COMMENT – Pakistan is an Islamic Republic. This entails that the laws of trade and commerce must function in the light of Islam. Therein lies a contentious dispute between those who advocate a concerted drive to return towards medieval trading practices and businessmen who favour a predatory Laissez faire economic system. A path towards balance and moderation must be charted.
However, to define the Islamic economic system precisely is a difficult proposition. Firstly, the clergy, while a strong advocate of this system are unaware of the mechanics that govern modern economics. Islam upholds justice and equality in business and what it enjoins must logically form the foundations on which business in an Islamic country are based upon. Moreover, Islam is meant to evolve in line with the material condition of the Ummah.
How to mesh Islamic injunctions with the complex global economy is the conundrum that must be tackled, if we are ever going to stop looking over our shoulders. Islam is a religion which has always supported the rights of society as a whole. The same reasoning has been applied in Islamic commerce, where justice and fairness have been upheld. Islamic welfare is based upon the zakat tax system, according to which the rich and privileged help and support the poor and deprived.
The zakat tax system ensures that the money keeps circulating evenly in the economy. The most divisive issue in the debate pertains to the nature of interest. Islam prohibits all transactions which involve riba, literally meaning ‘increase’. At the same time, interest is one of the major components on which have the world economy functions. Capitalists argue that interest is an essential element in the present day economy.
Interest encourages saving which is channelled into the economy as investment. It strengthens the power of money during high inflation. The clergy take exception to interest, insisting it is used to exploit the borrower and place him under odious financial burden. Moreover, they argue that the lender earns an excess of money on top if his original investment in a manner which is unjust and immoral. What must to be understood is that interest in the modern economic system is not used as a tool to rob from the innocent.
It is used as a key tool to encourage investment. With regards to the banking system, interest earned on the savings and investment account is not a fixed amount. In fact it is the individual’s share in the profit or loss the financial institutions sustained when they invested the money in other business ventures. Islamic jurists and leaders have long pondered over the meaning of interest in Islam. On interpretation is that what is understood to be riba, apparently refers to the practice of attaching penalty rates to debt incurred, i.e doubling the amount owed if the allotted time is exceeded.
This is clearly a criminal action and usury. Therefore, it is not a blanket ban on interest per se. The concept of interest which existed in the seventh century has changed drastically and has taken on a completely different meaning in the twenty-first century. Islam frowns upon excesses in speculative transactions. It is abundantly clear that it discourages an individual from becoming too heavily involved in materialistic gain and seeks to curb concentration of wealth in few hands.
On the other hand, this form of trading has taken a very different trajectory in the present age. Creditors have legal rights and protection to recover their money in case delivery of goods is not ensured. Stock market, futures markets, day and margin trading are all now intrinsically bound in the individual’s life. These markets keep thousands of businesses running efficiently and provide employment to millions worldwide.
Speculation in essential goods like water is forbidden. Entering into a contract for future delivery without knowing specific times and prices is also forbidden. But there is nothing in principle prohibiting such ‘forward’ or ‘futures’ markets, the use of which reduces risk for both producers and buyers and has become an essential feature of modern trade. This caution also bears out in the context of the financial crisis which showed the ultimate cost of speculative transactions which became based upon more and more risky financial derivatives and the fact that a crisis in a single bank send the global economy in a tailspin.
The point should be reasserted here that like interest, the concept of trading has been revolutionised in the past few centuries. The international market is not meant to hurt any party or individual and not a tool of exploitation. The rules and regulation designed for trade and commerce by Islam in the medieval era were at the cutting edge of innovation. It also coincided with the high point of Islamic expansion and wealth. Islam has allowed the Muslims to practice ijtihad to create solutions for controversial topics.
Over the years Islamic economies have taken a plunge because they have not accommodated changing patterns. While our religion enjoins innovation and learning, we have sadly lagged. European countries are economically successful because they realised the need for flexibility to be competitive. Islamic countries need to take a leaf out of their book and meet the challenges they are facing head on.
Rethinking Islamic economics
