Last week I went to Karachi – the city of lights – my city. There I met a number of well-known, successful industrialists who have been a pillar of strength to Pakistan’s economy.
During our conversations, the topic of riba (interest) came up and some friends expressed apprehension over the all-out borrowing by the government at high interest rates. The question was not about high or low rates; it concerned the matter of the relationship between interest and trading. Some of them pointed out divine edicts against this practice. They also gave examples of some of their friends who had borrowed money from banks with interest and had eventually gone bankrupt because of it.
Since the present government is accepting loans against interest (as if they were donations), I would like to point out some divine edicts about riba. We all know that the Holy Quran contains a complete code of life with detailed instructions on all aspects of it. In the Quran, we are told that the devil sometimes makes bad deeds look good in order to mislead people which leads to punishment by the Almighty. Sometimes wrongdoers are given some time to mend their ways and if they fail, they are subjected to chastisement. It is quite clear – no arguments, no excuses – that divine edicts must be followed in letter and in spirit.
Here are some of these divine edicts about interest. “Those who devour usury will not stand except as stands one whom the evil one (devil), by his touch, has driven to madness. That is because they say: ‘trade is like usury.’” “But Allah has permitted trade and forbidden usury. Those who, after receiving instructions from their Lord, desist shall be pardoned for the past; their case is for Allah to judge, but those who repeat the offence are companions of the fire (hell); they will abide therein forever.” (2:275)
“Allah will deprive usury of all blessings, but will give increase for deeds of charity, for He does not love ungrateful and wicked creatures.” (2:276) “O you who believe (in Allah)! Fear Allah and give up what remains of your demand of usury, if you are indeed believers.” (2:278) If the debtor is in difficulty, grant him time till it is easy for him to repay, but if you remit it by way of charity, that is best for you if you only knew.” (2:280) “And fear the day when you shall be brought back to Allah. Then shall every soul be paid what it earned. And none shall be dealt with unjustly.” (2:281)
Surah Al-Baqra, Ayat 282 deals with borrowing or lending money, etc. and security measures to prevent confusion/misunderstands. It also deals with the sale/purchase of property and the proper procedures (written documents signed by witnesses). The Almighty says: “O you who believe! Devour not usury, doubled and multiplied. But fear Allah that you may (really) prosper.” (2:282)
“They took usury when they were forbidden and they devoured peoples’ substance wrongfully. We have prepared for those among them who reject faith a grievous punishment.” (Surah Al-Nisa, Ayat 161) “That which you lay out for increase through the property of other people will have no increase with Allah, but that which you lay out for charity seeking the countenance of Allah (will increase). It is these who will get a recompense multiplied manyfold.” (Surah Rum, Ayat 39)
In addition to these Quranic directives, there are many Ahadees-e-Nabvi and judgements of noted religious scholars in which usury is strictly forbidden and a warning of severe punishment for those wrongdoers indulging in this practice.
Islamic scholars and bankers have tried to find an acceptable solution for banking and trade to avoid usury. This is known as Mudarabah and is an Islamic contract in which one party supplies the money and the other provides management expertise to undertake a specific trade. The party supplying the capital is called the ‘owner’ of the capital. The other party is referred to as an ‘agent’, who actually runs the business.
In Shariah law, different duties and responsibilities have been assigned to each of these two. As a matter of principle, the ‘owner’ does not have the right to interfere in the management of the business enterprise which is the sole responsibility of the ‘agent’. However, the ‘owner’ has every right to specify conditions that would ensure better management of his money. That is why Mudarabah is sometimes referred to as the sleeping partnership.
An important characteristic of Mudarabah is the arrangement of profit-sharing. The profits in such an agreement may be shared in any proportion agreed between the parties beforehand. However, the loss is to be completely borne by the ‘owner’ of the capital. In the case of loss, the ‘owner’ bears the monetary loss and the ‘agent’ loses the reward of his efforts. Mudarabah can be individual or joint.
Islamic banks practise both forms. In case of individual agreements, an Islamic bank provides finance to a commercial venture run by a person or a company on the basis of profit sharing. The joint agreement may be between investors and the bank on a continuing basis. The investors keep their fund in a special fund and share the profits without even the liquidation of those financing operation that have reached the stage of final settlement. Many Islamic investment funds operate on the basis of joint Mudarabah.
Note: Thanks to Chinese technical and financial help, the Thar Coal Project has started producing 330MW power. Our former ambassador and foreign secretary, a diplomat par excellence, had managed to strike a deal with the Chinese in early 2000. The deal was sabotaged. At that time, the deal was that they would produce 1000MW by 2010. By now this could have been 2000MW. Indigenously we did not manage to produce a single MW despite an investment of Rs5 billion.
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