prohibition applies to all transactions, domestic and foreign both. Secondly, it permits interest to persist in domestic transactions for more than eighteen months whereas shariah does not authorize anybody to permit violation of Divine command for even shortest span of time. TMCL-based interest-free banking plan is described in the Supreme Court judgment without any adverse comment. It is not understood why Supreme Court did not order immediate elimination of interest from both domestic and foreign transactions by way of implementing TMCL-based interest-free banking plan.
There are some worth noting and commenting upon misconceptions and errors in the concurring judgment written by Mr. Justice M. Taqi Usmani. Relevant extracts from the judgment and comments thereupon are as follows:
“159. In order to limit the use of loans, the shariah has permitted to borrow money only in cases of dire need and has discouraged the practice of incurring debts for living beyond one’s means or to grow one’s wealth”. This contention is not supported by any material from Quraan or Sunnah and the fact is exactly opposite to what is stated. A hadeeth qudsi declares reward for qard is eighteen times, implying that Islam wants widespread use of loans in society. Shariah does not discourage the practice of incurring debts to grow one’s wealth. Several Sahabah Karam ra and Imam Abu Haneefa ra borrowed money for doing business.
“159. The well-known event that the Holy Prophet (peace be upon him) refused to offer the funeral prayer of a person who died indebted was, in fact to establish the principle that incurring debt should not be taken as a natural or ordinary phenomenon of life”. What is quoted about this event is only half truth; the half truth omitted is that the Holy Prophet saws led the funeral prayer after the debt was cleared. It proves that the refusal was to establish incumbency to clear debts and not to discourage incurring debt. As loan is an indispensable need of mankind and Islam caters for all genuine needs of mankind, it is natural that Islam commends lending (of course interest-free) and condemns default in repayment of loan. It is not understood why only a part of an event was quoted and a wrong misleading conclusion drawn therefrom.
“199. The experience accumulated by Islamic banks in general, and the Islamic Development Bank in particular, as well as attempts made in a number of Muslim countries to apply an Islamic Financial system, indicate that the application of such an Islamic system by any Muslim country, at the national level is feasible”. This statement does not present true picture of current Islamic banking. True Islamic financial system is not reflected in the operations of present Islamic banks which ignore hadeeth qudsi and do not advance interest-free loans. Present Islamic banks themselves are not rid of interest and most of their earnings come from interest-like fixed returns. In his own book ‘Introduction to Islamic Finance’ M. Taqi Usmani writes “The case of Islamic banking cannot be advanced unless a strong system of inter-bank transactions based on Islamic principles is developed. The lack of such a system forces the Islamic banks to turn to the conventional banks for their short-term needs of liquidity which the conventional banks do not provide without either an open or camouflaged interest”. It is highly regrettable that Justice M.Taqi Usmani commended application of so called Islamic banking soiled with element of interest and ignored TMCL plan whereby Pakistan could have got rid of interest immediately.
“204. The basic and foremost characteristic of Islamic financing is that, instead of a fixed rate of interest, it is based on profit and loss sharing”. The contention that Islamic financing is based on PLS is not supported by any quotation from Quraan and Sunnah. As present financing is based on interest which is a lending device, Islamic financing must naturally be based on interest-free lending device like TMCL. Interest-bearing loans and PLS were in vogue in pre-Islamic days. Islam prohibited interest, permitted PLS to continue and commended Interest-free loan. Hence Interest-free loan can logically be said to be the basis of Islamic finance and not PLS which is only permitted and not commended.
