III
ECONOMIC SYSTEM OF ISLAM: SOME SPECIFIC ASPECTS

Within the basic framework outlined above our writers have discussed such specific aspects of the system as public finance, money and banking, social security and insurance, industrial. relations and development and growth.

Public Finance
A vast literature is available on public finance in Islam in view of the explicit provisions in the Shari'ah in this regard and the historical material available on the subject. Besides Aghnides' Mohammedan Theories of Finance a number of specialised works are available, though mostly historical and descriptive in nature (331; 293; 298) .¹⁰

This is also true of the chapters on public finance found in almost every work on the economic system of Islam. Our interest lies in the way the operation of Islamic institutions like Zakat and the application of general principles of policy derived from public finance in early Islamic history is visualised in modern circumstances.

Zakat

The centre piece of Islamic Public Finance being Zakat, its coverage, rates, beneficiaries and administration have been discussed in detail. The most comprehensive work in Qardawi's Fiqh al-Zakat (313). In English "The Law and Philosophy of Zakat" is less original yet comprehensive on points of law (319). Among economists A. Mannan's book (132) has a good chapter on Public Finance and Fiscal Policy, and some of the younger economists have offered analytical pieces on the subject (623; 624; 615). ¹¹

(a) Coverage

It is generally agreed that the coverage of Zakat has to be extended to forms of wealth not known in the early days of Islam. Shares and securities, savings in the form of insurance premia and provident funds, rented buildings and vehicles on hire, machinery and other capital goods. Qardawi (313,1: 139, 466-486, 581-573), Abu Zahra (300: 181-186) and Mawdudi (5 I : 33 )9-342, 35 P363) discuss the application of Zakat to these assets and the rates applicable to them.

Many issues continue to be controversial, one of them being the Zakat on machinery and capital goods. Mawdudi regards only the marketable produce of industrial units to be subject to 2.5 % annual tax, like all other merchandise (51: 339) exempting capital goods and machinery installed in these units from Zakat. Akram finds this view to be inconsistent with Mawdudi's opinion on Zakat of shares in industrial concerns (613: 102). Abu Zahra advocates a 10 per cent tax on the net income (profits) of these concerns (300: 184). Qardawi endorses his view subject to two important modifications. Firstly, he categorises rented buildings and vehicles on hire and also such enterprises as poultry farms and dairy farms along with industrial  units. Secondly, in all these cases he advocates a 10 per cent levy on profits net of depreciation costs (313, 1:476-482). A. Mannan also stresses the need of making due allowance for depreciation and adds that "the question of the rate of Zakat is linked up with productivity which varies from industry to  industry". He pleads for a flexible rate "so that the element of progression may be introduced in fixing the rate of Zakat" (132: 291).

Similar controversies surround some of the other forms of wealth mentioned above. The number of opinions, arguments and counter arguments in each case being too many to be recorded here. Our interest lies in the economic aspect of the discussion rather than in the points of law involved and their interpretations. Analogical reasoning is often supplemented by a reference to the public interest, equity and incidence, etc. The entire issue awaits a thorough re-examination in which the new taxes are seen as part of the whole structure of Zakat taxes, paying careful attention to their functions in the, economy.

(b) Rates

The ulema are unanimous in regarding the rates of Zakat as permanently fixed by Islamic law, but a number of recent writers, mostly economists, argue in favour of making these rates amenable to modification by the state. Afazuddin (6121 : 10), Izadi (613: 14), Husaini (121: 200-205), Salih Tug¹² and Mahmud Ahmad take this stand. Mahmud Ahmad (168: 133) quotes Maulana Abul Kalim Azad's letter to him in support of his view. The economic arguments in favour of flexible rates are met, however, by the ulema when they point out that the state is empowered to levy additional taxes, over and above the prescribed Zakat. It is, therefore, in case of the "new forms of wealth", for which no explicit provisions are found in the Shari'ah that the arguments in favour of flexible rates have practical significance.

The arguments in favour of valuation of the nisab, i.e. the exemption limits prescribed. by the Shari'ah are, however, more formidable, economically speaking. Akram refers to the anomalies existing in the present structure of nisab (613: 103) and a change in nisab has been advocated by Rafi'ullah (314), Zayas (321: 74-76), Uthman (79  ) and Fanjari.¹³  Hasanuzzaman also pleads for rethinking on the subject with a view to having a uniform nisab."¹⁴

Waqar Husaini takes the position that "the exact types and rates of taxes used by the Prophet Muhammad need not be applied in contemporary times" (121: 204). The main economic reason is stated as follows:

"Logically and practically it is impossible to treat as watertight compartments the three branches of fiscal planning: resource allocation, economic stabilisation and income and wealth distribution... In a smoothly running Islamic economic system, the redistribution function through progressive taxation would wither away, leaving it the task of merely maintaining the egalitarian economic system with proportional taxation. To achieve and maintain such an egalitarian system, except for minor direct transfer payment, mainly to those mentally and physically deprived of the capacity to earn, the main he adds of expenditure of Zakat/ Sadaqah/Infaq tax revenues would be in the resource allocation and stabilisation branches. This would be consistent with the multiple goals of the Islamic Economic System, spending on all the beneficiaries enumerated in the Qur'an by maintaining full employment and enabling everybody to acquire earned income and wealth in a manner that preserves human dignity". ¹⁵

Husaini's stand is contrary to the consensus on the juristic principle involved. There has been unanimity as to the sanctity of the rates explicitly fixed by the Prophet. This permanence has been regarded as a virtue as it rules out tampering with the law of Zakat by the rulers with a view to reducing the share of the have-nots in the wealth of the haves. As regards the need for increasing this share, the state is allowed to levy additional taxes. This coupled with the flexibility in disbursement of Zakat funds, introduces sufficient flexibility in the system to enable it to meet the changing requirements of fiscal planning. One of the major roles of progressive taxation in a modern economy is an equitable sharing of the burden of raising income for the state. Progressive taxation ensures equitable sharing of this burden. As the need for such income is likely to go on increasing, there is no possibility of doing away with progressive taxation.

(c) Disbursement of Zakat Revenue

Among other issues on which there is a difference of opinion is the way Zakat benefits should flow to the various groups of the beneficiaries listed in the Qur'an. Some ulema insist on direct transfer payments to the beneficiaries. These include Mufti Muhammad Shafi of Pakistan (317: 59-62). Most writers, however, permit the Zakat benefits to flow to the beneficiaries indirectly through institutions providing needed services. These include Mawdudi (51: 350), Amin Ahsan Islahi (309) and Ya'qub Shah (318: 48). According to Qardawi the beneficiaries fall into two groups. To the first, which includes the needy, the officers in Zakat administration and "those whose hearts are to be won over" the Zakat revenue must be transferred directly. The rest can receive the benefits indirectly (313, IL. 612-614, 633). But Islahi argues that the insistence on direct transfer to certain beneficiaries has no basis in the text of the law (309).

Some writers tend to interpret the category "in the cause of Allah" too .broadly to include all social services, but Qardawi's thorough discussion on the subject limiting it to the promotion of the cause of Islam in general, in all its possible forms, appears to be  balanced and decisive (313, 11: 635-669). Most of the specific suggestions made by Muhammad bin Jamal (625) can be accommodated in the broad framework provided by those who do not insist on tamlik in every case. Such is the stance taken by the Jama'at-i-Islami Pakistan Economic Committee Report (126: 93-96).

Akram. sees a useful instrument of fiscal policy in the discretionary use of the principle of tamlik by the Islamic State (61-31: 107).

(d) Zakat on Agricultural Produce and Mineral Wealth

The Zakat levy covers the agricultural produce in the form of 'Ushr and its half depending on whether the land is irrigated by Nature or by, man. This levy applies to every Muslim. But some lands are subject to Kharaj, or land tax (i.e. rent payable to the. state), irrespective of who owns them. According to majority opinion a Muslim owner-cultivator of such lands will pay Kharaj as well as Ushr (or its half), as Qardawi has explained (313, I: 415).

The majority opinion levies Ushr (or its half) on the gross produce of land, but Qardawi has convincingly argued the desirability of making an allowance for the costs incurred or fertilisers, seed, etc. (3 I ), I: 39 397). The same view is taken by Abd al-Salam. ¹⁶

On mineral wealth contemporary opinion tends to gravitate towards making the state own all such resources and assuming the responsibility of exploring and exploiting them (Syed Qutb (62: 121) and Siddiqi (221, It: 19-22)). Individuals who discover any mines may be awarded prizes or given concessional contracts for their exploration.

