La-Riba Economics for Finance & Banking, dession of Federal Shariat Court By Yousuf Ibnul Hasan

Shariat Petition No.30-L of 1991 related to Riba or Interest in the financial matters remained in discussion for almost three decades in the Federal Shariat Court of Pakistan. Firstly, it was decided upon, however, during late '90s, its revision was filed in the Supreme Court Shariat Bench on the government's instruction. Finally, Shariat Petition No.12-1 of 2013 interconnected to Shariat Petition No 30-L of 1991 heard by Honorable Judges, namely Mr Justice Muhammad Noor Meskanzai, Chief Justice Mr Justice Dr Syed Muhammad Anwer, Mr Justice Khadim Hussain M. Shaikh. On 28th May of 2022 the 27th of Ramzan, Justice Dr Syed Muhammad Anwer announced the decision, stating that Riba must be eliminated from the Monetary affairs of Pakistan till 2027.

Why was this matter referred to the Court of Pakistan when the Holy Quran had clear direction on the topic of Riba in human life? Why was the decision of the Shariat Court challenged and accepted for revision by the court of law? This petition and the number of its interlinked revisions had swollen five governments in three decades. These governments include IJI government led by Mian Nawaz Sharif, the PPP government led by Mohtarma Benazir Bhutto, and the two governments of PML-N led by Mian Nawaz Sharif and recently, the government of PTI led by Mr Imran Khan. (see archives in Google). All the five governments tried to intervene in the jurisdiction of Almighty Allah. Each of these governments contradicted the directives against Riba specified in the Holy Quran, which is not supposed to be amended or objected to the least extent. History also testifies that that Islamic directives regarding Riba are for the collective human good, as the concept of Riba is inherently exploitative and breeds social injustice. In order to set a strong ground for my argument in support of the foregoing decision, I will first delineate the same historical perspective of Riba which proves it as a socially incompatible and destructive practice. The second part of the article would clarify a common contemporary confusion between Riba, Interest and Profit with an aim to give clarity to the laymen. The final half of the article would categorically put forth the vitality and social benefits of the implementation of the verdict.

In 1983 Dr Ahmed Al Najjar, addressed the Institute of Islamic Banking and Islamic Economics in Kibris, Turkey. I was there to attend a graduate course on Islamic Banking and Finance. In his address, he links the critique of interest to the Greek researcher and philosopher “Aristotle” who was born in 384 BCE. Aristotle used strong words to condemn the concept and practice of Interest in his book “Money and Politics.” He deemed it as an artificial profit that does not enter legal trading. The use of money on interest is like as a sale of commodity in a fake transaction.

Dr Najjar further exposed the birth of Interest in the ancient Hindu Civilization utilizing agricultural land owned by one and used by the other on the condition that the production is shared between the landowner and the user. In case of loss, the landowners used to add the undelivered with the current share as compounding decreases the cultivator's share. Finally, the cultivator becomes the employee of the landowner and the partnership ends. It was the exploitation of human efforts, skills and rights and ignoring the will of Allah.

Christian Church has remained a solid opponent of the Rulers for around 200 years against the practice of Riba in financial, commercial, and social matters. Church introduced the Skill Financing method as “Commenda” in the Italian City of Rome. Commenda was?a reaction from Christians against the exploitation they were subjected to at the hands of Jew money lenders. The Christian Traders were subjected to humiliation and cruelty in the recovery of loan. The borrower's wife, sisters and daughters were either forced to be mistresses or to work as prostitutes to repay the loan of their men through selling their body. Later during the Islamic era, Commenda was renamed as Modaraba; it became accepted in practice as Sunnah Al Ijma when Hazrat Katajiah Al Kubra financed Muhammad Sallallaho Alay Wassalm, for a trade journey in the trust and confidence of Muhammad Sallallaho Alay Wassalm.

Hazrat Moosa Alay Salaam explained the prohibition of Riba to his followers through the 22nd verse of the exodus: "If you lend money to any of my people with you who is poor, you shall not be to him as an exact Riba from him.". In Versus 23rd of the Deuteronomy also describes: "You shall not lend upon Riba to your brother, Riba on money, Riba on virtual, Riba on anything that is lent for Riba." The prohibition of Usury (Interest) has prevailed at the beginning of Christianity until the split of churches through the Polish Church of Rome.