“229. The upshot of this discussion is that the Doctrine of necessity cannot be applied to protect the present interest-based system for ever or for an indefinite period. However, this doctrine can be availed of for allowing a reasonable time to the Government necessarily required to the switch-over to an interest-free Islamic financial system”. This contention is untenable on two grounds. (i) Allah knows when, where and what is necessary for His creatures and has allowed concession where necessary like eating pork for saving life and postponing fasting during illness and travel. Allah has not allowed any such concession in respect of interest nor has He authorized anybody to permit delay in implementing His command using dubious doctrine of necessity. The unanimous judgment written by Mr. Justice Khalil-ur-Rehman states: “The Ahkam of Riba are no different from the Ahkam of, for example, salah (prayer) and saum (fasting). The Ahkam for none of these were prescribed with the dawn of Islam. However, once ordained, the relevant Ahkam were enforced at once”. (ii) Immediate switch-over to interest-free banking is possible by implementing TMCL-based interest-free banking plan.
23rd January 2000: As per Supreme Court (SAB) order of 23rd December 1999, Federal Government constituted 11 member fully empowered Commission for transformation of the financial system on Islamic principles, headed by I.A.Hanafi (Chairman) a former Governor of State Bank of Pakistan, with Faheem Khan of Islamic Development Bank to act as member/secretary of the Commission and Mufti Rafi Usmani as sharia Scholar.
After rejoicing upon Supreme Court’s judgment of 23rd Dec 99 and congratulating each other Islamic economists and proponents of Islamic system did nothing to get the judgment implemented and to save it from annulment. But advocates of interest started campaign to prove impracticality of interest-free banking and implementation of the judgment.
12th February 2000: Publication in daily ‘DAWN’ of an article ‘Riba: some unanswered questions’ written by an influential bureaucrat Dr. Akdas Ali Kazmi, Joint Chief Economist, Planning Commission. He raised following challenging questions about Islamic banking to prove that Supreme Court order to eliminate interest could not be implemented:-
< i. Is there any single bank in the Islamic or non-Islamic world which is truly run on an interest-free basis?
iii. Can a central bank conduct its monetary policy without the norm of interest?
iiii. Are not the practices of Islamic banks a queer blend of interest-based modes of finance carrying a façade of Islamic names?
iiv. What are exactly the Islamic compliant instruments of finance? What is the number of such instruments? Can these instruments meet the myriad and diverse needs of modern trade, finance and banking?
< v. When and where have these instruments been applied and with what degree of success?
vvi. Does the Islamic Development Bank as the model Islamic Bank operate on interest-free basis? If that’s the case why did it offer to extend a loan to the Government of Pakistan after Nuclear detonation at an interest rate of 5% above LIBOR?
vvii. By what mechanism can Islamic banks undertake financial intermediation which is the primary function of all commercial banks throughout the world?
TMCL can perform all functions as efficiently as are performed by interest in modern banking. Following are fit answers to the above quoted challenging questions:-
< i. Use of TMCL for interest-free lending and earning from sharia compliant profit yielding modes will turn present Islamic banks into true Islamic interest-free banks.
iii. Central bank will be able to conduct its monetary policy by varying Time Multiple ratio in TMCL as it does in the present system by varying interest rate.
iiii. Malpractices of Islamic banks will cease when they start giving interest-free loans on TMCL basis and earning profits through genuine sharia-compliant modes.
iiv. Islamic compliant instruments of finance are interest-free loan, Mudarbah and Musharakah. These instruments can fully meet the myriad and diverse needs of modern trade, finance and banking.
< v. Islamic banks have yet to apply these instruments fully and when they do so they will surely meet with great success.
vvi. Islamic banks can operate on interest-free basis by adopting TMCL for advancing interest-free loans.
vvii. TMCL is interest-free lending device whereby Islamic banks can undertake financial intermediation and perform all commercial banks’ functions.
21st February 2000: UBL filed petition for review of the order and judgment dated 23rd December 1999 passed by Shariat Appellate Bench of the Supreme Court of Pakistan.
8th March 2000: Seminar ‘Towards Islamic Banking – Experiences and Challenges’ organized by the Institute of Policy Studies run by Prof. Khurshid Ahmad in Islamabad.
