Mr. A.G.N. Kazi, inaugurated a conference sponsored by the Asian Office of the International Association of Islamic Banks on the Islamisation of banking on July 22, 1984. The conference was attended by bankers, financial experts, lawyers, businessmen and journalists.

The State Bank Governor delivered an extempore speech of great significance and later replied to questions raised by the participants. We are publishing below transcript of the recording of the Governor's speech and his answers to the questions.  

As has been pointed out the idea of a round table conference was indeed mooted by me when the last seminar of the International association of Islamic Banks took place at Islamabad. I noticed during the course of deliberations of the conference that quite a few very teamed speeches were delivered but at the tune of the questions and answers, the questioners were not really in a position to ask questions and when the answers were given there were no further discussions on the answers whether the answers satisfied the questioners or not.  

The whole basis for a dialogue is that those who ask questions and those who reply to them should have, as I said, equal opportunity and that means that it should riot end by asking the questions and answering them. What is required is that there should be further questions and further answers. In any case, my idea was that most of us do thinking while talking. This is a fact of life. Many of us have not really developed the attitude of sitting aside: and thinking. In fact physiologically also, I understand that even when we think, the instruments have shown that muscles of our throat move, while we are thinking and not uttering the sound and the reason for that is that human being is as he is constituted. Basically thinking and speech have gone side by side and there is a very close connection between the two and, therefore, when we have a debate of the type that we are thinking of, and the questions and answers are reasonably short and to the point then there is in fact a cross-fertilization of ideas and some new ideas may emerge which may not have otherwise emerged and that is the reason why I made the suggestion which has fructified today.

Now the other reason for suggesting this was that in the past most of the discussion about Islamic banking took place in a somewhat academic atmosphere. We were trying to prove that it is a possibility; we were trying to show the impact it will have on the economy and' that it will be an economically viable proposition. Now that stage has passed, we are now trying; to implement this idea and this practical approach needs a different, type of thinking and consideration where the practical issues rather than the theoretical ones should predominate and here again, as I said, the learned speeches must give way to practical suggestions, and counter-suggestions and feasibilities and non-feasibilities of somewhat mundane issues rather than the theoretical excellence of ideas. I do not decry the theoretical side which is also very important, but at the present time, we are more involved on the practical side,' and therefore a discussion which is oriented towards that will be more useful to the country.  

Since this conference of International Association of Islamic Banks took place at Islamabad at least two important events have occurred in this field. One was the statement of the Finance Minister which clearly laid down a time schedule in which we have to Islamise the banking system and the total period extends over the current financial year only i.e. we have to Islamise, the assets and the liabilities side of the banking system in these 12 months time. The period is some what short and in fact it will require tremendous effort to go through the programme as it stands. As you are aware, after the speech of the Finance Minister, the State Bank has also issued instructions to the banks in conformity with the statement under which the banks and the financial institutions have been told to Islamise both the assets and liabilities side of their operations in conformity with the programme that has been set. I think, most of you or almost all of you I will say, are familiar with the programme. The idea in a nutshell is that after the first of April there will be no financing provided by the banks and financial institutions to anybody whatsoever except in one of the Islamic modes of financing and as from the 1st July, 1985, the banks and the financial institutions will not accept any deposits on the basis of interest and they will have only the profit and loss sharing deposits. So the programme has been firmly outlined and the stage has been set for moving along with the task within the time schedule.

 EVOLVING THE SYSTEM

 Now the mere fact that the State Bank has issued the instructions does not solve the problem. The State Bank's orders have been given only in very general terms and this is a skeleton framework. Some flesh has to be put on this skeleton as we go along and what form it exactly takes will also depend on the experience that we gain and the knowledge that we derive from the discussions such as this and others which we are holding with the banks and financial institutions. The advantage of this type as compared to the other types of discussion between the State Bank, for instance, and the banks and financial institutions is, that, I believe, in a discussion today, apart from the banks and financial institutions, the clients of the banks, and others will also participate. When we have our official meetings with the banks and financial institutions, we are looking at one side of the picture. Its other side is at the receiving end that is, where the citizen comes, the industrialist comes, the businessman comes. He is the fellow who is going to put his money in the banking system; he is the man who is going to borrow from the banking system and he is very much involved and it is also in this context that I suggested this type of conference, so that the man in the street, the businessmen and the industrialists can also give their views, as we go along and as I said the time is short and we will have to take decisions in the time schedule. But even those decisions will have to be changed.

