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Sunday, 23 March 2008

Riba-free banking

(The Post, 23/3/08)

A seminar was held by Al-Qalam Institute under the aegis of daily Khabrain and The Post on the subject of riba-free banking. It is noted that the concept of interest-free banking is gaining momentum, because of the fact that in global economy the growth rate of the institutions dealing in interest-free banking has risen to 20 per cent over the last three years from 8 per cent a decade ago.
In Pakistan, the long pending issue of Riba received attention due to the unrelenting efforts of Humaira Awais Shahid, a former member of the Punjab Assembly, who moved Prohibition of Private Money Lending bill. This act is the only piece of legislation on the issue of riba which ever got passed by a private member in the form of a complete new law and which repealed a formal existing law, and which was passed without the approval of the cabinet and concerned administrative department. However, a lot has to be done to achieve the laudable objective of creating interest-free economy.
The word riba denotes an increase over and above its original amount or quantity; however, terms like ‘interest’ and ‘usury’ (excessive interest) are often used interchangeably. In Sura 2 Verse 275, Allah has permitted trade and forbidden usury or interest on loans, as it involves exploitation of the weak by the strong and resourceful. In this case, lender is assured of fixed interest, and is not concerned with the manner in which the money is used. If the money is borrowed for business purpose, the lender gets the fixed amount of interest irrespective of the huge profit made or loss suffered by the borrower.

Anyhow, it is obligatory to abolish riba with a view to eliminating exploitation in every form and manifestation so that welfare of maximum numbers is ensured. But interest is indispensable to the capitalistic mode of production or market economy, which is tied up with the global economy. And Muslims countries do not have self-reliant economies to survive without interaction with other countries of the world. Muslims despise interest but in the absence of any other viable system they are constrained to continue paying and receiving interest.

During late Zia era, banks started ‘profit and loss account’ instead of savings and fixed deposit accounts. The government had also introduced the concept of modaraba companies.

To make Islamic banking a success, the state will have to ensure that proper books of accounts are maintained and that the directors of banks do not draw unimaginable salaries and perks to deprive the shareholders of their rightful share. Religious scholars and religious parties must find out ways and means to create a society where businessmen conduct themselves in an honest and upright manner.

The government should also ensure that they do not evade taxes to defraud the government as well as shareholders. In fact, Islamic banking is doable but it needs rich moral soil. In this context, the role of religious parties cannot be overemphasised.

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