Keynote Address on Monetary & Fiscal Economics of Islam
Mr. Finance Minister,
Dr. Mohammad Omar Zubair, friends, colleagues, brothers and sisters,
Assalam-o-Alaikum Wa Rehmatullah (May Peace and Allah’s Blessings Shower on you)
I deem it a great honour to have been invited by the Organizing Committee to join you in this inaugural session and to give the keynote address. I know there are many colleagues more qualified and more competent than myself to shoulder this responsibility and I regard it simply a token of your affection that you have given me this opportunity. I pray to Allah to enable me to even partially fulfil the trust you have reposed in me.
To me, personally, it is a great occasion, because I look upon the last decade as a watershed, marking the end of an era of Islamic scholarship in the field of economics and the beginning of a new one in which the Muslim economists have begun to discuss a language of Islamic economics. Formerly, Ulema, jurists, Muslim thinkers and economists were trying to give an exposition of the economic teachings of Islam. I regard this decade as a watershed because during this period a transition has been made from what used to be an exposition of the economic teachings of Islam towards what could perhaps be described as the first phase of Islamic economics, where professionals and practitioners have begun to apply their mind more seriously and rigorously to some of the issues and problems that confront us and are now making humble yet valuable efforts to come up with new ideas, new insights, new models and policy-relevant suggestions.
When I look back to the history of evolution of economics, particularly the development of socialist economics, I find that perhaps we are passing through a phase similar to the one that the socialist economics had also passed. The founding fathers of that branch of economics produced basically a critique of capitalism and offered ideas about the laws of social evolution and the vision of society that they wanted to establish. When the revolution in Russia took place, there was nothing like economics of socialism. Nonetheless, we find that in the post-revolution phase, both in Russia as well as in the academic circles of the West, economics of socialism emerged. I think the phase through which we are passing has some similarity to this development in the history of economic thought.
It was in 1973 that under the leadership of my dear brother and colleague Dr. Mohammad Omar Zubair, (who, I am happy to note, is here on the podium), a group of Muslim economists resolved that they must develop an international forum for initiating and promoting at a professional level, systematic reflection, dialogue, discussion and research on Islamic economics. This Seminar represents, one more peak in our movement towards the revival of Islamic economics. It is important as an intellectual feat because we are meeting here basically as researchers and as academicians with the hope and with the commitment that we have to bring our economic expertise and our financial acumen to the service of Islam. That is how we want to put our shoulders to the harness of Islamic resurgence, the most significant development of our own times.
Secondly, during this decade the international scenario has A/- hamdulillah changed and is changing. What is being done by the Muslim economists, is now no longer an exercise in ivory tower. The mood in the Muslim World is changing. There has been a revolution in the expectations of the people, making Islam the criterion for their worldly success. That is why whatever humble work is being done by the academics and the researchers, its relevance to policy, to the changing situation, has immensely increased. It adds to our responsibilities and also opens up new horizons and new opportunities before us. This prompts me to share with you in all humility but in all sincerity and frankness, some of my reflections on what can be described as the economic challenge of Islamic resurgence.
The Islamic resurgence represents a historical reality as well as a hope and an aspiration. There are some important symptoms, which can also be looked upon as symbols of Islamic resurgence. The numerical strength of Muslims is between 900 million to a billion, about 1 /5th of the human race. When the 14th century Hijra began, almost whole of the Muslim World was under colonial rule. The horizon was dark and dismal. But now we find that 49 independent Muslim states are there on the political map of the world. They are also trying to organise themselves economically and politically. Organization of Islamic Conference, Islamic Development Bank, Islamic Chamber of Commerce and Industries are just a few instances. They may be just beginnings but nonetheless some kind of structural change is taking place.
This decade has also witnessed some shift in the balance of the economic power of the Muslim countries viz-a-viz the rest of the world. We may not have been fully responsible for bringing about the shift, nonetheless it represents a major change in our position, in our relative strength as also in our responsibilities. The important question, however, is whether we are making optimal use of this new economic power of ours, and to what extent we have either ourselves chosen to fritter away these God-given resources or have allowed others to recycle them to their benefit?