 We are going on an un-charted course. One way would be that we aim at perfection that is only when every thing is absolutely complete then we issue the instructions. For this the time will be too short. We will have, in fact, to go on issuing instructions, modifying them as we go along in the light of experience gained and this process may be extended not over the current financial year but for years to come, because when a new system is introduced it takes time to settle down. This is why whenever we issue any circular and instructions we couch them in most general terms to enable every one to have his say and in the light of the reaction generated we can modify them, we can change them, so that as we go along the system becomes better and better. There should be no effort at perfection because that only creates fossilized type of situation which is totally unrelated to the reality of the present situation which needs evolutionary approach. This is the present stage of this task which is now before us.

 NATURE OF ISLAMIC BANKING STRUCTURE

 The task is really to develop an interest-free banking structure in the context of an Islamic economic system. Now, what should be the nature of this structure. Merely saying that it should be free of Riba, is not enough. There can be a number of structures which will be free of Riba. The question is that apart from being free of Riba, the structures should be responsive to the Islamic economic system that we are envisaging. Therefore, firstly the structure has to be free of Riba, of course, but it must also be conducive to the objectives of Islamic economic system and then of course, the structure which we have should be a viable structure which will protect the banking system itself and does not lead to the collapse of the banking system. Therefore when we are judging any sort of structure which is set up, there should be atleast three criteria, though may be many more criteria which will be required for evaluating it. First, does it involve elimination of Riba in real sense as enjoined by Islam; Two, is it conducive to the Islamic economic structure that is envisaged and three, whether it is viable and stable and can last. Now, whatever has been proposed and may be proposed has to be judged, at least, by these three criteria, if not more. I have just jotted down these three because these occurred to me, and many more may be there and may really strike somebody else. So far what have we: done? The instructions which have been issued by the State Bank have identified certain modes which we regard as Islamic modes of financing and those have been notified. But a lot more work is required to be done for elaborating them and what exactly are they and what will be conditions and content attaching to each and this is what is really required.

 As I have said, a lot of work has to be done and that work has to be judged in the context of this criteria. Now take the first criterion. Is that which is being done in conformity with the Shariah? Now as I said we have broadly stated a few things and still more questions will arise. These questions will arise more so when we put in more life on that body. Some people may say what has been done is not Islamic. It is merely a question of semantics and it is not a question of Islam. Now the question is how this criteria is to be applied, if anybody says that it is not Islamic, how do we resolve that problem?

 The International Association of Islamic Banks has got Religious Boards for some of its institutions which have been constituted. Now those Religious Boards are apparently unnecessary because the countries where these banks are operating are secular countries. But in the Islamic Republic of Pakistan where the constitution itself lays down and has provided such an agency like the Council of Islamic Ideology to advise on the issue of what is Islamic and what is not, how can the Board's views be taken as final. The final verdict in the situation has to be pronounced by the legislature itself, nothing less. Every individual has the right to his own opinion; every individual has the right to say that according to him this is what Islam means. But that view will be accepted by the Community only when there is again cross-fertilization of ideas, discussions and debates leading to consensus or Ijma, which is sanctified finally by the people's representatives in the. Parliament or the legislature of the present time and the President himself. Only when the final verdict is given then it could be said to provide the rulings that this is Islamic and this is not and even then, the legislation is never final: There are always amendments. So things keep on changing from time to time; even a view on this criterion number one may change.

 The important thing at this stage is that none of us should believe that he knows more about Islam than any one else and when we apply our mind and try to see that we are now evolving something which is in conformity with the Shariah. Let there be no impatience. What is required at this stage is understanding and tolerance. Understanding and tolerance which enable different ideas to thrive, so that the community and the country can develop a consensus and that is what is required at the present time, and not that any thing should be brushed aside as un-Islamic. I think what is needed is the application of Islamic principles on a very broad basis and further debating on this point till a consensus is reached.