In his inaugural address Governor State Bank of Pakistan, Dr. Ishrat Husain, urged Islamic scholars to make practical suggestions for ensuring transition to Riba-free financial system is smooth and compatible with the Islamic principle of equitable distribution of income and wealth from rich to poor. Quoting the 1996 Directory of Islamic banks, he observed “these institutions provided only 26% of their credit to manufacturing and agriculture. All the rest was advanced for short-term trading ventures”. He said Pakistan needed a system of economic management different from the current exploitative system. He assured the audience including Islamic scholars from within Pakistan and outside that the Government was in the earnest about the transformation of existing system into Riba-free one. He requested them to provide practical solutions to a number of problems which face the country in connection with the implementation of Supreme Court (SAB) judgment as well as those already observed in other countries e.g. 1) the rates of return offered by the Islamic banks under the profit & loss system is much lower than that offered by the banks on fixed rate basis 2) How can the Riba-free system be made commensurate with the Islamic tenets of justice and equity? 3)The problem of moral hazard quite pervasive in connection with the operations of Islamic banks in Iran where the proportion of investments has dropped to 13% since the introduction of Islamic banking. 4) The documents now available show that the Islamic banks have increasingly fallen on fixed return modes of financing such as Morabaha and leasing. This constituted a high 80% of total financing by these institutions leaving only 20% to PLS. He also asked for the scholars’ guidance about the problem of deficit financing. In order to make up the resource gap, the Government borrows from banks and the small savings schemes against fixed rates of return. What would be the substitute of these institutions in a Riba-free dispensation? he asked. He wondered as to what the role of SBP would be in a Riba-free financial system, particularly as it conducts its operations in the market from time to time which necessitate commitments on the fixed rates of return.
Speaking at the concluding session of the seminar Finance Minister Shaukat Aziz hailed the Supreme Court’s judgment against Riba as landmark and declared that it would be implemented in letter and spirit to introduce interest-free banking system in the country. He said “Pakistan is the only country in the Muslim world which is going to have an interest-free banking”. He called upon the scholars and financial and legal experts to help the Government implement the decision against Riba. He assured the participants of the seminar that the Government will implement the SC judgment. He also said “It is our requirement to eliminate Riba and have an Islamic mode of banking”.
IPS Chairman Prof. Khurshid Ahmed urged Finance Minister to use his influence in implementing the Supreme Court judgment. He did not present any interest-free banking plan nor did he address the difficulties in the way of implementing Supreme Court judgment pointed out by State Bank Governor. Malpractices of Islamic banks mentioned by State Bank Governor remained unattended by Prof. Khurshid Ahmed. He ignored the fact that satisfactory answers to all the problems and questions raised in the conference lie in implementing TMCL-based interest-free banking system.
13th to 15th August 2000: Fourth International Conference on Islamic Economics and Banking held in Loughborough University organized jointly by Islamic Development Bank and Islamic Foundation UK. In a question/answer session the writer asked as to why TMCL was not used for interest-free lending to get Islamic banks and Muslim Ummah rid of interest. Dr. Nejatullah Siddiqui chairing the session answered every other question from the audience but did not say a word about the writer’s question! The writer personally requested about 150 participants in the Conference including Prof. Khurshid Ahmed to take notice of Dr. Kazmi’s article and to strive to remove shortcomings in Islamic banks and produce an interest-free banking model or endorse TMCL-based interest-free banking model for replacing existing system.
22nd August 2000: Following is an extract from the writer’s fax sent from London to Professor Khurshid Ahmad in Markfield. “For achieving the objective of eliminating interest as a first basic starting step towards realization of the final goal of establishing Islamic Economic order it is incumbent on Islamic economists to give adequate answers to the challenging questions posed by advocates of interest like Dr. Akdas Ali Kazmi. This can be done only by advocating adoption of Islamic loaning instrument neutral to moral hazard which can perform all financial intermediation functions performed by interest in the modern banking system. Otherwise there is a risk that, God forbid, all efforts made for achieving the long cherished verdict of the apex court on interest may come to naught. For advancing my mission I intend to stay in England for 2-3 weeks more. For evolving a common strategy to frustrate the efforts of advocates of interest in Pakistan, it would be highly beneficial to have a thorough discussion on the vital subject. If you kindly agree, I shall be only too glad to come to Markfield for this purpose”. Professor Khurshid Ahmad did not respond!