Several writers, including Qardawi discuss the principles underlying Islamic taxation which are shown to be in conformity with the criteria laid down for just and efficient policies by the modern economists (313,. 11: 1038-1052). Atif al-Sayyid¹⁷  explains how Zakat surpasses all civic taxes in having three virtues: the Zakat payer has a deep sense of duty towards the Law-Giver, he has a genuine dedication to the aims and objects of this levy and he is aware of his ability to pay it. Mabid Mahmood finds in Zakat a powerful means of redistributing political power which he regards to be a function of wealth (624: 43). Several writers discuss the economics of Zakat in relation to savings and investment to which we shall turn later in the chapter on economic analysis.

Inheritance

The Islamic laws of inheritance are invariably mentioned by our writers along with Zakat in view of their redistributive function, and their role in removing concentrations of wealth is highlighted by almost every writer. Whereas Zakat redistributes wealth in the present generation, the Islamic laws of inheritance do so between the outgoing generation and the present one, so that the wealth accumulated at one point, despite Zakat, is further dispersed.

Social Security and Insurance

Social security is generally discussed in the context of Zakat. Historical material on how the early Islamic State arranged social security, is presented by almost every writer on the subject. It is affirmed that new institutional arrangements can always be devised and the various institutions in modern welfare states are referred to approvingly. The principles involved have been discussed,-among others, by Baqir al sadr (171: 615-623). The subject has also been discussed at the International Islamic Conference at Cairo, Kuala Lumpur and other places and practical suggestions mooted (300; 405).

Besides Zakat which provides the Islamic State with funds to finance social security measures, Islam lays great stress on voluntary assistance to the needy. An elaborate concept of mutual responsibility has been presented by Sayyid Qutb (62), among others. Kashif¹⁸  conceives of a social security scheme in which the state collects Zakat from the haves and transfers it to the have-nots; the employers contribute towards the pensions and Provident Funds of their workers; and the individual with a capacity to pay, contributes in the  form of insurance premia. While Zakat caters to the poor and the needy, insurance takes care of the risks to which life and property are exposed.

Insurance

Insurance continues to be one of the most controversial subjects in the literature. Opinion is sharply divided both on the principle of insurance and the forms of its organisation.

Several writers see nothing wrong in insurance, in so far as the basic principles underlying insurance are concerned. It is free from gambling, can be freed. from interest which is involved in its present practice, and the ignorance (jahl) and uncertainty (gharar) involved are not of a degree large enough to call for its prohibition. These writers include Zarqa (380)¹⁹, Yousuf Moosa (256: 101, 181), Ali al-Khafeef (361), Mohammad al Bahy (351), Sanousi (373), Roohani (372), Tahawi (77,1: 441-470), Taqi Amini (556: 231-232), Sheikh Mahmud Ahmad (168: 201-203), A. Mannan (132: 353-360), Siddiqi (374), Shaheedi and Awad.²⁰

Some writers agree with this view so far as general insurance is concerned, but they find life insurance unacceptable as it involves gambling and uncertainty and militates against the Islamic conception of taqdir. Abu Zuhra (376; 365), Ahmad Ibrahim (357) and Shaukat Ali Khan²¹ take this stand.

There are some ulema (Scholars of Islamic Law), who find an element of gambling in all kinds of insurance as a matter of principle. They also find some other objectionable features, such as riba and uncertainty (gharar) inalienably associated with insurance. Some of them, finding that it does not conform to any one of the various contracts validated by Islamic jurisprudence, regard it to be an unnecessary innovation. Sheikh Bakheet (355: 72), Abdullah al-Qalqeeli (365), Mustafa Zaid (597; 376), Mufti Mohammad Shafi (531), Jalal Mustafa al Sayyad²²  and Shaukat Ali Kahn²³  take this stand.

Those who find insurance acceptable in principle generally prefer mutual insurance which is organised on a co-operative basis and does not lead to exploitation. The same is true if insurance is organised by the state. But commercial insurance involves exploitation and certain other objectionable features, and is therefore ultravirus of Islam. Abu Zuhra (355; 376; 365), Issa Abdouh (350), Muslehuddin (369), Dasooqi (355) and Ahmad Fahmi Abu Sunnah²⁴  who otherwise find the principle of insurance acceptable, have offered this opinion. Attar ²⁵ refutes the view that insurance is gambling but he finds it unacceptable as most of its present forms involve a high degree of uncertainty and the possibility of fraud. He allows mutual insurance schemes but prescribes a number of measures directed at purging commercial insurance of its undesirable features (pp. 41-42). He envisages a system of insurance which is based on Zakat.

Several writers, including Sheikh Ali al Khafeef, Zarqa²⁶  (380), Siddiqi (374) and Tahawi (77, I: 441-470) argue, however, that the same principle underlies all forms of organised insurance. It is possible to regulate commercial insurance in such a manner that it functions without exploration.

Mawdudi has opined that insurance, which presently involves interest, gambling and a violation of Islamic laws of inheritance can be reorganised free of these evils (51 : 408-411). But he has not spelled out the details. The same is true of Yusufuddin (165, II: 452-454).

Insurance has been discussed at a number of Islamic conferences but a favourable verdict on commercial insurance has been withheld in view of the objections of the above-mentioned eminent scholars. This is brought out by the resolutions passed at the 1965 Islamic Research Congress at Cairo (211) and those adopted in 1969 at Kuala Lumpur (405: 202). As recently as 1976 the First International Conference on Islamic Economics held at Makka resolved that: "The Conference feels that commercial insurance as presently practised does not realise the Shari'ah aims of co-operation and solidarity because it does not satisfy the Islamic conditions for it to become acceptable.

"The Conference recommends the establishment of a committee consisting of specialists in Shari'ah and Economics to recommend a system of insurance which is free from riba and speculation, promotes co-operation in accordance with the Shari'ah, and helps replace the current form of commercial insurance."²⁷  Most of the ulema in India and Pakistan responding to a questionnaire issued by Majlis Tahqiqat Shari'ah, Lucknow (366) also regarded insurance as legitimate in principle.

The most important issue in the controversy is whether insurance involves gambling. Those who insist that it does quote the relevant definitions given by early jurists. But several writers including Zarqa (380), Ali a] Khafeef (361), Attar, Awad²⁸  and Tahawi (55, I: 451) have pointed out the difference between insurance and gambling. Siddiqi has shown the difference between the risk taken by the gambler, which he creates for himself, and those involved in the ordinary business of life that the. insurers try to meet, utilising the law of large numbers, at a cost (374). He has also discussed the economic roles of gambling and insurance. Gambling upsets the normal system based on work and reward and is inimical to equitable distribution of income and wealth, whereas insurance protects the disruption of the system by accidents and events beyond human control. Sayyad²⁹ has failed to take these points into consideration and dismisses some other dissimilarities between gambling and insurance on insufficient reason.

Next to gambling the commercial organisation of insurance has been the target of attack. The recent trend has been in favour of nationalisation of insurance. Most writers make a plea for a comprehensive system comprising Zakat-based social security and insurance administered by the state. Mutual insurance should be allowed in matters not covered by the state system. As regards commercial insurance it may be allowed to function in certain areas where great importance is attached to innovation and initiative (374).

Most of the contributors on the subject have been ulema who have little knowledge of Economics. As a result there is little economic analysis in most, of the works on the subject. Very few have referred to the law of large numbers which lies at the basis of insurance and little effort has been made to assess the economic significance of insurance in modern life. Some writers seem to be under the misconception that a comprehensive social security system will do away with the need for insurance. They fall to distinguish between the fulfilment of needs and arrangements designed to increase efficiency and ensure the smooth functioning of large-scale business and industry.

They ignore the obvious point that individuals should be encouraged to provide for themselves, as far as they can, and protect themselves against insurable risks. The state should be called in for helping only those who do not have the capacity to do so, or fall to do so.