 THE CONSENSUS

 The Islamic principles which we believe as Muslims are eternal but since they are eternal, they cannot provide the blue-print or what is required to be done. It is just not on, because any eternal principles which are there are going to be there for centuries and thousands and thousands of years and should be there to cater for the situation that arises from time to time and the application of those principles to different situations will give different results and therefore no particular form can be said to be sacrosanct. The forms will change, the spirit behind the forms which will be eternal and that is what must be in conformity with the Islamic principles. But if we take any particular pattern rigidly then obviously that cannot hold its sway for all times to come. It must change and therefore when we are applying criterion number one we should consciously go back to the source, the basic principles and not take anybody's word for it. We have to find out the basis and the context in which it is stated. Is it in the Holy Quran itself, is it in a particular Hadith? One should go into its background. The important thing is to have an open mind and see what precisely is Islamic and what is not and here the rulings of the scholars will be very important. In fact a lot of work has been done by the International Association of Islamic Banks on this and in some other areas also and that work is entitled to all respect. But as I have said no work can be said to have finality and the finality will emerge through the course of consensus within the country itself and through the legislation which no doubt would follow. The legislation should really come after the things have taken shape rather than that it should be a pre-conceived sort of legislation first. That will not be correct. At present we have a ready system of laws relating to banking. Those laws have been modified but not completely transformed. If we try to transform, then on the basis of the ideas of a particular individual, it will be a wrong thing. We should allow this thing to develop and as it develops and takes shape it can be codified at an appropriate time after the nation has developed a consensus and not before that. After the ideas have worked, after they have been dealt with, and have been debated only at that stage some sort of codification may be attempted. At the present time whatever modifications are necessary in law have been done and some more legal changes will be in the offing and will come in due course of time. This is what I have to say on criterion number one, namely whether the system we are developing is Islamic and what it should be.

 PARTICIPANTS IN DEVELOPMENT

 The second thing I mentioned is that the interest free banking is only one element in the whole system of Islamic economics. In the short time at our disposal we cannot deal with what are the objectives of Islamic economics that you have been debating so much. Starting with Adl and Ehsan, we have to consider the development and growth in the context of equitable income distribution. When thinking of Islamic economic system we are thinking of freedom of choice for the individual within certain limitations, equality of opportunity to all the citizens, prevention of exploitation of man by man, growth of the economy sufficient to provide for the basic needs of the society. Now it is in this context that arty banking structure has to be judged. What are the functions to be performed by the banking system in this context? What role they could play in bringing about the fruition of Islamic economics?

 It is not merely the elimination of Riba, the banking system has to do much more than that. It has to be a participant in this development process. This is the second criterion by which you can judge the structure of banking that has been, suggested. Is the new structure which is to be proposed conducive, for instance, to growth of savings? Will it increase the growth; what effect will it have on income distribution; how can it be conducive to meeting the basic needs of the society?

 The first criterion is purely formal one — conformity with Shariah; the second, is to see if it is in conformity with Islamic economic system that we are envisaging a'; the present time. Then the third criterion, which I said, must be there, is to see if it is a viable structure at all or it will fall down by its weight. Now this is where certain safeguards have to be provided. The present banking system is a very involved system. It is not the simple thing; that there is a money lender who is a big boss who is lending to small fellows and trodding them under. That is not the case. The bank's money belongs to a number of people, of all shapes and sizes, the big shots are there; there are also very small people who have put in Rs.1,000 in their bank account. That money is being channeled by the banks and they are the trustees of that money and the system should be such that it protects the depositor also and gives him adequate rate of return. Unless we safeguard the interest of depositor, it will be firstly, a totally unfair system because it will be lacking in Adl which is so essentially required in any Islamic system.

 The point is that balance has to be attained between the client and the bank and the depositor and it is this balance which will certainly safeguard the interest of the depositor, provide them some earnings and also provide incentive for savings. Therefore, this is another factor. Now if we blow the things too much in favour of the borrowers and we say that the borrowers and the banks should depend on the word of the borrowers on how much profit they have earned then we will be doing a very wrong thing to the banking system. In a few years the banks will just become bankrupt. Now that is not going to serve the cause of any economic system whatsoever. Whatever system we evolve we have to be very cautious, that it is something which will not collapse by its own weight. It has to be a sound system which will lead to healthy banking, its health will depend on the health of the clients of the bank on the one hand and the depositor of the bank on the other. So that is the third criterion by which the structure has to be judged.