2nd October 2000: From amongst those personally contacted during the conference only IDB President responded. Photocopy of IDB letter addressed to the writer is attached (Annex 1). In more than seven years since this letter was received, Islamic banks have not moved an inch towards true Islamic interest-free banking!
8th January 2001: In an article ‘ISLAMIC BANK, a misnomer’ published in daily ‘DAWN’, Dr. Akdas Ali Kazmi asserted that interest-free banking is not feasible and contended: “The reports of various commissions set up from time to time in the past to evolve an interest-free economic and banking framework have not provided any meaningful or practical guidance in this crucial matter”. As shown above satisfactory answers to the contentions of the advocates of interest are available only in TMCL plan which is being persistently ignored by Islamic economists and bankers and that is why they keep mum and do not refute the claims of the advocates of interest.
9th January 2001: Federal Religious Affairs Minister Dr. Mahmud Ahmad Ghazi announced that the Government will put a permanent end to the giving and taking of interest from July 2001. The Government did not abide by this commitment!
21st January 2001: In the special report of ‘The News’ daily appears a statement of Professor Khurshid Ahmad from which an extract reads: “The success of interest-free economic system depends on its implementation. The question is not the viability of the system but the modes of bringing it into effect. The Government seems non-serious in bringing the system into effect. Since the decision in December 1999 no real steps have been taken for the transition. We need a definite plan for the switch-over but nothing has been done as yet. The failure then should not be blamed on the Islamic model, but on the inept implementation”. Explaining the interest-free economic system he said “the system was far superior and the most growth and justice oriented in the world. “Economists from around the world agree that this is a very viable and superior system if implemented correctly. Islam just does not support the idea of a fixed pre-determined return on capital and proposes returns that are according to the market situation. The idea is of profit sharing. Islamic banks are working this way and are attracting huge amount of money. In fact Islamic banks have capital shares of more than $10 billion and deposits of more than $200 billion. Our economy is heading towards complete destruction in the prevalent interest-based system. The Government needs to change the system into an Islamic one with full conviction. Right now it is showing no will at all”.
In the same special report appears a statement of another prominent Islamic Economist Dr. Shahid Hassan Siddiqui. He said “At present over 200 banks and financial institutions are operating under the banner of Islamic banking but for 80% of their financing they are resorting to Murabaha or like modes which are interest-based. These banks cannot provide a model for other banks to follow”.
Prof. Khurshid Ahmed is dead right in criticizing the government and saying that a definite plan is needed for a switch-over but the question arises as to why he himself has not produced the needed plan although he had said in the Senate on 10th February 1986: “Today we have with us a clear outline plan showing how a new system can be structured”. Following questions also need to be answered by him.
< i. Why did he not present a definite switch-over plan in the Supreme Court (SAB) when he was condemning interest-based system and was asked by the court as to what was the alternative of interest-based system?
iii. Why did he not present a definite switch-over plan to the State Bank Governor and Finance Minister during the seminar on 8th Mar 2000 in the inaugural address of which State Bank Governor invited practical suggestions for implementing judgment of 23rd Dec 1999?
iiii. UBL filed a review petition in the Supreme Court (SAB) first for extension in the period for implementing the judgment of 23rd Dec 1999 and then for setting aside the judgment. What held him back from presenting a definite switch-over plan to refute the claim that no interest-free banking plan was available?
iiv. What did he practically do to get the judgment of 23rd Dec 1999 implemented and to save it from being annulled on 24th June 2002?