The emergence of Islamic movements during the last 50-60 years in different parts of the world, particularly the universal Islamic awakening in the youth are symptoms as well as symbols. They do reflect a reality but still a reality in the making. It would be naive to think that Muslims have come of age. The political and economic scenario in the context of which we have entered the 15th century is again symptomatic of our situation: Muslims fighting Muslims, Muslims not in the control of their own economic and political destiny, Muslim World dependent upon the non-Muslim world in essentials like food, technology, defence supplies, science and education. So when we are scanning the horizon we must not confine ourselves to the positive side only; we must also acknowledge the seamy side of the situation. Islamic resurgence is a reality, not in the sense that contemporary Islamic world has been able to achieve what it wanted to be, but only in the sense that the forces of reconstruction have emerged as silver lining to the otherwise dark and dismal horizon, that the silver lining is widening and represents the inauguration of a process. The present-day reality is grim, grave and challenging, yet the Muslims today have been awakened to a new situation. When we look around we find that we are confronted with a world in the making of which we have not made any significant contribution. This is a world, which has been made for us and not the one made by us. That brings me to the real challenge, the real issues involved in the Islamic resurgence.
To me the real issue is not the sufficiency or otherwise of the quantitative strength of the Muslims or their economic position or the new wealth they want to acquire. To me the real issue relates to the system of life in the Muslim World, different models which were introduced or imposed upon them during the colonial period in the name of liberalism and modernism, and then the reactions to them in the form of nationalism, socialism and even communism. We have passed through all of these but if we analyse the situation we find that these models of Westernization and secularisation, which I regard as models of West-domination, whether they are under the umbrella of political domination, intellectual domination, or economic domination, have failed. They have failed to take root in the society, they have failed to inspire the people, to capture their imagination. They have failed to give any new vision to the youth of the Ummah. They have also failed to produce an efficient and viable socio-economic system. All our flirtations with capitalism, all our efforts to follow the development strategy given to us by the West have failed to internalise the process of economic development. It has added to our frustrations, it has complicated our problems; the problem of unemployment, of poverty, of inflation and so on. It has been a failure even on the basis of whatever quantitative criteria to evaluate and assess economic development have been given to us. It has been a failure of three decades. Inequalities and inequities have increased, with the result that political and social tensions have increased in the Muslim societies. If we go still deeper, we find that in the name of economic development a new life style, a new matrix of wants, a new vision of man and society have some how crawled into our society, which is abhorrent to our traditions and repugnant to our values, nonetheless it is very much there amidst us with the result that it has become a decisive force in our society.
Similarly, some Muslim countries have tried to experiment with socialism. In our own country for a certain number of years we did try to take the same path but when I review the situation, I find that the socialistic experiment has been as dismal a failure as the capitalistic one.
To me, there is a la Hah aspect, a negation aspect of Islamic resurgence and it is mounting disenchantment with the Western models, economic, political, educational, intellectual, which were imposed on Muslim lands. There is a positive aspect which consists in a new search for self-identity, an effort to fall back upon our own historical sources so that something which has roots in the society could come up and flourish. The Muslims want to reconstruct their social order in the image of the Madinah state established by the Prophet (peace be upon him). This represents the chief characteristic of the movement for Islamic resurgence. It spells out the ideological colour, which is the distinctive colour of contemporary Islam. It may not be, and to be honest is not, yet an accomplished reality. Nonetheless, this represents the ideal, the hope, the dream and the inspiration. Any effort to understand the movement for Islamic resurgence without appreciating this longing of the Muslim people is foredoomed to failure. It would be tantamount to playing Hamlet without the Prince of Denmark!
The Muslim situation, including all its promises and tensions, can be understood only by appreciating the ideological nature of the movement — an urge to rediscover their Islamic identity, to go back to Islam and to rise up with Islam. The Muslims are fed up with all the models of imitation; they want to have something that is their own, something that is unique; something that represents their own historical and cultural flowering. That is why establishment of the Islamic social order, revival of the Shari'ah and unity and solidarity of the Ummah constitute the rallying points in all parts of the Muslim World. Without naming names, one can see that the countries which had moved farthest and fastest along the road to secularization and westernization are today the ones that are coming back to Islam most fervently, sometimes even aggressively, as if completing the cycle of aggressivity with which they were forced to drift away from Islam!* The very establishment of Pakistan as well as the 1977 popular movement for the establishment of the Islamic order in Pakistan; the Islamic revolution of Iran (1978-1979); the Islamic resistance in Afghanistan and beyond; the tenacity of Islam in India, Russia and Philippines, where it is faced with threats of extinction, the revivalist trends in Turkey, the Islamic movements in Egypt, Syria, Sudan and other parts of the Arab world; the reawakening of Muslim youth in Malaysia, Indonesia and all over the world — all these developments deserve to be studied and analysed carefully and sympathetically and not merely in a journalistic fashion or simply with an eye over their immediate political implications for the vested interests. If you look upon them with the eye of a philosopher of history or a historian of culture, you will find that they represent a new search, a search for identity; a new articulation, an articulation based on Islam. It represents a fresh and creative approach to Islam, not just as a settled tradition, not as a defender of the status quo, not as a mere set of rites and rituals, of a few do’s and don’ts. As against these approaches the resurgent Muslims are seeking from Islam guidance for the remaking of their world. They look towards Islam as a complete code of life, as a new approach to life and all its problems, as a Din, as a force for social change, as a society and a state, as the ideology of the future.