 TWELVE MODES OF ISLAMIC BANKING

 Now, finally before I leave you to your deliberations, I would mention a few things to which the conference may address itself at the present time. We have, as I have said, already announced some modes of financing which we consider are Islamic. Now, only about 12 modes have been listed. It would be useful to go into the depth of these modes. What should be the conditionality, for instance, consistent with Islamic principles, involved in each of the mode. We have generally mentioned that the State Bank have been laying down the maximum and the minimum rate of return. Will it be appropriate to do that in all cases or some of the modes? What should be the maximum or minimum rate of return to be laid down? What should be the criterion for instance, for laying down these rates?

 Now I may mention that in going into details in this process, we have got the precedent of Iran who have brought some legislation on the subject, and of course Sudan has got a very short legislation which only outlaws interest but does not really set up their structure. The main thing is that apart from the precedent of Iran we have to also look at our own conditions which will be different and try to see what precisely the content of the various modes and the conditionally attaching to them should be and how those modes should be regulated by the central bank. We have to be very careful to say that these are not all the modes. In fact if anybody who were to read the circular that has been issued by the State Bank we said these are some of the possible modes. The banks and their clients and others can think about new modes which are in conformity with the Islamic injunctions and which are there to provide financing for various desirable objects. This is the second part of the exercise which may perhaps by done today.

 What other modes are possible? Are there some more promising modes, which we have left out or what would be the conditionally and the character and the content of those modes. We have the whole gamut of government operations which are left out so far on which no decisions have been taken and some thinking on those is necessary. For instance what about the savings bonds and certificates, like savings certificates? What about even Prize Bonds? What is the character of Prize Bonds i.e. Islamic or un-Islamic? Can they continue? It is open to government, for instance, to give any rewards for the money which people, the savers give to the government. The inter-governmental operations, for instance, lending by the Federal Government to the Provincial Governments, is not perhaps something for this body to consider but certainly the savings bonds and borrowing by the government from the banking system and the individual is very much there which concern both the banks and the individuals because the people want to keep their savings in a way that the savings do not depreciate. What are the possible modes of savings, what should replace for instance, the Government Treasury Bills in which the banks are investing or the long-term bonds or the saving certificates and others.

 A vast field is there still to be covered and any bright ideas that are thrown up by the conference of this type are most welcome. I have already taken quite a lot of your time I will now leave you to your deliberations and leave the conference after hearing if there are any comments on what I have said on the general approach. Thereafter you can take up the papers of other speakers but I would not run out of this conference without replying to the questions which have been raised by me myself, because I think the first thing I pronounced was that there should be equality of opportunity between the speakers and those who ask questions. So I will not infringe on principle.

 ANSWERS TO QUESTIONS:

 (1) Rewards on Savings: I will give a few preliminary replies, of course, as far as I can to these points. The first question is of reward on deposits or the savings of the people. It has been said that the reward can only be interest. It need not necessarily be so. Because the money that governments get is utilized for the country as a whole, for the economy as a whole. Now what possible way of rewarding the savings would be to let them participate in the growth of the country. There is a possibility and the Minister also mentioned this possibility in his speech that the rate of return that can be given to the savings certificate holder or the depositor could be related to the nominal growth of GDP or GNP. In that case obviously it will depend on the growth that economy has actually attained and since the saver has made his money available and the money has been put to use for the country, he is entitled to share in the growth of the country that has taken place. This is one possibility which could be distinct from interest.