< v. What is he doing to win the Riba case pending for readjudication in the Federal Shariat court since it was remanded vide Supreme Court (SAB) judgment of 24th June 2002?
vvi. What held him back in implementing interest-free banking system in NWFP during about 5 years’ MMA rule while he was financial advisor of NWFP Government?
vvii. What makes him praise Islamic banks while for 80% of their financing they resort to Murabaha or like modes which are interest-based?
vviii. What holds him back from endorsing TMCL-based interest-free banking plan especially when no other switch-over plan to interest-free banking is available?
19th March 2001: Member/Secretary CTFS addressed a letter to the writer, photocopy of which is attached (Annex 2). It shows rubber stamp conduct of CTFS members as they did not apply their own minds to the crucial problem and were swayed by a wrong verdict.
31st March 2001: The writer requested CTFS members in a letter:
< i. Not to be swayed by a wrong arbitrary observation and give serious consideration to the most crucial national issue.
iii. To give sound reasons for disagreeing with the writer’s submissions and give the writer an opportunity to meet CTFS members, individually or collectively for discussion.
iiii. Not to reject TMCL-based interest-free banking plan without devising another method whereby banking system can be got rid of interest by 30th June 2001.
CTFS members neither responded to the writer’s repeated requests nor accomplished their assigned duty to produce and implement interest-free banking system in the country!
11th April 2001: Supreme Court (SAB) comprising Justice Sheikh Riyaz Ahmad (Chairman); Justice Munir A.Sheikh; Justice Syed Deedar Husein Shah and Justice M.Taqi Usmani issued notices to the Attorney General and 35 other respondents in the UBL petition seeking review of the Riba judgment of 23rd Dec 1999.
5th May 2001: Governor State Bank of Pakistan Dr. Ishrat Husain said that due to some technical constraints complete elimination of Riba from the economy was not possible immediately after July 2001 as per directives of the Supreme Court. He said the country was in a serious financial crisis. He also said: “if any experiment of enforcing a whole new system would be carried out, it was feared that the attempt would lead to collapse of the system. The implementation of the new system was a big challenge and arrangements would be made from July to implement it. Whatever problems arose in the process, they would be brought into the notice of the apex court. An Islamic Transition Commission had been constituted and its recommendations would be incorporated in the new system. A task force to eliminate borrowing had also been formed. There was no perfect Islamic system enforced in any Islamic country”.
Dr. Ishrat Husain overlooked the fact that TMCL plan for immediate switch-over to interest-free banking was available and described in the Supreme Court judgment. Later on he launched in Lahore late Prof. Sheikh Mehmud Ahmed’s book ‘Man and Money’ on TMCL concept. It is a gross misconception that complete elimination of interest from the economy is not possible immediately. It is beyond imagination that Allah would give warning of war for not doing the impossible. Allah’s orders are all beneficial for mankind and enforceable at all times and in all circumstances.
14th June 2001: Justice Sheikh Riyaz Ahmad (Chairman); Justice Munir A.Sheikh; Justice Syed Deedar Husein Shah and Justice M.Taqi Usmani heard UBL review petition. UBL filed an application seeking suspension of the judgment of 23rd Dec 1999 till 31st Dec 2005. The Federal Government also sought the extension to 31st Dec 2005. The Attorney General stated that “The Government was sincere in the implementation of the judgment but was facing practical difficulties as there was no model of interest-free banking. For implementation of the judgment two task forces and a Transformation Commission have taken place and a draft ordinance had been framed”.
Proponents of Islamic order and Islamic economists having big name in Pakistan neither refuted the Attorney General’s statement nor cared to counter UBL petition by presenting an interest-free banking model. Supporters of interest-free banking led by Ismail Qureshi opposed UBL request without presenting an interest-free banking model for replacing existing system. Justice Munir asked whether they had given thought to the scenario what would happen to people in the absence of an alternative banking instrument. Mr. Ismail Qureshi asked the court not to suspend the operation no matter what were the consequences!
