It gives me immense pleasure to inaugurate the international seminar on Islamic Banking organised by the International Association of Islamic Banks. There could not have been a more timely occasion to hold such a Seminar in Pakistan as we in this country are actively engaged in totally weeding out Riba from the financial system by 1985. I am quite sure that the seminar will contribute a lot in pushing the frontiers of knowledge and laying foundations for evolving a bluprint for a Riba-free Islamic economic system. I am happy to note that the modest beginnings made by the International Association of Islamic Banks in 1977 have borne fruits and the Association has emerged as a representative body of Islamic banks in the Muslim world. I am confident that the Association will continue to grow in size and importance under the able and dynamic leadership of brother Prince Mohamed Al-Faisal Al-Saud who is fully committed to promote Islamic banking in member countries. It is also heartening to note that Islamic banking is no longer a movement but has taken a concrete shape and is being translated into a temporal reality.

As you are aware, the Government of Pakistan is fully committed to eradicate Riba from all financial transactions as a first step towards the establishment of a truly Islamic society based on 'Adl' and 'Ihsan' which ensures social and economic justice, equitable distribution of wealth, economic stability and growth. An Islamic state should not only seek to provide "everyone according to his ability" but also strive to provide "everyone according to his needs". We have made a modest beginning in this direction by codifying and institutionalising Zakat and Ushr through an enactment and establishment of various agencies for its collection and distribution among 'mustahqeen', establishing Shariat courts, bringing local laws into conformity with the teachings of Islam, abolition of Riba from certain financial institutions and introducing the concept of profit and loss sharing in deposit banking. We are fully conscious of the fact that Islam is a complete way of life and its economic system cannot be practised in isolation of Islamic values and without the emergence of the Islamic Economic Man. We have, therefore, decided to adopt a cautious policy for a gradual transformation of the society into a Riba-free society. The financial instruments designed by us are still in a development stage and need to be refined and reshaped in the light of the experience gained and the requirements of modern finance. I feel that this seminar will provide a useful forum for exchange of ideas between those who are actively involved in implementing the various modes of Islamic finance and the academicians and scholars engaged in serious research on Islamic economics and business finance.

RESEARCH ON ISLAMIC SYSTEM

During the last six years we have encouraged research on Islamic economic system and business finance at the universities level and elsewhere. Apart from the Council of Islamic Ideology which is an apex body consisting of ulema, economists and legal experts, we have also established an Institute of Islamic Studies to undertake research on basic issues of Islamic economic system. The efforts made by the King Abdul Aziz University of Saudi Arabia in identifying and promoting such research are also laudable. As a result of these efforts, young economists from Pakistan and other Muslim Countries are producing economic literature on Islam not only in their own countries but also in some of the Western universities.

The transformation of an interest-ridden society into a Riba-free society poses a number of problems. These problems become more complex due to our orientation towards Western thought and practices. However, it has been realised by the Ummah that our salvation lies in adopting the Islamic economic system as a way of life. The Islamic economic system aims at achieving redistribution of income, maximisation of output, full employment, price stability and sustained growth. The distinctive system of Islam is quite distinct from other systems and is an important pillar of Islam. The Holy Quran clearly says that "And bestow upon the wealth of Allah which He has bestowed upon you" (24:33). The Holy Quran also states that "no one is permitted to withhold all what he earns" (104.2-3), he is required to use it in the categories prescribed by Allah (28.78) but is prohibited from using it for wanton public display (28.79).

We have tried to lay down the foundations of an Islamic welfare state based on Quranic injunctions. Ever since the present Government started the collection of Zakat from Sahib-e-Nisab, it has been able to collect an amount of Rs. 3.3. billion out of which an amount of Rs. 2.8 billion has been distributed so far to various Mustahqeen. This may look like a drop in the ocean but nevertheless a beginning has been made in the right direction. I am confident that with honest and sustained efforts the quantum of Zakat collections will increase to a sizeable proportion.