As ably argued by Fanjari in a recent paper,³⁰  there are separate roles for Zakat-based social security and insurance organised on the basis of contributions made by the individuals involved (pp. 7-8). This point is increasingly being appreciated and one tends to agree with Fanjari that the area of consensus is widening and that of controversy shrinking in respect of commercial insurance also (p. 35)

Money and Banking

It is the privilege of the state to issue money and control its supply, that much is above controversy. The introduction of paper currency raised some new issues for the jurists but it was soon agreed that it made no difference.

Baqir al Sadr (171: 325-331), Mahmud Abu Saud (5), Mahmud Ahmad³¹  and Kahf (612: 65-68) have paid special attention to money and its role. Baqir and Saud conclude that the use of money as a store of value is a source of many troubles. While Baqir regards Zakat, which discourages idle cash balances, and abolition of interest, which frustrates the desire to earn guarantee d profits by using such money, as sufficient remedies for the troubles in the Islamic system, Abu Saud does not stop at that. "It is necessary to issue a new kind of money and subject it to a tax other than Zakat to check hoarding and ensure its continuous circulation and stop all usurious earnings, arising from it" (5: 47). As a practical measure he favours the idea of stamped money,³² suggested by Gessel and briefly tried in the municipality of Woergl, Switzerland in 1922 (5: 40-45). The idea has failed, so far, to find support in the literature, ³³ One tends to agree with Kahf when he says that "Abu Saud's proposal discriminates between money assets and non-money assets" and "involves injustice by not taking into account the change of hands during the period and leaving the whole burden of the stamp on the last holder" (612: 67). Kahf thinks that, generally speaking, Islamic writers have overlooked the inter-temperal use of money, i.e. its function as a store of value, which is a boon and not a bane.

Of special interest in the context of money in an Islamic economy is the contribution of Mabid al Jarhi³⁴  who pleads for the creation of a "flat means of exchange" by the state and their supply free of cost (i.e. interest) to the public. This method, adopted alone, with abolition of interest will raise real income.

Akram has discussed money in the international context. An "Islamic solution" to the present international monetary crisis lies in prohibiting interest, speculation, hoarding of gold and suspension of the foreign exchange market, the central banks becoming the only dealers of foreign exchange. Private use of gold may be banned and all the gold mined should flow directly to the monetary authorities (558). Such sweeping reforms cannot be considered, much less accepted, unless they are supplemented by a detailed. discussion on the pros and cons, which Akram fails to provide.

Banking

The Islamic evaluation of modern banking centred around the evils of the institution of interest. Very soon it developed into an exploration which bears great promise of giving modern man a new and just institution, of banking without interest.

In discussing modern banking some writers attack the institution of credit and its creation by commercial banks. Mawdudi's otherwise brilliant study is a case in point (521: 117-133). Issa Abdouh also thinks that credit creation by banks is prejudicial to the interest of people with small incomes (382). Muhammad Uzair blames wide fluctuations in money supply and credit creation for trade cycles (422). This trend culminates in the suggestion made by the Economic Committee of Jama'at-i-Islami Pakistan that the power to create credit be taken away from Commercial Banks (126: 80-82). Kahf also deprives private sector banking of the power to create credit, which should be the privilege of the state, the sole creator of money (612: 65-68). Naseer A. Sheikh also regards the power of banks to create money or to extend credit to be the cause of money ills 3.5 (154: 78), and so do Assal and Fathi. ³⁵

A: Banking Without Interest

The earliest references to the reorganisation of banking on the basis of profit sharing rather than interest are found in Qureshi (526), Naiem Siddiqi (419) and Mahmud Ahmad (168) in the late forties, followed by a more elaborate exposition by Mawdudi in 1950 (521). We are not aware of any work on the subject in Arabic during the forties. Three early works on Islam's economic system in Urdu by Hifzur Rahman (120), Gilani (28) and Yousufuddin (165) do not mention the subject.

Qureshi's reference to the subject is brief (526: 156-160) and it s based on a wrong notion of mudarabah. Naiem Siddiqi is more elaborate, having separately discussed the depositor-bank and bank-businessman relations. He suggests a larger share of profit on long-term deposits, as compared to that on short term ones. Despite originality, his scheme also suffers from a misconception about mudararbah (419) Mahmud Ahmad bases his scheme on partnership. It is not. entirely clear whether he distinguishes mudarabah from Shirkah (168: 190-224). In Mawdudi's scheme deposits will be accepted from the public on the basis of partnership, profits being distributed on these "shares". Deposits will also be accepted as "loans" repayable on demand and "amanat" repayable on demand. The "loan" deposit funds will be utilised by the bank for making advances to businessmen on the basis of mudarabah, a facility against which they will be obliged to give short-term interest-free loans from out of the same funds.

Mawdudi has expressed himself against collection and disbursement of Zakat funds by Islamic banks (133: 304-305).

Though a small booklet of 21 pages, Muhammad Uzairs "An Outline of Interestless Banking" has the distinction of being the first published work exclusively devoted to the subject by a professional economist (422). It contains the core of all the future proposals on the subject, basing depositor-banker and banker-businessmen relations on mudarabah, which is defined correctly. It does not discuss central banking and takes the unrealistic stand that there should be no credit creation. It contains a good, though brief, discussion on international financial relations. In a later study (423) Uzair suggests centralised management of all foreign transactions in the banks of the state.

Ahmad Irshads work (400) is also devoted exclusively to the subject and. contains useful suggestions on the creation of reserve funds to absorb losses. It discusses Industrial Development banks building corporations and consumption loans. The scheme suffers from a wrong notion about mudarabah as sharing of both profits and losses by the business partners.

Abdul Hadi Ghanameh's 1968 paper on the subject (392) takes a line different from the one along which further thinking on the subject has developed. He relies on issue of common stock for long-term financing and the use of mutual funds for short-term financing. "A mutual fund is an investment company that buys the common stock of other industrial or commercial companies" (392: 96). Unfortunately, the comprehensive book which Ghanameh promised in this paper is not available to us to enable a detailed comparison between his scheme and the one that seems to have now found general acceptance.

Muslehuddin³⁶ rejection of mudarabah as the basis of interest-free banking is largely a product of his narrow legalistic approach to mudarabah and of his failure to realise that the very concept of banking is bound to undergo a change once it is organised on a basis, other than interest - a point ably argued by Tawfiq Shawi.³⁷  One such change is a sharp decline in the banks' lending activity and an increase in investment proper.³⁸  As a matter of fact, an interest-free bank cannot function as a purely commercial bank.

Muslehuddin's contention that the "Islamic bank will not be able to make advances to the concerns which have already invested capital of their own ... for it will be quite against the principle of mudarabah,³⁹  has no basis in Islamic Jurisprudence and ignores the evidence cited in favour of the contrary from all the four schools of Islamic Law" (176: 72-85).

Another argument against the feasibility of mudarabah is fear of fraudulent practices by banks' business partners who may understate 'their profits. This view has been controverted by pointing out the possibility of financial and management audit taking care of such practices. It has also been argued that firms falling to report good profits will lose the chances of getting  more bank advances and this would serve as a deterrent to such practices. ⁴⁰

As regards the supply of short-term credit in an interest-free system it is recognised by almost every writer on the subject that mudarabah can be a basis of such credit only to a limited extent. This does not, however, preclude other solutions as discussed below.

Having rejected mudarabah, Muslehuddin fails to provide an alternative basis for interest-free banking. As banking for him means commercial banking, he ends up with a plea for allowing the banks to realise "service charges" on loans ⁴¹. The main issue of inter-mediation between savers and investors on a basis other than fixed-interest payment remains unresolved. The view that mudarabah cannot provide an alternative to interest in the reorganisation of banking has also been expressed by Dr. Mahmud Abu Saud on a different ground.⁴²   He thinks such a reorganisation will lead to the emergence of a "black market" in which interest will reappear.⁴³  Should the authorities succeed in enforcing the legal prohibition of interest successfully, savers will prefer the stock market and buy shares rather than deposit in mudarabah banks.⁴⁴  Hoarding will increase and the monetary authority will be constrained to create more and more cash.⁴⁵  This, coupled with the increased demand for interest-free loans and the possibility of the sudden release of the hoarded cash on the stock exchange will pose a constant threat of inflation to the System.⁴⁶ 

His own solution to these dangers lies in Zakat which can be best applied by taxing money in circulation in a way similar to that suggested by Silvio.⁴⁷  Gessel. We have already examined this suggestion above. It is obvious that Abu Saud has not cared to examine in detail the recent elaborations of the mudarabah based model of banking, briefly discussed below. His reference to this model as the "Mawdudi-Qureshi Schlool"⁴⁸  and his failure to take notice of the more systemic works appearing in the sixties and seventies bears this out.

