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Riba, Money and Currency
By Shah N. Khan


It was expected that the Federal Government would be able to implement the decision of Federal Shariat Court given in 1992, declaring all forms of interest-based banking un-Islamic.
The Shariat Appellate Bench of the Supreme Court on Dec 23, 1999, upheld the judgment of the FST, and directed the government to eliminate all forms of interest-based banking by June 30, 2002.

But the Government has failed to comply with directive and the Supreme Court started on 6th June hearing of UBL's review petition seeking reversal of the Riba judgment. Islamic extremists are protesting over the Government's decision to file appeal rather than implementing the decision, on which one year's postponement was allowed last year.

Quiad-I-Azam Mohammad Ali Jinnah inaugurated the State Bank of Pakistan on July 1, 1948. In his inaugural address the father of  the nation emphasized upon the need for evolving banking practices compatible with the Islamic ideals of social and economic life.
Talking about economic system of the West he went on to say:

"It has failed to do justice between man and man and to eradicate friction from the International Field."

But State Bank had its teething problems. They continued to  nollow the practices of Reserve Bank of India and  the advice of the Father of the Nation was forgotten.

Couple of decades later politicians started talking about  Islamisation of every thing and the phrase Islamic Banking was  coined. And various commissions or committees were formed to  evolve the mechanics of Islamic Banking and to clarify its  concepts. Their tasks was indeed more than challenging as the
Ummah is divided in about 72 different sects and their views and interpretations to the sayings of the Holy Prophet and Quranic  Injunctions and the need for Ijtehad vary not only from sect to  sect but also Maulana to Allama .

In the days of Late General Zia ul Haque, we got various schemes
in the name of Islamic Banking. For instance, in place of Savings Account we got the Profit and Loss Account, which usually pays,  ore or less the same amount as one used to get as Interest and  your principal amount continues to diminish due to inflation and  fall in the value of Rupee.

They also introduced Interest Free House Building Loans and made acquisition of loans for house building more difficult as well as expensive. Now one does not pay interest but what one pays as  something like rent comes to much greater amount than the interest  that used to be charged in early days of House Building Finance  Corporation or by the banks in private sector prior to their nationalization in the seventies.

The concepts of Western Interest Free Banking are not much  different than what have been introduced here conservatively.  Most of them have been adopted giving Arabic sounding names to  standard terms. But as far as commercial banks are concerned the allocation of profits to the account holders is not materially different than the conventional interest allocation.

The Need for Adopting Islamic Money Standards!

In the 7th century AD at the time of dawn of Islam, money  consisted of metallic coins and gold and silver bars.  That was the kind of money whose purchasing power was not  only stable but also tended to appreciate, like the worth of
land or gold.

It was and still is the simplest and straightforward method of fulfilling the promise of the Rulers who issue coins and currency to give you the real worth of the money - not less than what you acquired when you took that money in your custody. In this respect our Governments have been guilty of breach of the trust as it is incumbent upon the rulers, according to Islamic precepts to protect the interests of his people.

Devaluation of money constitutes as a breach of trust of the  people according to the standards of trust, measures, weight and balances as prescribed in Quran-e-Hakim and the Sunnah. It can  also be termed as a practice akin to indirect form of 'Riba'  strictly prohibited by the Holy Quran

These days we have paper and credit money besides coins. The face  value of commodity money (coins) may be about equal to the value  of the material contained in it, usually silver, and copper. Gold  is now rarely used for coins.

All other kinds of money including Credit money or Flat money are paper backed by promises by the issuer, and the manner that become redeemable and the value that is assigned to them merely by  government edict or the laws. Thus the currency notes and credit  forms of money are generally made acceptable through a  government decree that all creditors must take the money in  settlement of transactions; the money thus becomes a legal tender.