 If we say a fixed rate of return, then of course, it looks like interest, but the question is and this question has also been asked whether any thing paid by government can be regarded as interest. This is a very fundamental issue whether anything that is paid by government can at all be considered to be something in the nature of interest. Because generally the interest is paid by the borrower and the borrowers are generally supposed to be under-dogs and they were certainly the under-dogs in the old days. Now there may be big shots who are borrowing, but of course in the past some of the aristocrats also used to borrow and then bring their political pressure to bear on houses of Rotschilde or whoever the Jews were there who developed the initial banking system and they used their political influence. But most of the fellows who borrow from the big financiers were small fries as compared to them, because they had also got political pull through their money. So the interest was being paid by the under-dog essentially. Here the top dog, the government is paying. Is it the same sort of interest as is really considered Riba. Now this is a matter on which there can be difference of views and a number of people will certainly say that this is Riba because this is fixed like Riba and is time-related like Riba so it has a characteristic of Riba and irrespective of who pays, it is Riba. This view can be taken and has been taken and perhaps majority will take that view, but the other views are possible. I am only mentioning it. Apart from that, as I said, the rate of return or reward need not be a fixed rate at all. Atleast that will take it out of the context of interest from this point of view. So, various possibilities are there. I mentioned only one and raised a question about the second. But it is a matter which requires really a thought before the Ijma for the country as a whole. A consensus can be reached.

 Shariah Audit. We have the duty of inspection but inspection is conducted according to law. The State Bank sees to it that the law is being carried out by the banking institutions. The State Bank does not lay down the law. I think this clear distinction must be made. So far as the Shariat Board are concerned, they have a different purpose. They are advisers and say what is Islamic and what is not? Now from that point of view any learned man can give advice to the government and the legislature and the State Bank will give such advice as a layman. But the final decision of what is Islamic and what is not will be by the legislature and by the consensus of all the Muslims. Of course at present other legislature means the President and the Majlis-e-Shoora.

 The Application of Mark-up System: Mark up is decided by the State Bank and it will be done by the State Bank because there can be un-Islamic mark-up and there can be Islamic mark-up also. When we say mark-up it can mean hundreds of things and therefore-the content of the mark-up, its connotation and substance is very important and this is what we have to keep in view. Therefore when I said that we have twelve modes, each mode may be turned into an un-Islamic thing by a particular content and therefore it is very important that the content should be consistent with Islam. As for the audit by the State Bank, this is our function to see that the law of the land is carried out and we have got large inspecting cells for that. This is part of our job to see precisely the type of lending and even the maximum or minimum rate of return. Extortionate mark-up even though outwardly looks Islamic may not be really Islamic, because it is extortionate. Maximum rate of return also could be provided.

 Rate of return on Savings: Now when I said the rate of return may be related to the nominal growth of GDP does not mean it should be equal to nominal growth. It can be 120% of the nominal growth or 80% or seventy percent In fact the Treasury Bills can be at 60% of growth of GDP and it is quite on cost. Here we are dealing with the system which starts with the low rate of interest and return like the Treasury Bills and goes all the way to Khas Deposits. Now obviously if you are using the GDP growth it does not mean it is proportionate. It can be related and it can be half of the GDP growth. It depends on the economic situation. Certain flexibility has to be maintained. In fact in Islamic system as you are aware, even when the profit and loss sharing is taking place, the flexibility is there. So far as the loss is concerned, there is no flexibility. Everybody must share the loss in proportion to his investment. But the profit is not proportionately shared. The Banks can have 50% edge. The other man can have 200% edge. They can lay down any management fee for good performance. They can fix a particular rate of return and the rest goes to the entrepreneur. All these are possible and I think it has not been controverted that so far the distribution of profit is concerned it is a matter between the financer and the entrepreneur and in fact both are there on the basis of agreement. By mutual agreement they can regulate that.

 Similarly when it is the return paid by the economy it may be 100% of the growth of GDP. In circumstances where you want to generate the savings, which becomes very important, you can give 120% of GDP or growth in nominal terms. There is no harm in that. No decision has been taken on what the percentage should be and any ideas are welcome. But if I look at it from the Islamic point of view I see that the correct thing is that the percentage should be known, what economy will do is not known. That is left to the God. But the percentage must be known to us and we must share.

 In answer to the question, will it be corrected later on, on a different response from the economy, I will say that will be from next year or on further orders. It is almost the same in the interest rate system, the bank rate, for instance. When I said the maximum and minimum rate of return, the minimum rate will be somewhat like the bank rate and that is the minimum rate we have. The minimum rate was till further orders and it is being determined weekly. Of course we do not have to do it weekly; it can be done once in six months or as and when necessary. We can lay down the rates of returns.