A mature and comprehensive model of interest-free banking has resulted from works appearing in the late sixties by the late Dr. Abdullah al Araby (384), Siddiqi (417), Baqir al Sadr (387) and Najjar (414). Followed by the Egyptian study in 1972 and the deliberation at the Karachi Conference of the Finance Ministers of the Islamic Countries in 1970, they lead us to the adoption of the charter of the Islamic Development Bank in 1974, which is the first major institution of its kind in history. In between we have the "Kuwaiti Investment House" project (405) and some periodical literature contributed by Shalbi (415), Mahmud Ahmad (6228), Huda (397), Mannan (407), Muhammad Uzair (420; 421) and Ibrahim Dasooqi Abaza (381).

A. Mannan's textbook on Islamic Economics (132) has a separate chapter on the subject, and Dr. Issa Abdouh has also written on the subject (382; 505).

More contributions have been made during the early seventies, including fairly comprehensive, studies by Gharib al-Gammal (391), Mustafa Abdullah al-Hamshari (396) and Sami Hamud, ⁴⁹  besides the papers presented at the Makka Conference on Islamic Economics.

With the exception of Najjar's scheme, the first mentioned works conceive the bank mainly as a financial intermediary mobilising savings from the public on the basis of profit-sharing (mudarabah) and making advances to entrepreneurs on the same basis. Profits of enterprise are shared by the bank according to a mutually agreed percentage. The bank shares these profits with depositors in the mudarabah accounts according to a percentage announced by the bank in advance. Liability to loss in capital in the bank entrepreneur deal attaches to the bank, though the bank is not likely to incur losses on the totality of its advances due to diversification of investments. Depositors in mudarabah accounts can be absolved of the risk of loss, attaching to them in principle, by a number of practical devices. A different position is taken by Baqir which is noted below. The banks shall also accept deposits in current accounts with the promise to pay on demand. No profits are to be paid to such depositors from whom a service charge may or may not be collected. The bank shall be obliged to grant short term interest-free loans on a limited scale.

This being the essential core of the model, individual contributions have special features to which we turn now.

Najjar's banks are institutions designed to promote savings and effect their useful employment in the rural sector. They would be actively involved in developmental. projects resorting to partnership, instead of mudarabah. They have a "Social Service Fund" attracting Zakat donations from the public and organising social services in the locality. They are a decentralised chain of institutions sharing the features of a local bank, a co-operative society and a social service organisation. Najjar does not discuss the other issues involved in commercial banking and central banking. He regards the reorganisation of banks without interest as part of the larger issue restructuring the backward economies of the Islamic countries so that stagnation is ended, dynamism introduced and the process of development started, utilising Islamic values and traditions. The model of interest-free banking, he presents is incidental to this larger theme.

Baqir's work is a response to a questionnaire by a group of people in Kuwait who wanted to know how they could launch a banking company without interest. He presumed that he had to take as given the actual, reality obtaining in Kuwait and elsewhere, that the rest of the' system continues on un-Islamic lines, and the other banks and financial institutions with which the proposed bank would have to interact and compete continue to function on the basis of interest (387: 57). Accordingly his work does not, answer the theoretical but larger question: how banks would a function in an interest-free Islamic society. His frame of reference also excluded any discussion on credit control, consumer finance and finance for the government. Credit creation and financial papers are discussed in the very limited context of the operation of a single interest-free bank surrounded by a sea of interest-based institutions.

Unlike Najar's banks, Baqir's bank is a financial intermediary not directly participating in productive enterprise. Another significant feature of his bank is that depositors are absolved of the liability to loss, even in principle (387: 72,187). He is mostly concerned, however, with the juristic justification of this guarantee and does not go into its economic rationale. This preoccupation with the legality rather than economics of the various provisions he has suggested has deep impact on his entire work. For example, he discusses the various "valid" ways of the bank charging a fee (Ji'ala), which appear to be devious methods of ensuring a reasonable income to the bank itself - something to which a straightforward approach or is also possible. He has even suggested that the bank make a deposit with some other (interest-based) bank in order to earn interest to meet a particular need (387: 104). Such a suggestion may not be morally repugnant to some people, but what is important for this study is its irrelevance for Islamic economics where what matters are viable alternatives to the present arrangements that have universal validity.

As exemplified by Baqir's Appendices three and five, his keenness to absolve the depositors of even the theoretical liability to losses has given rise to serious difficulties relating to the legal status of the bank and justification of its share in profits. It is no longer the working partner ('Amil) in relation to the depositors and the capitalist partner in relation to the businessmen, in mudarabah contracts a position it enjoys in the models suggested by Siddiqi and Abdullah al-Araby. He seeks to resolve this difficulty by relying on particular juristic opinions whose general acceptability is very doubtful. Kahf rightly notes "the suggested application of the principle of the prize, Ji'ala as called in Islamic jurisprudence, as percentage of the time deposit bears only a formal difference from interest and I could not find any difference between them as far as content is concerned", and that "to have a workable set up in the long run being built on legal tricks as part of its structure does not seem to me logically sound" (612: 91-92).

Though the major part of Abdullah al-Araby's paper deals with the evils of contemporary banking, his brief discussion on interest-free banking contains the essential core of the model stated above. Besides, he has also discussed international banking, agricultural banks, industrial banks and savings banks.

Siddiqi is mainly concerned with the economics of interest-free banking, having disposed of the juristic issues in a separate work (249). He has full length discussion on the creation and control of credit, consumer finance and finance for the government and, provision of short-term interest-free loans to business. He introduces certain financial papers to replace bonds and securities. His main contribution lies in a number of novel suggestions relating to central banking.

"The central bank will offer refinance facilities against interest-free loans made by the commercial banks, in case these banks need additional cash to maintain their liquidity. The extent of accommodation provided by the central bank will be fixed as a ratio, to loans made by commercial banks"(158: 105).

It is pointed out that the "refinance ratio" would serve as a means for contracting credit in inflationary situations and as an instrument of selective credit control, as different refinance ratios could be fixed with respect to loans given to different sector of the economy (158: 105).

Siddiqi suggests the use of "shares" issued by the government for financing public sector enterprises as a means of open market operations by the central banks (417: 123-129). Loan Certificates of various denominations and different maturities, to be issued by the government, are suggested as a means of providing short-term finance for it. He suggests tax concessions as an incentive to the "buyer" of these certificates (417: 149-182). He has also suggested how incentives could be built into the system in order to make the banks provide short-term interest-free loans for business (417: 44-60). The problem how to ensure an equilibrium between the demand for interest-free loans and their supply has been discussed by Siddiqi in his recent paper.⁵⁰  Much of the demand for call money and very short-term loans emanates from within the financial sector itself and is likely to be eliminated as that sector shrinks in consequence of the abolition of interest. In the production sector, the total demand for short-term credit depends on the volume of long-term investment and the extent of trade credit (credit by one firm to another). Credit needs for the week or the month can be estimated at the macro-level. This could be done by the central bank - which would then ensure a supply commensurate with the demand by manipulating the "refinance ratio" and the "lending ratio". The task of allocating these loanable funds at the micro-level would then be performed by individual banks on the following criteria:

1. Specific credit needs of a firm.
2. Social priority attaching to the enterprise.
3. Nature of the security offered against the loan.
4. Whether the credit seeker has also obtained long-term advances from the bank for the same enterprise.
5. Annual, monthly or weekly average of the applicants balance in current account with the bank.

It is within the competence of the Central Bank to exercise direct and indirect influence on banks decisions on the second ground. Discriminatory use of the refinance ratio is a case in point. Banks are expected to prefer good securities over the not so good and patronise client firms over enterprises in which they have no stakes. A credit seekers average balances in the current account may Provide a basis for overdraft facilities one form in which short-term credit is granted.

"The Egyptian Study on the Establishment of the Islamic Banking System" envisages a Zakat Fund and a "local and public Islamic Fund", besides organising the normal banking functions on the basis of mudarabah. While the essential core of the model remains the same as stated above, the proposed scheme has a number of distinguishing features.

