Judicial Activism After Zia: Riba Elimination

Islamic activists have long advocated the elimination of riba (financial interest) in Pakistan. But their demand has been stymied by the operation of Pakistan’s political system. After an agonizing nine-year gestation (1947-56) Pakistan’s first constitution was born, but Islamic provisions in the document were intentionally vague or weak. Article 28 of the 1956 Constitution did call for the elimination of riba “as early as possible" and the 1962 Constitution provided in the principles of policy that “usury” should be abolished. Similar provisions were reiterated in the 1973 Constitution/ But, in none of these instances were mechanisms introduced designed to realize such objectives. The Council of Islamic Ideology (CII), established by the 1962 Constitution as an advisory body, made numerous recommendations during the 1960s that riba was “forbidden” by Islam and that Pakistan’s banking system was “fundamentally based upon riba." Such views were unanimously adopted by the CII in its meeting of 3 December 1969/ In subsequent meetings the CII drafted a report, submitted to the government in 1971, that inter alia recom- mended the abolition of riba. Such recommendations seem to have had no formal public consideration by the regime of Zulfikar Ali Bhutto, nor by the framers of the 1973 Constitution.

It was not until General Muhammad Ziaul Haq assumed power as Chief Martial Law Administrator in July 1977 that the issue of riba gained center-stage in Pakistan’s policy arena. After reconstituting the CII (the CII had been largely inactive during Bhutto’s tenure) he directed the new membership of the council on 29 September 1977, to consider how best to “eradicate the curse” of interest from Pakistan. The council responded by appointing a commission of economists and bankers to examine the issue, which duly submitted an “interim report” to President Zia sometime in late 1978. Apparently on the basis of this report, Zia directed that, effective as of 1 July 1979, the affairs of the National Investment Trust, the House Building Finance Corporation, and the Investment Corporation of Pakistan were to be run on an interest-free basis through the adoption of profit-loss sharing (PLS). Also, in a nationwide broadcast on 10 February 1979, Zia announced wide-ranging Islamic reforms in Pakistan’s legal system including the adoption of the Hudood Ordinances and promised that interest would be completely abolished in the state within three years.

Five months later the CII issued its long-awaited final report on the elimination of interest from the economy. The report, authored by Dr Tanzil-ur-Rehman, recommended detailed and far- reaching reforms that, if implemented fully, would have resulted in the complete elimination of financial interest in Pakistan by July 1982.

Zia’s government responded to the council’s report by replacing interest-bearing savings accounts with PLS instruments in Pakistan’s five state banks. Also, the government introduced and encouraged such banks to adopt financing schemes based upon the principles of mudaraba and/or musharaka. However, the specific implementation of such reforms was left up to the respective boards of the individual banks. In most instances the banks opted to offer alternative financial instruments to their customers — those that offered fixed interest rates and those that offered a non-interest component.

Such modes, of implementation fell far short of the ideals contemplated b.y the CII. Indeed, the CII’s 1980 report had specifically cautioned against creating alternative banking windows as this would be extremely dangerous [and] likely to entail perpetuation of the interest-based system. Moreover, after Zia had introduced such cosmetic changes,'zeal for further reforms of financial practices quickly waned. In part, this was owing to the domestic opposition generated by the dissemination of the council’s report. More important, however, it was linked to Zia’s overall strategy to go slow with the pace of Islamic reform. Zia could honestly claim, as he often did during the remainder of his tenure, that he had introduced Islamic reforms that were designed to combat the scourge of riba. But, the banking reforms that he implemented did not seriously challenge the operations or the corporate interests of domestic or Pakistan-based multinational banks.

Zia’s policy of prudential, incremental Islamic reform was also demonstrated by jurisdictional limitations imposed upon the newly-created Federal Shariat Court (FSC). On 26 June 1980, Zia constituted the FSC, empowering the court to declare a law void if found repugnant to the injunctions of Islam as laid down in the Holy Qur’an and Sunnah. However, very significantly he excluded from the FSC’s jurisdiction:

... the Constitution, Muslim personal law, any law relating to the procedure of any court or tribunal, or until the expiration of three years from the commencement of this chapter [3-A, 25 June 1980] any fiscal law or any law relating to the levy and collection of taxes and fees or banking or insurance practice and procedure.

Clearly, Zia’s intent was to prevent the FSC from challenging any fiscal laws on the grounds of Islam’s prohibition against riba until such time as his government deemed appropriate.

Blocked by the political machinations of Zia, Islamic activists have adopted a three-track strategy to gain passage of their policy agenda. The first strategy entails public education in order to gain popular acceptance of the advisability and viability of an interest-free economy. The second strategy seeks to change Pakistan’s constitutional structure, through the passage of a Shari'ah bill which would make the Shari'ah superordinate to Pakistan’s constitution. The third strategy, really a refinement of the second, has sought to encourage Pakistan’s superior courts (particularly the FSC and Supreme Court) to take an expansive approach in defining their respective jurisdictions to entertain constitutional questions relevant to matters repugnant to Islam. The details of such strategies and their track records of success and failure are traced below.

Source: Islamization of Laws and Economy: Case Studies on Pakistan, Charles Kennedy. Republished with permission.