The court allowed time for implementing the judgment till 30th June 2002. The period for eliminating interest was extended by one year only because Ismail Qureshi representing Jamaat-e-Islami could not present in the court an interest-free banking model for replacing conventional banking and Honorable judges did not realize that they were not authorized to permit any delay in implementing a Divine command.
5th September 2001: Shariat review petition filed by Qazi Husain Ahmad in Supreme Court (SAB) against the order dated 14th June 2001 extending the date for elimination of interest to 30th June 2002.
6th, 7th, 13th, 14th & 17th to 22nd June 2002: Supreme Court (SAB) comprising Chief Justice Sheikh Riyaz Ahmad, Justice Munir A.Sheikh, Justice Qazi Muhammad Farooq, Dr. Khalid Mahmood and Dr. Rashid Ahmad Jullunduri heard review petitions from the Supreme Court judgment of 23rd Dec 1999. Counsel for the Government said that transformation of entire financial system is not practicable and that Federal Government was committed to allow the Riba-free banking as a parallel banking system in the country and had already allowed setting of Al-Meezan Bank.
Affidavit filed on behalf of the Ministry of Finance reads: “The Government of Pakistan has made best possible efforts under article 190 and article 203D(3)(a) of the Constitution of the Islamic Republic of Pakistan, 1973 to find ways and means to implement the directives contained in paragraphs 7, 8 & 9 of the order of 23rd December 1999 of Honorable Supreme Court of Pakistan (SAB) but has found that implementation of the said directives is not practical or feasible and if attempted will pose high degree of risk to the economic stability and security of Pakistan”.
Another affidavit filed by the Deputy Governor of State Bank of Pakistan reads: “Having taken a series of steps to promote Islamic banking in para 21 above and considering all other practical problems associated with the complete transformation of the financial system discussed herein, it is State Bank of Pakistan’s considered judgment that a parallel approach will be in the best interest of the country. This means that Islamic banking is introduced as a parallel system of which a beginning has already been made, it is provided a level playing field vis-à-vis the existing conventional banks and its further growth and development is supported by Government and State Bank of Pakistan through appropriate actions. This approach will eliminate the risk of major costs/damage to the economy, give a fair chance to Islamic banks to develop along side the conventional banks, and will provide a choice to the people of Pakistan and the foreigners doing business in/with Pakistan to use either of the two systems”.
Above quoted affidavits show that Finance Minister and State Bank Governor did not mean what they said on 8th Mar 2001 in their addresses in seminar in Islamabad. Their actions and stance in the court showed that they wanted to protect interest-based system and avoid elimination of interest. Present Islamic banks have not played and cannot play any role in eliminating interest. Islamic banks started emerging in mid seventies of the last century and now about 300 Islamic banks are prospering in 70 countries and yet they have not produced any dent in conventional banking. If these banks were doing real Islamic banking interest would have by now vanished from Muslim countries as per Quranic verse 17:81 “When the right comes the wrong vanishes”.
Presentation in the court of an interest-free banking model capable of effectively and immediately replacing interest-based banking was absolutely necessary for effective rebuttal of the claims of the advocates of interest and saving the judgment of 23rd Dec 1999 from annulment. Unfortunately Advocate Ismail Qureshi who was defending the judgment had not been provided by his client an interest-free banking model for presenting in the court and as such he could not effectively defend the judgment and lost the case.