 Character of the Banks. The character of the banks will change. The role of banks in Islamic context will certainly be different from the money lender's role. In fact, in modern banking itself, the banks have departed from the traditional money lenders' role. What they do with the money is banks' business so long as security and interest rate are alright is not correct. Even today the banks have to think not only about the security and rate of interest which they get but they have to see for what object the money is being used. For consumer's spending we do not give any credit. Consumer's credit in fact in Pakistan is not there even at the present time and there are number of other purposes for which credit should not be given, and we are restricted in it. Even for building houses the banks can give money only within certain limits.

 Therefore, even in the present system what is important is the objective for which the money is being used. What is conducive for the betterment of the society is important and this is the present objective of banks, and it would become much more so in Islamic banks, and all our banks will Inshallah become Islamic, will then be serving the objective of the Islamic economic system. Is it conducive to the growth of the economy? Is it conducive to ending exploitation? Is it conducive to correct distribution of national income? Issues like this will come up. So far the financing of the present units of banks is concerned, it is in accordance with and in line with the Annual Plan and this will continue.

 The character of the banks will certainly change in the Islamic economic system, because they will have to go a little more in the projects than they were doing in the past. But it will not be that dramatic a change as you think. Of course they go more in trade because when they are doing the mark-up they have to buy things. They have to see whether those things sire correctly priced. They have to go a little more in depth, to see whether the financed commodities are there, and the price is right because they have to buy the commodity and resell it. The involvement of the banks in profit and loss sharing will be greater in mark-up, will be greater in trading, will be greater in investment. Merely the security and the rate of interest will not be there. It is the rate of return which will be the predominant and how the profit is being shared, how the loss is going to be shared will be more important and they will have to see that the party they are financing will not be a party which will be one of the losers.

 Concept of Profit in Islamic System: There are two things: one is from what sort of activity profit is earned? If it is an immoral activity or illegal activity, obviously, it is not to be financed by the Islamic banking system or by anybody or any right thinking citizen. That is just ruled out. Then it is the question of relative priority which always comes up in the Annual Plan. But in a legitimate activity should there be a limitation on profit? Now this is something which really requires consideration and this is where the State Bank will fix the maximum rate of return. This question will arise in the context of banks not entrepreneurs. Of course banks may say they will share proportionately. If you are making 40% we will make 40%. That is possible. Now banks will, however, be hit by the maximum that we fix. That means the entrepreneur can make even 60 percent because he will give them 20 percent we fix, the rest he will get. Now personally I think if the activity is legitimate and if the profiteering is not there in the pricing of commodity, then there is no objection whatsoever to the entrepreneur’s making maximum profit, because after all he is operating in the market, along with others. If he is a monopolist the position will be different. In case of monopolies, the government must always intervene so as to maintain public interest. But if the entrepreneur is doing a legitimate activity, arid if he is in competitive market situation and if he makes 100 percent, personally I think the government is entitled to only income, tax.

 There can be no ceiling on the entrepreneur’s profit because so long as he is making profit legitimately that should be permissible. In fact he can re-invest it and in Islamic system the rich man of course can go to the kingdom of heaven, provided he distributes his riches. So that is upto him and if he makes a lot of money and keeps it and collects the gold, then there is the danger which Islam has very carefully spelled out, that those gold pieces you will get in a pretty hot condition at the appropriate time. So that aspect is very much there if he is a Muslim.

 State & Income Distribution Level: The income distribution level is taken care of partly by Zakat, partly by income-tax and partly by the voluntary action of the rich man because rich man as I said can enter the kingdom of heaven under certain conditions in Islam. Under the Christian ethics he cannot, because then he will have to go through the eye of the needle but in an Islamic system the rich man can save himself by serving the community and by distributing his riches. So there are three ways: firstly the income tax which is a State levy that equalises the income, secondly, Zakat which is a religious levy but now also state levy and compulsorily collected and that he must compulsorily pay. Then comes the question of Sadqaat and distribution of whatever is surplus to your requirements. This is the injunction for ail the Muslims which they can only ignore at their risk.