Depositors in the current accounts are offered, besides being free from service charges, "a part of the profits due to the bank as its contribution" (390: 20). They are given priority in banking services such as accepting bills of exchange" without interest. Depositors in "savings accounts" are offered overdraft facility, without interest, as well as other services such as letters of credit and acceptance of their bills of exchange, besides their due share in profits on the basis of mudarabah (390: 21 ).

As regards interest-free loans to the public, they may be given out of Zakat funds. Regarding bills of exchange two ways are suggested. The bank may give cash to the creditor and become a sharer in the profits of the buyer, on the basis of mudarabah. Alternatively, it may cash the bill (which amounts to an interest-free loan to the buyer) provided the parties concerned have a current account with the banks with an average annual balance amounting to a certain percentage of the value of the bill (390: 25). The second method is recommended only in case the first is not feasible. It might be noted that Mawdudi (521) and Siddiqi (419) had suggested the same.

Ali Abdur Rasul allows discount on bills of trade.⁵¹  The legal principle involved in "leaving a part of a loan to (be appropriated by) the one who gets that loan repaid (by the borrower) as a reward of this service of securing the repayment".⁵²   It follows that if a loan Is not actually repaid no reward can be paid.⁵³  This view does not find support in the literature for the obvious reason that it amounts to charging interest on the advance made against a bill of exchange. While Ali Abdur Rasul's reference to Maliki jurists deserves consideration y experts on Islamic law, a look at the economic implications of his suggestions is more appropriate for us in this study. It would not be objectionable if a reasonable service charge was allowed to the bank which makes an interest-free loan against a bill or exchange, subject to the condition that the borrower will repay the loan if the bill is not honoured by the drawee on maturity. The intent and impact of a discount is different, being similar to interest on the sum lent, irrespective of profit or loss in the business which is financed. Ali Abdur Rasul says nothing as to the rate of this discount, maybe its determination is left to the market, as is the rate of interest. Some writers leave pointed out that a profit arrangement should be possible in case of most of the bills of exchange.

Uzair thinks the annual rate of return in an enterprise can be applied for calculating the returns on advances made for a period of one to three months.⁵⁴  Alternatively we can try to determine the specific rate of return on the funds advanced. But it may not be possible to do so in many cases. For short-term loans for less than a month, Uzair suggests "service charges" on a per transaction basis. ⁵⁵ The bank would not get any reward for lending, as service charges will have to correspond to the actual costs of servicing these loans. Uzair has rejected the idea of arranging the supply of short-term credit as a free service on the ground that "the solution for a business problem has to be found on business lines rather than as a we goodwill gesture".⁵⁶  One wonders how lending could be a business proposition once interest is abolished. Defining business as an activity directed at profits, a "business loan" is a contradiction in terms as a "loan" cannot, carry a profit under Islamic law. The need to "modify the conceptual framework of economics to suit the requirements of Islamic economics"⁵⁷ , is not confined to the concept of capital alone. The concept of "loan" also qualifies for this purpose. ⁵⁸

The problem of bad debts is solved by means of "Co-operative Insurance" to which "borrowers contribute a certain sum of money to cover the possible risk" (390: 43). Zakat funds provide the other source out of which bad debts can be recovered.
Local banks may cart  out direct investment besides advancing, capital  on the basis of mudarabah. The Egyptian study also spells out the salient features of central banking and international banking. The International bank would serve as link between the national banking, commercial, developmental and Zakat-based institutions in Muslim countries. It would finance commercial and developmental institutions in these countries. It would also organise commercial exchange between Muslim and non-Muslim countries, besides functioning as a clearing house for intra-Islamic transactions. The study also envisages the setting-up of an investment and development body of Islamic countries.

The "Kuwaiti Investment House" project which antedates the Egyptian study, and also the works of al-Araby and Siddiqi, was much limited in scope (405). It was to be a joint stock banking institution making diversified investments. on the basis of mudarabah. An outstanding feature of that project was its elaborate scheme of precautionary reserves and profit distribution designed to protect the interests of the depositors and shareholders. It envisaged collection and disbursement of Zakat funds and the supply of interest-free loans on a limited scale. Recently a number of banks have been established which are committed to eschew interest and promote Islamic ideals, the foremost being the Islamic Development Bank at Jeddah.

B: The Islamic Development Bank

The purpose of the bank is "to foster economic development and social progress of member countries and Muslim Communities individually as well as jointly in accordance with the principles of the Shari'ah" (389: Article 1). It will "participate in equity capital of productive projects and enterprises in member countries", "invest in economic and social infrastructure projects in member countries by way of participation or other financial arrangements", "make loans to the private and public sectors for the financing of productive projects, enterprises and programmes" and "establish and operate special funds for specific purposes including a Fund for assistance to Muslim communities in non-member countries" (Article 2, i-vii). It will also operate Trust Funds, accept deposits and raise funds in any other manner. It will provide technical assistance to member countries and assist in promotion of foreign trade, especially in capital goods, among member countries Article 2: vii, ix). It intends "to co-operate with all bodies, institutions and organisations having similar purposes, in pursuance of international economic co-operation" (Article 2: xii). An important function of the bank shall be "to undertake research for enabling the economic, financial and banking activities in Muslim countries to conform to Shari'ah" (Article-2: xi).

"The authorised capital stock of the Bank will be two thousand million (2,000,000,000) Islamic Dinars (Article 4, 6), one Islamic Dinar having value of one special Drawing Right of the IMF (Article 4a).

As to financing "the Bank shall seek to maintain a suitable ratio between equity investment made in, and loans granted to, member countries" (Article 16, 4). "The Bank shall retain the option to sell its equity  participation" (Article 17, 4). Normally it will not provide loans to an enterprise in whose equality. It has participated (Article 17, 6). It shall seek to maintain reasonable diversification in its equity investment" (Article 17, 81).

"The bank shall levy a service fee to cover its administrative expenses (Article 20, 3).

Regarding the distribution of profits it has been provided that "no part of the net income or surplus of the Bank shall be  distributed to members by way of profit until the General Reserve of the Bank shall have attained the level of twenty-five per cent of the subscribed capital" (Article 42, 1). This distribution "shall be made in proportion to the number of shares held by each member" (389: Article 42, 4).

Discussing the distinctive features of the Islamic Development Bank in. the light of its Articles of Association and the highlights of the Islamic economic and banking systems, Shawi⁵⁹  points out that the crucial decision not to operate on the basis of interest has led the IDB to devise unique methods not traditionally adopted by development banks, such as participation in development projects at all levels supply of capital, management and sharing of profits and losses.

The decision to attract deposits from the public (e.g. through issue of investment certificates) is another unconventional step the IDB has taken in view of the fact that it cannot go to the money market to obtain funds.

Shawi also points out the important place given to social progress side. by side with economic development. This again is unique as conventional banks are financial institutions interested in profits or in the case of development banks, in "economic" development. The IDB is an expression of the solidarity of the Islamic peoples. The concept of the Islamic Dinar is a pointer towards a currency union of the Islamic countries.⁶⁰  Its adoption as the unit of account will protect the bank from the consequences of price fluctuations in the countries with which it is dealing. The provision that the value of the Islamic Dinar equals the value of one SDR is transitional. If suits the member countries under the present circumstances, I but they can specify its value otherwise if and when they find it advisable to do so.

The evil consequences of interest have been well known to the economists as well as the laymen, but they had no alternative before them in banking and finance. Attempts at escaping from these evils through operative institutions of various types had failed because they catered only to the interests of particular of people and had to work as a part of the all-pervading interest-based system. The significance of the Islamic Development Bank lies in being the heralder of a viable and just alternative.

With the huge amount. of investible funds available out of the oil revenues of some of the members of the Islamic Development Bank, and the vast opportunities of development waiting for investment in Asia and Africa, the stated objectives of the Bank charge it with great responsibilities and justifiably raise many expectations. Only the future can reveal how far these potentialities -could be actualised. It seems however advisable to work for a network of similar institutions throughout the individual countries and communities involved in the process. Many writers mentioned above advocate this step. It is hoped that the subject will increasingly attract expert attention, now that an impetus has been provided by the establishment of the IDB.

