Future Challenges: Pakistan
Political Will: As regards to the future challenges, political will is the foremost challenge. It is the key to change and its absence has been responsible for all the dilly-dally witnessed during the last 52 years. As citizens, every member of the society has a right to influence the policy-makers to do the needful. The Supreme Court judgement has created certain legal pressures that the government cannot ignore. Yet, they are not enough to bring about the real change. The first essential is political will and every effort must be made to see that this is there. The problem with the Muslim Ummah is that its rulers and peoples’ aspirations are not at the same wave length, with the result that the alienated rulers misuse the energies and resources of the state and society. They do not use them for fulfilling aspirations of the people but for suppressing them. And that has led to the political and cultural crises in the society. The answer lies in greater public awakening and mobilization of public opinion to pressure the government to fulfill its responsibility towards bringing about the needed change.
Public Awareness: Second and equally important is public awareness. It would not be right putting everything in the lap of the government. Public awareness is equally important. There is need to have a very active campaign in making people realize what the Islamic system is. People do not know what are Shari‘ah consistent modes of investment and savings. These modes are there, but people lack in their knowledge. A number of studies have shown that in Middle East and even in the Muslim community in the UK lots of funds are available which have not gone into the banking system because of the ethical and moral reservations of the people. And if opportunities with the Shari‘ah consistent modes are available, the total stock of savings in the system is bound to increase. But for that, awareness, credibility and confidence are much needed. It is unfortunate that many of our mosques have become centres of sectarian rivalry or emotional outbursts, and not of education and sharing information. There are morally acceptable Shari‘ah consistent instruments and products abvailable but awareness is not there. So public awareness is very important. Education, information, media, government policies and agencies, scholars both religious and professionals - all of them have to play their part in that.
Institutional Preparedness: Third is professional institutions and personal expertise; their level of preparedness is also conspicuous by their absence or being very low. Appeal should be made to those who are representing financial institutions to seriously reflect upon how institutions and professionals can prepare themselves for the new role. It is a matter of pride, alhamdolillah, that Islamic economics is no longer the preserve of a few scholars, ulema and fuqaha. Still we have to realize that we have to make up for the deficiencies. Shari‘ah boards are important for this transition. For preparedness, the education system has to be changed and training programs have to be developed. This 1½ year period allowed by the Supreme Court is a very important opportunity to prepare for that by developing task forces, training programs, certificate and diploma courses, seminars, discussion groups and other similar activities. It should not be taken for granted that answers to all the problems are available, but with the right kind of efforts and the institutional preparedness, we should be capable of discovering answers for all problems.
Legal Framework: There are a number of laws that will require changes. The Supreme Court has also said that and the review petition that followed the verdict has also pointed out that there are certain laws which have not been discussed by the court. However, one should not ignore the fact that the Supreme Court was not suo moto discussing all the laws. The court has made a very clear observation that while it has discussed certain laws, the government should take necessary steps to review all the laws from this viewpoint. Legal framework should essentially be strengthened for enforcement of contracts and for effective and quick disposal of disputes and punishments for those who are in default. This is essential for any system and it should be confessed that in the Western world the legal and judicial system is effective enough to ensure that contracts are enforced, that defaulters are penalized, that in case of default, assets are acquired by financial institutions and within a specified time, that is not more than six months. There are special fraud-detection squads and agencies which try to see that corruption and misuse of funds do not take place. Definitely all these are needed, and for that making necessary reforms in the legal and judicial system is the prime need. Greater transparency, better regulatory and supervisory mechanism, effective accountability are indispensable for the success of the system.
Review of Priorities: Review of priorities at the state level and the level of business and commerce is a must. Such an exercise can show the level of implementation of riba free-economy. The whole fiscal and legal system in this country is presently geared to discourage profit, penalizing dividend while protecting riba and giving incentive for riba.
The present situation is that interest is an item in the cost of production, so if a person pays interest it is tax free, if he pays dividend it is subject to tax. This unfair system has to be changed. There is no level playing in relation to interest and profit in the system. This has to change. We have to evolve a tax system which encourages dividend payment to a certain level. Tax should be there but after a certain level of dividend or reward on investment. A new system can be easily devised which has built-in incentives for genuine dividend and profit based investment and also meets the needs of the state. I favor those systems of taxation, particularly in the case of indirect taxes, which are incentive-oriented towards higher production. Fiscal reforms are needed with the objective of giving incentive to equity-based investments and discourage and penalize fixed returns.
Documentation: The economy also needs documentation. Documentation with change of attitudes, policies and fiscal system will help in promoting transparency and honesty. There is a vast informal sector. Part of it is no doubt composed of black economy i.e. smuggling, corruption, debt-evasion etc, but there are also a variety of other economic activities that may be undocumented but are sustaining Pakistan’s economy. These should not be made subject to the mischief of the tax system. Documentation is important and banks also have to play a very important role in it. The court has also made it very clear that within six months, the Pakistani banks and financial institutions should try to develop an elaborate system of Islamic instruments properly documented and publicized so that a real movement to the new system could start. This again emphasizes the need of education of the whole system at various levels. These levels include as earlier indicated government, professional bankers and at the user level chambers of trade, commerce and industry. And then finally comes the common man.
Research: There is a need for further research and developing new products. One feels sorry that whatever work has been done, unfortunately, is lying idle and government agencies and professionals have not benefited from that. There should be a serious effort to do that, but along with that research is needed and all should pool resources and join hands to develop new products and new instruments. There are about 30 issues that are hindering the development of Islamic banking and have been mentioned by the IDB in one of its study. It was a big survey that was conducted and all of the problems deserve reflection, analysis, prescription and experimentation. None of them is unresolvable. All of these are challenges but they have to be met by developing both; the equity-based final instruments, even along with some near-credit-based instruments for the transitional period. This will leaf us towards a higher level of development and stability.
Transition at all Levels: My last point in this regard is that the process of major transition at all levels is very important. The court has emphasized about two dozen suggestions particularly about rating, transparency and credibility. Modern banks are also facing all these problems. Banks are no longer closed-door shops as used to be in the 19th and early 20th century. They are now coming up with new ideas and initiatives that would enable them, and us, to face the challenge of moral hazards more comfortably. All these problems have solutions, only we have to work them out, perfect them, improve and modify them with experience. Effort and struggle is the only way to live and achieve worthwhile results. There is no substitute for effort as Allah has laid down in the Qur’an that for humans is what they strive for.
Source: Towards Islamic Banking: Experience and Challenges, Institute of Policy Studies. Republished with permission.