In Pakistan the purchasing power of Rupee has been declining  since 1947 when the Rupee was worth more than a Riyal and you  could get a US Dollar for less than RS. 4/-. The 10 gram gold  piece was worth about RS. 70 or so. The value of Rupee has  regressed against them by almost 15 to 18 times. At one time
you could have bought 16 loafs of bread in a Rupee and now the  bread of the same weight costs about RS. 3/-

Right from 1947 our imports have been exceeding our exports.  We can blame our trade deficits for devaluation of the Rupee but  there are many other reasons. Our dependence on IMF loans to meet  the obligations of our trade deficits has been growing and the
cost of living has been going up and up adding to the miseries  of the people.

Our money system needs be modified to meet the standards of trust, measures, weight and balances as prescribed in Quran-e-Hakim and the Sunnah. The  riginal money system in early days of Islam  consisted of silver and gold coins and bars that had stable value.
In fact their value, in terms of consumer items, tended to  appreciate with the passage of time like the value of gold or land.

For evolving standards for paper and credit money there appears  to be the need for Ijtehad for the Holy Quran advises again and  again to ponder over its verses and various point mentioned therein. Our currency may have to be linked to gold or silver with ample reserves to maintain stability and to make good the promise to  convert the currency to silver or gold on demand.

Now after 55 years we find ourselves back in square 1 with grossly mismanaged and beleaguered economy and heavy burden of foreign  debts. Many Governments have come and gone but none had the will  and conviction to implement the Quaid's advice. On the contrary  each ruler had their own share in robbing its own citizens,  wittingly or unwittingly, in a manner as described by Maynard  Keynes (18831946),British economist.

"The best way to destroy the capitalist system is to debauch the  Currency. By a continuing process of inflation governments can  confiscate, secretly and unobserved, an important part of the  wealth of their citizens."

But what has surprised me most is they were saying that it may  take another 10 to 15 years to implement Islamic System and now  they are saying that Interest employed in banking is not taboo.

One must accept the fact that we cannot repay our International  loans by a magic wand and we may have to continue paying Interest  for years And future acquisition of fresh loans to settle deficit  in Balance of trade or some developmental project would be  necessary for which we may have to pay the Interest. We are  helpless. But it does not mean that for our domestic dealings
we cannot begin Interest Free Banking.

Gross Domestic Product and Foreign Debt

Pakistan's foreign debt will increase from $ 33 billion to $ 40 billion by 2012, according to a study. The reports says that  Foreign Debts as a percentage of GDP would come down from 58 %  in 2001 to 29 % in 2012. But recently as a result of Pakistan' cooperation with USA over the war against terrorism some of the
loans have been rescheduled over 30 to 40 years.

However, the report neither gives the actual volume of GDP for  2001 nor the rate of exchange in arriving that. At the current  rate of exchange the figure that would work out from the above  data would be in considerable variance with those reported in the reports of Finance Division and State Bank as released on their web site on the eve of presentation of the budget.

However, the report makes one thing abundantly clear. It may not possible to get out of the clutches of foreign debts. Not even in  30 years! And that the uneployment rate is over 10% whereas the  earlier surveys had been giving impression that it is only around  3%. Incidentally US is having unemployment rate of around 4 %.
Although very optimistics projections for creation of jobs are  given, it is not clear how that would be achieved. The meagure financial resources would obviously make even thinking about Unemployment Insurance or something like that out of question.

The study as reported also gives the impression that there are no preparations for abolishing interest from next year as decided by  the Supreme Court!.

Although the projections for next 10 years are given, the study  makes no mention of the situation obtaining after interest free operations start and the impact of Free Trade as being pursued by  US and some other members of G8.

The trend of exchange rates is also skipped. The rate of interest  the nation has to pay on foreign loans would be of special interest  as we talk a lot about interest free economy and the study shows  that we may not be able to get out of vicious clutches of  indebtedness!

Students, researchers, journalists etc. want to compare the  figures of their country with those available for other countries  in different fact books or almanacs. They have to depend on the  figures of their own country as compiled by the foreigners in the absence of clear and concise presentation by our agencies.

Shah N. Khan

Related Article. Nature and Different Forms of RIBA
by Shah Nawaz Khan



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