The IDB has already gone into operation and a report on the first year of its working is available.  Large unused resources understandably causing a problem as Islamic avenues for the profitable utilisation are not immediately available.⁶¹ Yet the Bank has successfully participated in a few projects in Algeria and elsewhere.

The establishment of the IDB has been followed by a few more Islamic Banks at Dubai (386) Cairo and Khartoum. The Dubai Islamic Bank established in 1975 has successful completed the first year of its operation. It has mostly gone into real estate business arid construction projects. No reports are available on. the one established at Cairo in 1976 and its counterpart at Khartoum. The Philippines Amanah Bank has also been working without interest as a subsidiary of the Central Bank of the Philippines which as the custodian of its reserves, earmarks the interest due for a special fund for Muslim welfare.

Industrial Relations, Labour and Population Policy

Those who have paid special attention to labour and industrial relations emphasise dignity of labour in Islam, the religious significance of good, In honest work, an  d the labours right to a decent wage commensurate with the average standards of living in the society. There is great emphasis on co-operation between labour and enterprise and on mutual consultation as a mode of decision making. Hameedullah (433), Yusufuddin-(165: 365-3 88), Gamaluddin (425; 426), Chapra (115), Tahawi (77), Ali Abdur Rasul,⁶²  Abdul Hadi⁶³  and Assal⁶⁴  are some of the writers sharing this emphasis. Abdul Majeed Qureshi, the Jama'at-i-lslami labour expert in Pakistan, makes a strong plea for just wages for the labour and that the privileged position of capital be taken away from it and be restored back to labour. "Depreciation of labour must be paid for: just as the expenses for maintenance, repair and reconditioning of buildings and machinery are accounted for in the expenditure of the business, similarly maintenance of health and medical aid should be fully-accounted for in regular expenditure" (341: 27). Qureshi reserves half of the total profits of a concern for labour and would also like to see labour own 60 per cent shares in the concern at which they are working (441: 26-28). His notion of just wages are, however, regarded as undefinable by Faridi (431: 64) who thinks Qureshi had adopted the Marxian approach. Shafi Malik too regards Qureshi to be vague and confused (435: 90). But the Jamaat-i-Islami Pakistan Economic Committee report (126) echoes some of Qureshi's ideas. The just wages are defined by the report as a need-based minimum plus a differential according to nature of work, technical competence, course of work, productivity and profitability of the industry. These wages must be supplemented by a number of other facilities: residential, medical, educational, recreational, etc. Labour is also entitled to a bonus or profits and to the produce of the industry at commercial rates, if not free. He should be given financial aid or interest-free loans (repayable subject to capacity to pay) in case of emergency. The idea of making labourers shareholders in the concerns in which they are working also finds strong support in the report (126: 28-32). Mawdudi has also endorsed this view "so that they (labourers) become interested in the growth or the industry in which they are employed" (51: 405). The suggestion finds at place in the Jama'at-i-lslami Pakistan Manifesto for the 1970 elections (125: 29).

Examining the notion of "just wages" as elaborated in the above-mentioned report, Muhammad Akram finds its economic rationale dubious and suggests another model in which the wage rate-is linked with the profits of the firm (613: 43-44Y. Distinguishing between need-based minimum wages and ideal wages, which would "bridge the gulf between the living conditions of the employers and the employees" Chapra leaves the actual wages to be determined between these two limits "by the interaction of supply and demand, the extent of economic growth, the level of moral consciousness in the Muslim society and the extent to which the state plays its legitimate role" (115: 12-13).

Population Policy

Population control through family planning has been one of the most controversial subjects in the literature. The permission or otherwise of birth control by individuals in certain circumstances, in the light of the Qur'an and the Sunnah, though relevant for this controversy, is not the matter that concerns us here. From the viewpoint of Islamic Economics we are interested mainly in two points. Does there exist an economic base for population control? And if it does, is family planning permitted by Islam, as a means to this end- It is only on these points that we will record the various opinions below.

Writing in the late thirties Mawlana Mawdudi strongly opposed family planning. There is no economic case for population control. The argument on scarcity of resources is dismissed as unrealistic and amounting to a loss of faith in God (458: 104-130). Population control has no place in Islamic culture (458: 67-80).. God is the real planner of the human population (458: 150-153). Birth control leads to many physiological, moral and social ills (458: 81-98). Economically too, it is harmful. It will decrease aggregate demand, reduce employment and cause depression (458: 99100). As to the argument that family planning enables better nourishment and education of children, Mawdudi refers to the beneficial effects of adversity and wants on human character (458: 132).

According to him the only solution Islam presents for the problem of increasing world population is "augmentation and full utilisation of the resources of His bounty that God has created and a perpetual effort at discovering hidden resources" (457).
Endorsing Mawdudi's views, Khurshid Ahmad (454), notes that the Malthusian prognosis on population growth has been belied by history (454: 168-172). There was never an economic case for birth, control. This movement is a tool of Western imperialism to check the population of poor nations from rising and posing a threat to Western domination (45,4: 176-180). "Increase in population is generally beneficial economically" (454: 189). He has little faith in population projections. "If the organisational structure of the economy is developed in accordance with population there is no question of the population problem arising economically". . . . There is abundance of natural resources... if only the whole of the world was treated as one unit. "The real cause of economic decadence in the world is the selfishness of the Western man" (454: 191). "The real solution lies in improving economic and cultural resources and increasing production" (454: 201).

Similar views have been expressed by Sheikh Abu Zuhra who opposed population control through family planning on religious grounds (448; 449). He, along with Sheikh Khidr Busain, and most of those participating in a symposium held at Cairo in the early fifties (4  59) took this stand while allowing, birth control for individuals in certain circumstances. The same is true of the deliberations at the international Islamic Congress at Cairo in 1965 (211). This is also the dominant view in India and Pakistan.
The International Planned Parenthood Federation organised a conference on this issue in December 1971 at Rabat, of which the complete proceedings are now available in two volumes covering 1000 pages (452). Most of family Most of the participants considered population control through planning as lawful in Islam and many regarded it as having become a necessity under the present circumstances. These scholars have discussed in detail the relevant issues of jurisprudence and the points of law involved. An appendix quotes a number of fatwa by eminent authorities on Islamic law such as Sheikh Abdul Majeed Saleem (which, however, touches only the individual aspect of the matter), Sheikh Mahmud Shaltut (which goes only a little further), Sheikh Hasan Mamoon (which permits family planning but warns against coercion) and Sheikh Abdullah al Qalqili (which allows population control through family planning) (452: 541-566). Those who participated in the conference and supported family planning and population control include Ahmad al-Sharbasi (468) and Salam Madkoor (456). Another eminent scholar supporting population control through family planning is al Bahi al Khauli who declares that it is open to the rulers to appeal to the community to adopt this method, and to provide facilities for the same, when they find the social, economic, political and external circumstances of the community calling for such a policy (455: 192).

From among Islamic Economists who have discussed this issue, A. Mannan (112: 117-126, 138-147) admits that the issue is controversial, but he recommends population control through family planning, under the present circumstances and advances social, physiological and eugenic reasons in support.

Growth and Development

That one of the main objectives of modern Islamic states will be to achieve rapid economic development (221, 11: 123-141) is a point stressed by all recent writings on the subject. Economic backwardness of the present day Muslim countries and communities is seen as a hindrance to the of their Islamic role in the world and a blot on their Islamic identity. What, then, is the strategy of economic development in the Economic system of Islam?

Some writers, including Akram (483) and Fanjari (477; 478) lay the main emphasis on the transformation of man, and the ethos of an Islamic society.

Abaza (473) like Fanjari (477) sees a great role for Islam in economic development as it regards developmental efforts to jihad. Once that idea., catches on we can expect big results. Tahawi also thinks that invoking the Islamic injunctions in the context of developmental efforts will prove to be the most effective way of generating a powerful movement for economic development among the Muslim masses (77, 11: 32).

According to Abaza (473: 1127) the Shari'ah calls for interaction and co-ordination between production and distribution in the framework of comprehensive economic planning, but conditions prevailing in the Muslim countries at present necessitate that priority be given to directing maximum efforts towards increasing production. Distribution can take priority when the fruits of these efforts are available. It is not the distribution of a static quantity but that of a dynamic and growing one that is visualised by Islam.