24th June 2002: As could reasonably be expected in the absence of an effective defence of the judgment of 23rd Dec 1999, it was set aside by Supreme Court (SAB) and Federal Shariat Court judgment of 14th Nov 1991 remitted to Federal Shariat Court for determination afresh. Responsibility for the annulment of the judgment of 23rd Dec 1999 and continuation of interest-based banking in the country lies largely on the shoulders of the following personalities and institutions:-
< i. Our rulers, Finance Ministers and State Bank Governors promoting interest-based system in violation of Islamic injunctions, Allama Iqbal’s teachings, Quaid-e-Azam’s directives and the Constitution of Islamic Republic of Pakistan.
iii. Islamic economists, Directors in Islamic Research Institutes and proponents of Islamic order who turned deaf ears to repeated requests to refute the claims of the advocates of interest and present interest-free banking model for replacing interest-based banking be it the one devised by themselves or TMCL-based model. They did nothing to save the judgment of 23rd Dec 1999 from annulment on 24th June 2002.
iiii. Judges of Supreme Court Shariat Appellate Bench including Sharia scholar M.Taqi Usmani for not ordering immediate elimination of interest by way of implementing TMCL-based interest-free banking plan and permitting interest to persist in foreign transactions for indefinite period and for 18 months in domestic transactions whereas Allah’s laws are for implementation at all times and in all circumstances. Allah has not authorized anybody howsoever high in status or learning, to permit delay in implementing any of His commands.
iiv. CTFS failed in its duty to install interest-free banking system. The commission members including Mufti Rafi Usmani by default did not themselves produce any interest-free banking plan and by design (only God knows why) summarily and totally unjustifiably rejected the viable interest-free banking plan presented by the writer that could easily replace the existing system without any disruption.
< v. Council of Islamic Ideology which without finding any fault and giving no reason whatsoever gave the erroneous verdict that it was not correct to use TMCL method by way of a permanent alternative system to the interest-based system. Rejecting TMCL method without offering another permanent alternative system irreparably damaged the cause of elimination of interest. If CII had not committed this blunder in its report of 15th June 1980, Pakistan and subsequently other Muslim countries could have got rid of interest long ago.
vvi. The owners and Shariah advisors including M.Taqi Usmani, of so-called Islamic banks who ignore hadeeth qudsi, avoid interest-free lending and borrow on interest. They avoid financing in risk-bearing Islamic profit-sharing modes and concentrate on doubtful risk-free interest-like fixed-return earning modes. Shaikh Saleh Abdullah Kamel, a pioneer in Islamic banking and founder of Al-Baraka Islamic Bank has recently said on BBC TV channel that 90% of what presently Islamic banks are doing is wrong. Islamic banks can get themselves and Muslim ummah rid of interest by providing interest-free loan facility to genuine loan seekers for rightful purposes and limiting earnings from profit sharing and other doubtless Islamic modes.
24th October 2002: Federal Shariat Court directed advocate Ismail Qureshi defending judgment of 23rd Dec 1999 to advise the court the objections on the basis of which Riba case was remanded and also his replies to the objections.
14th June 2004: Advocate Ismail Qureshi filed in the Federal Shariat Court a statement highlighting (i) the objections on the basis of which Riba case was remanded and (ii) replies to the highlighted objections. The objections dealt with in his statement are limited to those covered in paras 12 to 16 of the remand order. The statement neither refuted the contents of the affidavits of the Ministry of Finance and State Bank nor included any interest-free banking model for replacing the existing system. As interest is a means to meet the needs of all sectors of society for all types of loans, it can be finished only by providing interest-free loan facility to loan seekers. If the proponents of Islamic order do really want to see interest eliminated then they must arrange to present in the court their own or TMCL-based interest-free banking model for replacing the existing system.
Our prophet Muhammed saws said “Those who do not care about the affairs of Muslims are not from amongst us”. Hence every Muslim must strive to do utmost to get Muslim countries rid of interest including pressurizing Muslim rulers, bankers and economy managers for switching-over to interest-free banking without delay. The writer offers his services free of charge to work for anybody willing to advance the cause of finishing interest and / or to implement TMCL-based interest-free banking. Description of working and benefits of this system is available on web site given below. Comments and queries on this discourse will be gratefully received and appropriately responded.
Encl: Annex 1: IDB Letter dated 2nd Oct 2000
Annex 2: CTFS Letter dated 19th Mar 2001
27th Feb 2008