 Requirement & Surplus. This is really the crux of the whole ethics. What is surplus to your requirement? What is to be given is that which is surplus to requirement. Now what is the requirement? Is investment a part of the requirement, for instance, or only consumption is? Since the people are not so much motivated by consideration of the Hereafter at the present time, it is likely that most of them will not distribute their money. So I agree with you that there has to be an inbuilt bias also in our programme on the Annual Development Plan so that it should bring about income distribution which is more equitable.

 Theory of Money: Now finally, a theoretical issue was raised about money whether it is a commodity or mere value. Personally I would not really go into it at all because as I said it may be important from the theoretical point of view but it is not really important from the practical point of view. You can use these concepts for working out theory of money but from the practical point of view of banking, money is money whether we call it commodity or mere value. It is well understood what it is and therefore I would say that any philosophical or academic discussion of this will be of course quite fruitful in the long run and giving rise to monetary theories under the Islamic system but from; the practical point of view it will have a limited utility.

 International Transactions: I did not refer to the international relationships because I thought that was covered by the Finance Minister's speech and this programme does not cover that. I am afraid, so far as the international transactions are concerned, we will have to continue them on interest basis and even the foreign exchange deposits inside the country will be on interest basis. Secondly interest will be there against existing commitments. Those commitments will not automatically be retired and I think the Minister also made that point very clear. So when I said that we will be shifting over both on assets and liabilities side in the current financial year to the Islamic system, this was subject to those two very important provisions which the Minister himself had made.

 Depositors Control: Now coming to the second question regarding the depositors whether they will really have any control, on how their deposits are going to be used. I am afraid not, because if you can devise a system of control. First of all we will have to have a round table conference of depositors. It is just impossible because they are millions and millions of them and they cannot really have any say. However if they get a rate of return which is not satisfactory to them, they will move to other financial institution. That right they have got. They can withdraw their deposits and move to other institutions where they get a better rate of return. The balance sheet is published under the present system of law and I have no doubt that the depositors will be entitled to have a look at the balance sheet if they want and if they can make head or tail of it. It does not tell much or give any thing away but there it is. But we find that actually that has not affected the shift of deposits to any considerable extent. People like to bank with one bank and they keep on doing that and this is the position. You will have your own experience. Have you been changing from one bank to another? People just stick to a bank and now we find this very clearly because even when they are getting about 1% less they stick to that bank.

 Predetermined Sharing Ratio: The principle is that it will not exceed 10% of the net profit if they have. Now this is the maximum. The maximum is laid down and is very clearly laid down that you will not get more than 10% but supposing your bank says that "we are philanthropic and do not want to let down our depositors, let them have this 10% also. Why should we come in the way? Now therefore, the present rule is that it will be 10%. If the bank does not want it-then they can have 5%, 2%, 1%, 0%, it is their choice.

 This is one of those things which you can certainly raise in this conference and you can consider the advantages and disadvantages of that system. But the present arrangement which gives them a maximum and then allows them not to take it I think is quite in favour of the depositors. Of course the other thing will also restrain, perhaps the expenditure of bunks but I tell you that it is not nowhere near the range you are thinking of 35% and the cost of operation is very very low.

Principle of Islam & Adam Smith: The position is that in fact the principles of Islam has been adopted by all the countries of world. There is no country that I know of which has not adopted one or the other principle of Islam, the equality the brotherhood of man, the equality of opportunity, all of them spouse that thing. Though they .do not practice it but the fact is that not only Adam Smith but even the persons before him and after him advocated these concepts. The Islamic values are now the values of world and they are the values not only of the Muslims but also of non-Muslims. The position is that the values that came fourteen hundred years ago still rule the world today. But unfortunately, most of the people only give up loyalty to them. They do not make part of their lives. The important thing is really to make them part of our lives because without them the whole concept of human destiny is missing.

Mr A.G.N. Kazi is the Governor of the State Bank of Pakistan. An experienced civil servant and financial expert, he has held several top ranking posts in the Federal Government before taking over as head of the State Bank.