Malik ben Nabi (484: 51) questions the thesis that the key to economic dynamism is capital investment. The source of dynamism lies in man and in the collective will of the society. Islamic strategy for economic development should not blindly accept the supremacy of capital lest it is frustrated because of capital shortage in Muslim countries. It should rely on awakening, the man in the land of Islam and should generate a will for the performance of the Islamic mission for which economic development has become a necessary prerequisite. "The crucial issue in the world of Islam is not that of availability of capital, but that of harnessing the social forces: man, land and time, in a project propelled by a cultural will undeterred by any difficulties" (484: 84).

Malik ben Nabi regrets to note that countries in the Third World focus their attention on capital in planning for economic development. As they do not have enough capital they must borrow from others and depend on foreign expertise which has no intimate knowledge of the local situation. This strategy has failed to deliver- the goods. He cites the experience of point Four programme to prove his point (484: 89-90).

As a recent example of economic regeneration based on the cultural will of the people and a strategy tailored for the local conditions Malik ben Nabi refers to China (484: 85, 90).

Malik ben Nabi is highly appreciated by Austervy who has some important points to make in an essay devoted to Islam and Economic Development (475). He finds the Islamic temperament uncongenial for the dynamic entrepreneurial role of Schurnpeter's egotistic and highly individualistic innovators. The unsatiable urge for profits, the propensity to take risk and the will to dominate which lay at the root of the economic revolution in the West are conspicuous by their absence from the Islamic personality (475: 38-43). The motive force for economic development must, therefore, emerge from religion itself. Nourished by a desire to recapture the past glory of Islam, its mode, has to be collective rather than individualistic, in consonance with the nature of the desire and the temperament of the. Muslim Ummah. Economic development in an Islamic society has to be a co-operative affair (475: 96-113). He envisages a significant role for planning in economic development in Islam.

Faridi refutes the view that Islamic values are inimical to economic progress and points out that "the present acquiescence in established institutions and practices has been borne of internal political organisations, colonialism and other vested interests. Islam has little to. do with it" (479: 53).

Kalim Siddiqi's Islamic development plan regards the "socialisation of surplus value" as the crucial issue and declares that "only Islam can motivate voluntary sacrifice of it by the peasant and labourer" (494: 26-27). It is for the Islamic State to ensure correct motivation. He concludes on the need for a new Islamic model of industrialisation, finding the contemporary approach inept and unproductive

While the aforementioned writers envisage a process of economic development that will be distinctively Islamic in view of the incentives, the collective mode and the way distributive justice is inalienably associated with the process of growth, there are others who regard development dependent on certain economic processes, of savings, investment and technological advancement and proceed to declare that all these shall find sufficient encouragement in the Islamic society to ensure growth. Listing the principal causes of growth as the effort to economise, knowledge of production and increasing, amount of resources per head, Marghoob Qureshi cites the Qur'an and the Sunnah to emphasise that Islam ensures all of them (4922).

Zubair⁶⁵  finds Islam conducive to all the essential prerequisites of growth: it encourages accumulation of capital as well as human capital formation which leads to expansion in productive capacity. The resulting rise in. income leads to increase in consumption as well as investment as Islam discourages idle cash balances.

Economic development in an Islamic framework has recently attracted several writers including, Namiq⁶⁶ , Khurshid ⁶⁷ and Siddiqi ⁶⁸. Khurshid Ahmad notes the "crisis and revaluation" through which Development Economics is presently passing. Admitting the importance of technological relationship in any plan for development he stresses the point that technological decisions are made in the context of value relations. Man is the active agent of change, and change in the hearts of men is no less important than change in the environment.

He includes development of human personality as well as continuous sustained increase in national product with the correct product mix in goals of development policy in Islam. In this context he emphasises production of necessaries, defence goods and capital goods. Improvement in the quality of life involving distributive Justice and employment come next. Balanced development, evolution of indigenous technology and "re education of national dependency on the outside world and greater integration within the Muslim world" are the other goals listed.⁶⁹  Siddiqi regards increase in production, distributive justice, environmental balance and improvement in the quality of life in the cultural sense as the four necessary dimensions of development in an Islamic framework. Discussing _the process of development in some detail and focussing on Africa and South and South East Asia, he concludes by enumerating the "main steps required for initiating and accelerating all-sided development as under:

1. Transforming the individual through a massive educational drive, aiming at 100 per cent literacy, commitment to social goals and inculcation of Islamic values.
2. Strengthening the Muslim states through a powerful Islamic movement resulting in popular democratic Islamic regimes committed to the Islamic mission.
3. Creating a popular will to develop, under the leadership of the state supported by the socially-oriented entrepreneurs, involving the masses in productive work and fuller utilisation of natural and human resources.
4. Curbing conspicuous consumption, both private and public, and guaranteeing a minimum level of consumption to all, accompanied by fiscal discipline ensuring the channelisation of the additional incomes generated to capital formation.
5. Regional planning to ensure economic co-ordination of the countries in North Africa and South and South East Asia to effect a balanced development of the entire region making it self sufficient in food and agricultural Products and most of the manufactured goods.
6. Decreasing the dependence of the region on the developed countries by providing aid to the oil-poor countries out of the surpluses of the oil-rich countries and promoting trade between the countries of the region.
7. Reorganising the financial institutions to free them from instruments of exploitation and the means through which the few centres of high finance exercise control on the economics and societies of the poor countries.
8. National planning within the framework of the regional plan to ensure growth with justice, environmental balance and improvement of the cultural life.
9. Increasing co-operation with all the developing countries of the world through trade, aid and other suitable means with a view to decreasing inequalities between nations.
10. Vigorous participation in the efforts to secure a new world order ensuring peace, progress and social justice.
    

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Notes and References:

10. Shihab, Rafi'ullah, Islami riyasat ka maliyati Nizam, Islamabad: Islamic Research Institute, 1973, 157p.

11.  Also the following papers presented at the First International Conference on Islamic Economics. Makka. 1976.
Hasanuzzaman, S. M.: "Zakat and Fiscal Policy". Mimeo 52p.
al-Syed, Atif: "Fikrat al-Adillah al daribiyah fil Zakat fi sadr al Islam". Mimeo 67p.
Salih Tug: "The Centralisation of Zakah and Individual Freedom". Mimeo 18P.
Faridi. F. R.: "Zakat and Fiscal Policy". Mimeo 28p.
Qardawi, Yusuf: "Athar al Zakah fi 'ilaj al mushkilat al iqtisadiyah". Mimeo 44P.
Gorayah. Muhammad Yusuf. "Nizam-e-Zakat aur jadid ma'ashi masa'il", Islamabad: Islamic Research Institute, 1972, p. 158.
12.  Op. cit., pp. 12-13.

13.  Al Fanjari. Muhammad Shauqi: "al Madhab al iqtisadi fi'l Islam", p.38. Paper presented at the First International Conference on Islamic Economics, Makka, 1976. Mimeo 74p.

14.  Hasanuzzaman. S. M.: "Zakat and Fiscal Policy", pp. 27-28. Paper presented at the First International Conference on Islamic Economics, Makka, 1976., Mimeo

15.  ibid.p. 205.

16.  Abd al-Salim, Muhammad Said: Daur al fikr al mali wa'l muhasibi fi tatbiq al-zakat, p.21. Paper presented at the First  International Conference on Islamic Economics, Makka, 1976. Mimeo 30p.

17.  al-Sayyid, Atif: Fikr al-Adilah al daribah fi'l Zakat fi sadr al-Islam, pp. 5-17. Paper presented at the First International Conference on Islamic Economics, Makka, 1976. Mimeo 67p.

18. Kashif. Ahmad Sami Musa: Al Islam wa'l amn al-iqtisadi wa'l ijtima'I -isharah khassah ila al-Ta'minatal-ijtima'iyyah,pp.12-22. Paper presented at the First, International Conference on Islamic Economics. Makka, 1976. Mimeo 26p.

19.  Zarqa, Mustafa Ahmad: "Nizam al ta'min: mawqafahu fi'l maidan al-iqtissadi bi-wajhin 'am wa-mawqif al-Shari'ah al-Islamiyah minhu". Makka, 1976. Mimeo 40p.

