A SYNOPSIS

The current attempts at Islamisation of banking in Pakistan are focused on the specific instruments of Islamic financing. The discussion revolved around the need, nature, techniques and benefits of these instruments. In devising, modifying and refining them, the goal is always to ensure that the banks will continue operating with at least as much earnings and profits, and grow still further.

The rest of the society it is assumed will continue behaving the way it is doing at present, with the only difference that the evils of socialism and the weak points of capitalism will vanish with the advent of the Islamic financial system.

Apparently it is assumed that no change will be needed in the goals, aims, and objectives and behaviour of man and society. It is assumed that all the feelings of jealousy, hate, love for wealth, status, the desire to be better than your brother in worldly wealth and honour, etc., can continue to exist.

The striving for power, prestige, show and pomp can continue. In fact I fear that some people feel that the Islamic system will help man achieve all these in a more efficient and justifiable way. The banks also have conveyed the impression that the Islamic way will help people earn higher profits i.e. more wordly wealth, leading to higher standards of consumption and of power, prestige etc.

A knowledge of these will mentally prepare people for the Islamic financial instruments of banking more willingly. This will also ensure that the capitalistic and socialistic concepts are not confused with the Islamic concepts. Further we shall get a yardstick to measure the validity of the various Islamic financial instruments.

Currently the intelligentsia, the educated and trained people as well as the masses, know only about the capitalistic and socialistic systems. The intelligentsia and educated know the theories, and the masses know the slogans. A framework for comparison of all the three systems is yet to be developed. The present article makes a small attempt in this direction. Though the author has a more comprehensive framework in the making, due to shortage of time, a simpler adaptation, in outline form is being presented.

DIFFERENCE BETWEEN CAPITALISTIC, SOCIALISTIC AND ISLAMIC VIEW OF LIFE AS IT RELATES TO THE ECONOMIC SPHERE.

Capitalistic (C): Individualistic (Utilitarian Ethics) Utility measured and derived from material goods and services. Individual man determines what is good for him and hence good for society.

Survival of the fittest. Those surviving are good in the eyes of the Lord.

Wealth and high incomes are proof of the value of the individual to society and indicate God's benevolence and rewards. Those who can derive highest utility should be given the largest share in wealth and income.

Socialistic (S): Class war-fare. Utilitarian ethics but based on total utility derived by society. State determines what is good and appropriate. Only those should be rewarded and allowed to survive who serve the state well.

Wealth and high income is proof of exploitation.

Excess wealth should be taken away and given to the poor.

Islamic (I): Abd-Allah, i.e. Man is slave of Allah. Ethics is based on duty to Allah. However, all duties to Allah only help man and human society.

Excess or absence of wealth are indicators of nothing: They are tests. Man is tested in all different ways. Islamic system is based on ethics of responsibility and duty.

Source of duty - Holy Quran - study of past nations.

World is a test: Haj a Proof of Allah's help to believers. (Al-Kahaf: 7 to 8)

Sources of the Philosophies

(C): Introspective primarily and deductive reasoning based on individual behaviour.

Economist says, "If I were the consumer I would behave like this, if I were the producer, I would behave like this, and this is how equilibrium and growth would take place". When actual people do not behave the way the economist predicted, he calls them irrational and prescribes proper education and economic policies to force them to behave the way he would like them to behave.

The individuals struggle for economic survival. Those who survive are God's chosen people. Poor should not be helped.

(S): Study of History and inductive reasoning based on community's behaviour.

Class War — Some classes are always exploiters. The exploited should be in power, and are the chosen people. Man ultimately will reach the socialistic state.

(I): Study of History -- Inductive, and Allah's Guidance. Al-Noor 24 to 38.

War of good and evil. Allah will give material goods to believers as well as non-believers for the duration of life. Highest standard of living is not the test. Best observance of duty to Allah is the test, irrespective of rise of fall in standard of living. Apparently it will fall if Islamic path is followed, but in the long run it will rise on the soundest foundations. A rising standard derived from interest-based loans is on weak foundations.

Those helping others as well as themselves, as desired by Allah, are good and will be rewarded. Fluctuation in standard of living is a test of man.

Production of Goods & Services.

(C): Whatever helps in maximizing production of goods and services is "good" and no evil attaches to it.

(S): Production of those goods and services which help the masses is desirable only.

(I): Production of halal goods and services through halal means only is allowed.

Observed Impact of Guideline of (C)

Investment through government channels of money owned by people who need not be identified. Prize bonds, bearer certificates, etc. As long as money is saved and invested, how it is earned is not questioned.

CAPITALISTIC, SOCIALISTIC AND ISLAMIC ECONOMIES

Want-Resources balance

C: Unlimited Wants — Limited resources

S: Limited Wants — Sufficient resources but exploited. Labour suffers

I: Keep wants limited — Unlimited resources.

Orientation of Individual

C: Individual works for himself

S: Individual works for state

I: Individual works for Allah, Self, others,

Individuals' Goal

C: Maximize utility of self         

S: Maximize utility of state                

I: Maximize duty to Allah, through greater production and consumption of goods and services. i.e. maximize Halal, minimize haram production of goods and services.

Maximize the the utility of self and others also, In Islam individual is also responsible for

1. Relatives - (Parents — highest priority)

2. Orphan

3. Destitutes

4. Travellers

5. Beggars

6. Slaves — free them.

BASIC CONTRIBUTION OF ISLAM TO ECONOMICS AND BANKING

Islam made trade halal, respectable, and most honourable. Prior to Islam, trade and industry were undesirable. Roman god Mercury & Greek god Hermes were of eloquence, merchandise, business and theft, i.e., thieves and businessmen were in one category. (Golden Mercury awards).

Islam brought out the wealth from the coffers of Kings and vaults of temples and invested in business. First economists were Muslims. Banking was known and well developed in the Islamic world. Cheque a Persian word, LC's of upto 40,000 dinars in the early Muslim era are reported in Western sources.

Therefore, there is every reason to believe that the Islamic banking system will help in the economic growth with the soundest foundation.

IMPLICATIONS FOR BANKING

1. Islamic banking is the solution to world financial problems.

2. While devising Islamic financial instruments the goals should be ensuring halal and preventing haram source of income or expenditure. The fear that incomes of people may fall should not motivate change in the financial instrument. (Refer Al-Baqara: 155,156,157).

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*This author was Senior Vice President, UBL, when he wrote this article. The views expressed are his personal views and not necessarily shared by his bank.