The next step which we would like to take is to completely abolish Riba from all domestic financial transactions. The progress so far made by us is quite encouraging. The nationalised commercial banks have been able to mobilise an amount of Rs. 20 billion on profit and loss sharing counters. This is nearly one fifth of the total deposits mobilised by banks during the year ended December 1983. The nationalised commercial banks have also started providing capital finance on the basis of PLS system. They have also evolved a scheme of 'Musharika' under which the funds for meeting the working capital requirements of business and industry are given on a profit and loss sharing basis. We have also codified the system of modaraba by enactment of a Modaraba Law which seeks to ensure the Islamicality of modaraba business and safeguards the interest of the 'ras-ul-mal'. A single purpose modaraba has been successfully floated in Pakistan while a number of modaraba companies are being set up in the private sector. This tends to suggest that the nation as a whole is poised to completely eradicate Riba from its transaction. The Pakistani nation has accepted the challenge; the task is formidable but we have full conviction in our purpose. We look forward to our brothers in Islam for their continued support and guidance.

COOPERATION AMONG MUSLIM COUNTRIES

Your Excellency, you have rightly pointed out that economic cooperation amongst Muslim countries is the crying need of the hour. The Muslim states are endowed with rich resources which can be exploited for the mutual benefit of the Ummah. The Islamic banks can act as financial intermediaries in channeling these resources in a number of ways. They can be instrumental in making available surplus capital and technology beyond the limit of geographical boundaries as Islam does not recognise geographical boundaries; it aims to enrich the life of Ummah as a whole.

The International Association of Islamic Banks can play a useful role in developing close economic co-operation amongst Muslim countries. Besides the exchange of information on evaluation techniques of Islamic finance to its member banks, it should be able to bridge the gulf of capital deficiency and technology in member states by identifying sound and viable projects and arranging finance either by way of equity or promoting joint venture or any other combination which conforms to the tenets of Quran and Sunnah.

The Muslim countries have a common bond of religion which is very strong and can be used for meaningful economic co-operation amongst themselves. Some of the ideas like evolving a common currency, a custom union and a common market for Muslim countries have already been mooted at different forums and need to be further developed by experts for putting them into a reality.

Your Excellency, you have talked about certain impediments in the development of Islamic financial system which are being faced by Islamic banks. I would like to assure you that the Government of Pakistan will give full support to the Islamic banks which operate within its territory. As I pointed out earlier, there are still a number of grey areas in Islamic finance which have to be resolved by all of us within the overall Islamic framework of Quran and Sunnah. I hope this seminar will throw light on some of these areas.

I wish to extend my warm greetings to Your Excellency and the distinguished delegates who have come all the way from their homes to make this Seminar a success. I also wish to congratulate the Regional Association of Islamic Banks in Pakistan for their efforts in holding this seminar.

In his impromptu remarks President Zia-ul-Haq also stated that foreign banks were allowed to compete with the nationalised banks in the country. In future the Government would like foreign Islamic banks to operate in Pakistan and compete with the nationalised banks in Islamic banking. The President said that the Ministry of Finance under Mr. Ghulam Ishaq Khan, was incharge of the Islamisation programme in the economic field. Pakistan, he said, owed a lot to the Finance Minister, Mr. Ghulam Ishaq Khan in this task. He also lauded the efforts by Mr. A.G.N. Kazi, Governor of the State Bank of Pakistan and other financial experts who were helping the Finance Minister in implementing the Islamisation programme.

He said that Pakistani had accepted a great challenge in adopting the Islamic economic system because it was a formidable task. The President said that profits of the national airlines, PIA, had considerably increased following the prohibition of liquor on international flights. Before the enforcement of prohibition, it was brought to his notice that most of the profits came through the sale of liquor on international routes, and the national carrier might suffer loss or it might have to suspend some of the flights, after prohibition. Despite these cautions, the decision was taken with strong conviction and commitment to the Shariah, and with the blessing of Allah, a marked increase in PIA profits had been registered during 1983, he added.