20.  Shaheedi. Jafar: al-Ta'min: hukmuhu fi'l fiqh al Islami wa-ara' al- madhahib al-Islamiyah fih. Makka, 1976. Mimeo 14p.
Awad. Ali Jamaluddin: al-Ta'min fi itar al-Shari'at al-Islamiyah. Makka, 1976.Mimeo 39p.
21.  Khan, Shaukat Ali: al-Ta'min wa badiluhu fi nazar al Islam. Makka. 1976. Mimeo 40p.

22.   al Sayyad, Jalal Mustafa: al-Ta'min wa ba'd al-Shubhat, Makka, 1976. Mimeo 14p.
23.   As in 21 above.

24.  Abu Sunnah. Ahmad Fatimi: Al-Ta'min ind al-nawazil wa'l hawa'ij. Makka, 1976. Mimeo 15p.
24.  At Attar. Abd al Nasir Tawfiq: Hukm ash-Shariah al Islamiyah fi ta'min, Makka, 1976. Mimeo 42p.
25. All papers presented at the First International Conference on Islamic Economic Makka, 1976.
26.   Also Zarqa, Mustafa Ahmad, op. cit., p. 35.
27.   First International Conference on Islamic Economics. Makka, 1976. General Recommendations, No. 6.
28.   Khafif, Sheikh Ali: al-Ta'min wa hukmuh 'ala hadi al-Shari'ah wa Usuliha al-Ammah. pp. 19-20. Paper presented at the First International Conference on Islamic Economics, Makka. 1976. Mimeo 64p.
Attar. Abd at Nasir Tawfiq, op. cit., pp. 20-22
29.   Awad, Ali Jamaluddin, op. cit., pp. 15, 17-18, 20. Al Sayyad, Mustafa Jalal, op. cit., pp. 11-12
30.   Fanjari, Muhammad Shauqi: Al-Ta'awun la al-istighlal asa 'aqd al-ta'min al-Islami. Paper presented to the Council of ulema in Saudi Arabia, Makka, May. 1976. Mimeo 56p.
 31.  Also his paper at the First International Conference on Islamic Economics, Makka, 1976. "Interest-Free Banking", Mimeo 164p.
Ahmad. Shalkh Mahmud: "Man and Money". Mimeo 380p. (Under print.)
32.   It implies "creating artificial carrying costs for money through the device of requiring legal tender currency to be periodically stamped at a prescribed cost in order to retain its quality as money" (Keynes. J. M.: General theory, London, 1957, p. 234). Though Keynes thought the pro "deserves consideration" he pointed out the difficulties involved (pp. 357-358).
33.   The same proposal had been made earlier by Arthur Birnie in his thought provoking pamphlet: The History and Ethics of Interest (William Hodge & Co., London, 19512. 40p.). Birnie, however, notes that the proposal "excites so much misunderstanding and alarm". He, therefore, suggests "the issue of a currency of dated notes, which would be recalled at intervals and exchanged for a new dated currency" (p. 38).
34.   al Jarhi Mabid Ali Mohammad Mahmoud: The Relative Efficiency of Interest-Free Monetary Economics: The Fiat Money Case. Paper presented at the First International Conference on Islamic Economics, Makka. 1976. Mimeo 44p.
35.   Al-Assal, Ahmad Muhammad and Fathi Ahmad Abdul Karim: al Nizam  al-iqtisadi fi'l Islam.p. 21. Paper presented at the First International Conference on Islamic Economics. Makka. 1976. Mimeo 111p.
36.   Muslehuddin, Muhammad: Interest-Free Banking and the Feasibility of Mudarabah. Paper presented at the First International Conference on Islamic Economies, Makka, 1976. Mimeo 37p.
37.   al Shawi, Muhammad Tawfiq: al Khasa'is al-mumaiyazah li'l bunk al-Islami, li-tanmiyah min khilal al-nusus ittifaqiyah ta'sisuhu wa malamih al-nizam al-masrafi wa'l iqtisad al-Islami. Mimeo 47p. Paper printed at the First International Conference on Islamic Economics, Makka. 1976.
38.   Siddiqi, Muhammad Nejatullah: Banking in an Islamic Framework. Paper presented at the International Economics Conference: The Muslim World and the Future Economic Order. London. July, 1977. Mimeo 22p.
39.   Op. cit. p. 10.
40.   Siddiqi, Muhammad Nejatullah: "Interest-Fee Banking-Problems and Prospects". Mimeo 15p. Paper presented at the University of Petroleum and Minerals, Dhahran, 1976.
41.   Op. cit. p. 34.
42.   Abu Saud, Mahmud: "Interest-Free Banking". Mimeo 164p. Paper presented at the First International Conference on Islamic Economics, Makka, 1976.
43.   Ibid, p.114.
44.   Ibid. p.115.
45.   Ibid, p.116.
46.   Ibid, p.117.
47.   Ibid. p.151
48.   Ibid. p.112.
49.   Hamud. Sami Hasan Ahmad: Tatwir al-'amal al masrifah bi ma yattafiqu wa'l Shar'iyah al-Islamiyah. Dar al-ittihad al-'Arab li'l tiba'ah,  1976. 552p.
50.   Siddiqi, Muhammad Nejatullah: Banking in an Islamic Framework. Paper presented at the International Economic Conference: The Muslim World and the Future Economic Order. London. July, 1977. Mimeo 22p. See also his Dhahran paper cited above.
51.   Abdur Rasul, Ali: Bunuk bila fawa'id. Paper presented at the First International Conference on Islamic Economics, Makka, 1976. Mimeo 31p.
52.   Ibid, p.2.
53.   Ibid. pp. 9-11.
54.   Uzair. Muhammad. Some Conceptional and Practical Aspects of Interest-Free Banking.p. 26. Paper printed at the First International Conference on Islamic Economies, Makka. 1976. Mimeo 34p.
55.   Ibid, pp. 26-27.
56.   Ibid, p. 25.
57.   lb id, p. 2.
58.   Siddiqi, Muhammad Nejatullah: Teaching of Economics at the University Level in Muslim Countries-Challenge of Alien Concepts and Formulation of Islamic Concepts. Paper presented at the First World Conference on Muslim Education, Makka. 1977. Mimeo 17p.
59.   Shawi, Muhammad Tawfiq: al Khasa'is al mumaiyyazah li'l bunk al-Islami li'l tanmiyah min khilal nusus ittifaqiyah ta'sisihi wa malamih al-nizam al-masrafi wa'l iqtisad al-Islam. Paper presented at the First International Conference on Islamic Economics, Makka, 1976. Mimeo 47p.
60.   Ibid, p. 31.
61.   Islamic Development Bank: The First Annual Report 1395/96 H-1975/76 Jeddah, 30p.
62.   Abdur Rasul, Ali: Suluk at mustahlik wa'l munsha'at fi'l 'itar al-Islami. Paper presented at the First International Conference on Islamic Economics, Makka, 1976. Mimeo 31p.
63.   Abdul Hadi, Hamdi Amin: Muqawwinat idarah al-tanmiyah fi'l fikr al-Islami. Paper presented at the First International Conference on Islamic Economics, Makka, 1976. Mimeo 27p.
64.   al Assal. Ahmad Muhammad and Fathi Ahmad Abdul Karim: al-Nizam al-iqitisadi fi'l Islam. Paper presented at the First International Conference on Islamic Economics. Makka, 1976. Mimeo 111p.
65.   Zubair, Muhammad Umar: "al iqtisad al Islami wa dauruh fi tanmiya al mujtama." In Nadwah al shabab al 'Alamiyah li'l Da'wah al-Islamiyah, pp 192-201. Riyadh, 1972,344p.
66.   Namiq, Salih al Din: Limadha la yakun lana mafhum Islami akhlaqi jadid li tanmiyah al-iqtisadiyah. Paper presented at the First International Conference on Islamic Economics. Makka, 1976. Mimeo 19p.
67.   Khurshid Ahmad: Economic Development in an Islamic Framework-Some Notes on the Outline of a Strategy. Paper presented at the First International Conference on Islamic Economics, Makka, 1976. Mimeo 30p.
68.   Siddiqi, Muhammad Nejatullah: An Islamic Approach to Economic Development, the Muslim Institute for Research and Planning, Slough, Berks, U.K. 1977, 8p.
69.   Khushid, Ahmad, op. cit., pp. 23-26.