Monday, December 18

Dr. Muhammad Uzair’s Version Before Federal Shariat Court of Pakistan in 1992

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Dr. Muhammad Uzair’s version before Federal Shariat Court of Pakistan in 1992

By

S J ubrazy

Dr. Muhammad Uzair was economic advisor of National Development Finance Corporation of Pakistan. He clearly stated that the interest whether simple or compound is unlawful (haram). There is Ijma’ (consensus of the opinion) of the Ummah. In his view, an attempt to make difference between usury and interest is the result of the misgivings created by western scholars. As an alternate to the present banking system he expressed his view that Mudarabah and Musharakah are the two alternate modes of the present banking. There will be a partnership between the bank and the depositors on the one hand and the bank and its customers on the other, who would like to transact business with the banks. He stated that there may be, for example, an arrangement that the entrepreneur (or the borrower in the present day banking system) and the bank would share the profit in a ratio of 50 per cent. each, or 60 per cent. for the entrepreneur and 40 per cent. for the bank, or any such ratio which may be agreed upon between themselves. It may be regulated by the Government or the Central Bank which in the case of Pakistan will be the State Bank. Similarly, there will be an arrangement between the bank and the supplier of capital (depositors in the present banking system) for sharing the profit in the ratio of 50 per cent each or 60 per cent for the bank and 40 per cent. for the supplier of capital funds or the depositors. This may seem at first sight to be a complex arrangement, but once the system is introduced and begins to operate in our economy it will become as mechanical and routine as the present-day system wherein banks pay a higher rate of interest on certain categories of deposits while paying nothing to some types of depositors, e.g. Current-Account Holders. The source of profit for the hank is the difference between the interest it receives and the interest it has to pay to the depositors. Similarly, in the changed framework required for interest-free banking, the entrepreneurs and the bank would share the profit on an agreed percentage or ratio, a higher proportion going to the entrepreneur vis-a-vis the banks; and the depositors would share a smaller proportion of what comes to the bank. Variation in ratios may reflect different tiers of the system.

The percentage or the ratio for sharing the profit between the entrepreneurs (borrowers) and the banks on the one hand, and that between the banks and the depositors on the other, should be determined in the normal course of business activities and bargaining or should be regulated by the Government or the State Bank as a policy variable or a political decision by the Government, either arrangement would serve the purpose as far as the conceptual framework is concerned. Thus, contract of Mudarabah will be two­ fold, One between the depositor and the Bank, and the other between Bank and the entrepreneur and the customer and Bank will share the profit/loss on the ratio agreed in the contract. He was of the view that interest is prohibited whether it is transacted by the Government or the Bank or individuals. In his view, indexation caused due to inflation in the cost/value of some goods cannot be adopted as an alternate to interest for ideological as well as practical reasons. The abolition of interest in his view will have little bearing on saving as the saving has always been income-related.

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