Today, it is often asked as to whether Riba is Interest or Interest is a category of Riba? The Shariat Petition No.30-L of 1991 did not define and explain nor discuss the difference in the application of Profit and Interest. Nevertheless, the said difference is crucial to be brought into light in order to create an understanding and awareness regarding the filthy and exploitative nature of two concepts.?Islamic Economics and Finance clearly define the three definitions of Riba, Interest and Profit in the following terms:

“Riba is earning, income, profit or benefits being earned, taken or received through wrong means, bad intentions, shady practices or wicked participation. Such earnings and benefits are not only treated as immoral, unjust and filthy but also negative to society's socioeconomic life and leads to crimes of various nature, cruelty, exploitation and self-importance”. On the other hand, Interest is a non-economic activity that involves the borrower confirming loan repayment by guarantying a fixed percentage on the amount of the loan before the transaction actually takes place. The lender accepts it as the premium, which is the Interest. The transaction is converted into an act of “Shirk ", as in practical borrower and lender have no capacity or capability to guarantee any future actions or transactions. Thus, payment of any amount above the amount of loan is Interest and falls in the category of Riba. Profit differs from Interest and can be defined as an outcome of financing. In practical, finance is the equity of the financiers. It is a Share in the result of the funding and is based on a pre-agreed ratio of Profit. It can be defined as the Net Balance between the Principal Finance and Total Proceeds as Net Profit. It is distributed and shared on Net Profit Amount, based on the transactional results.

It is essential to see the reaction of Pakistani intellectuals to the decision, most of which happens to be negative. Most of them have become strong authorities, critics, and analysts on the topic. Without reading the FCS decision, 90% of Pakistanis declared the decision a disaster, impractical and unfavorable to the economic stability of Pakistan, a country which already resembles a ship sailing at a high tide. As far as the bankers are concerned, they still consider a significant loss to the banking industry. However, bankers should look into the following new horizons in the banking practice for which Bankers had ample time to look into Islamic economics and finance to bring changes accordingly. The decision will have a subsequent impact on the current banking practice:

1.???????????Rise of Social Justice.

2.???????????Transparency, end of exploitation of depositors and customers by the Banks.

3.???????????Mis-commitment, defaults and dishonest acts of bank customers will be significantly reduced.

4.???????????Financing will replace Loans resulting in healthy economy.

5.???????????The rate applied on the Loan amount will change to the Ratio of Net Earned Profit.?

6.???????????Banks' freedom to Profit sharing limits will create competition among banks to attract customers. Consequently, the service quality would likely be improved to a great extent.

7.???????????New financial products to be introduced will serve on minimum risk, higher responsibility and minimum cash through Non-Funded instruments.

8.???????????Bank and customer liability will decrease; the Net Worth will also increase for the bank and its customer.

9.???????????Collateral against financial assistance will be structured within the financial transaction to promote entrepreneurship.

10.???????Financing facilities with the entrepreneur's equity participation puts the entrepreneur's stake in the project and transaction that ease the liquidity process in case of default.

11.???????Trade financing is the main activity for a short tenure, low cost and higher profit volume.

12.???????Finance to commodity or material instead loan to individual will be enabled, making bank a trade house institution instead of Money Shop that sells and buys money.

13.???????The sale and purchase of Money will end, and the use of money will begin.

14.????????centralized banking will be replaced by decentralized banking. It will reduce the time frame of transactions and increase the responsibility and ability of everyday banking to prove its worth for its organization.

15.???????The depositor will place the funds with a bank that reduces the black money base.

16.???????Bank financing shall be structured to ensure socioeconomic progress instead of mere economic activities that change the documented economy.

17.???????Depositor and Banker will participate as per the will of Almighty Allah instead of any guarantee or confirmation to each other.?????????

With the present decision on Riba, the banking practice has to change, and banks shall be Social Banks instead of Islamic Banks.

The profit calculation formula will replace the interest calculation formula, which is also applied for Profit. In participating with the client for money.

The bank must be transparent to the transaction partner.

The Banker must understand that loans on Interest and banking with Riba give birth to the class disparity within the society. On the contrary, financial participation allows each member of the society to upgrade his/her standard of earning and living.

A loan disregards the risk factor and keeps a guarantee in return for the use of money. On the other hand, financing stresses participation, responsibility, and duty to cover various financial risks. Today the collapse of leading money houses is due to the internal collateral vis-à-vis lending and its performance, which ultimately increases the exposure and decreases the collateral value. This change is the Money price, which grows in compounding and eventually crosses the level of security against lending. Finance has an internal securitizing system by creating the ownership in the transaction that gives the right to each partner to keep the transaction in the Best Interest of each. In the case of Profit and loss, it is mutually shared between the two parties in case of benefit or failure

May Almighty Allah change the factors of production and develop the understanding between Banker and its partner, the client, to keep a spirit that all wealth belongs to Allah and man is just a custodian of the resources which have to be distributed evenly in order to ensure social justice. The results remain under guarantee as to the will of Allah, which cannot be amended or changed by the Banker or the bank's customer. Within 24 hours of the day, the entire banking system can be changed, provided clean intentions stimulate human acts.??