The ideology of the Islamic resurgence is that Islam is unique; that Islam has its own values; its own concept of man and society; its own concept of State and revolution and it has its own vision of the processes of change. This is the ideology of the Islamic resurgence. In that context Islam becomes a point of reference to be a critique of the dominant civilizations and cultures of our times. We are not moving in isolation and the present confrontation between the Islamic world and the West has its political and economic dimensions; but to us what is more important are its ideological and cultural dimensions. We want to build the Muslim World on the basis of an alternate culture given by Islam. Also we have to resort to Islam as a critique of contemporary Muslim society. There can be no compromise on that and any effort towards Islamization without developing a critique of the contemporary Muslim society from an Islamic perspective is, to me, irrational. In the light of these critiques of the contemporary Western and Muslim societies we have to develop new policies, new strategies, and new plans and programmes to establish the Islamic social order.
Dear friends and colleagues, I want to share with you my deep conviction, that the two models of social change with which we are familiar in the contemporary world are not going to deliver the goods. The first model is that of spiritual and religious change, where we influence the individual, his ideas, his motives and then it is left to him, this modified and remotivated individual, to build the new society. This traditional religious-spiritual model has failed in history to meet the socio-political and institutional challenges with which people are confronted. The other model, the model which was developed in the West under the impact of Humanism and Enlightenment which focuses on changing the environment and assumes that by changing the institutions the world would change. What is needed is just a structural change and the rest would follow. Whether it be the philosophy of Humanism or of Socialism this fundamental thinking permeats their approach affirming that social change consists in simple institutional change. I would again humbly submit that this model has failed and has lodged us in the present predicament of mankind, where on the one hand we have economic development and technological innovation, where production has increased, where time and distance have been shortened but distances between human beings have increased, where justice and equity have not been established, the institution of family has disintegrated and human relations are at the lowest ebb. A situation about which a Western philosopher has rightly commented that “we have learned to fly in the air like birds, and we have learned to swim in the oceans like fish, but we have failed to live in the poor earth like human beings.” This is the tragedy of both these models.
What is the Islamic strategy for change? The Islamic strategy is different. It is different from both of these models. The Islamic strategy starts with belief. Man can not be cut off from the universe and its Creator. We live and exist in the presence of our Creator, our Rabb. God is not like the constitutional monarch of Britain who might have played a role historically but is hardly relevant to the contemporary situation. God is Al Hayee, Al-Qayyum. The process of creation is a continuous one. He is Rabb, He is the Sustainer. The Holy Quran affirms that: “Allah does not change the condition of a people unless they change what is within themselves”. This rules out the self-sufficiency of man. Change is not just a result of my effort. God is the source of change but the forces of divine power and providence come into operation in response to man’s effort. Man is the Vicegerent of God on earth. Man is not just a cog in the state machinery, just an element of the society. No, he has soul, and enjoys free volition as individual. He is accountable to Allah as individual. Society is a grouping of these individuals. Social institutions have to play a very important part. But if we neglect the individual, his beliefs, his motives, his ideas, then we are not doing justice to him. We are not in line with the Islamic scheme for change. So the starting point is the individual. His relationship with Allah is sacred and is a continuous relationship which is unceasing and all the human efforts are dependent upon this relationship, the inspiration and the divine help. That is why prayer is an important element of this effort. So belief and commitment and the right motivation are essential. Without these motivated individuals, and without discovering this relationship between belief in Allah and social reality, change is not possible.
I think the greatest contribution that the Prophets have made is that they have shown to mankind that belief in Allah is not just a metaphysical doctrine. It is the basis for our social existence. Look, for example, to the contributions made by various Prophets. Hazarat Shoaib (AS) shows how the belief in Allah and social and economic justice and equity are related to each other. Hazarat Loot (AS) shows how belief in Allah and social morality are related. Hazarat Musa (AS) shows how the belief in Allah and the political freedom and liberation of the people are related.
Islam has given in the Quran and Sunnah. The Quran and Sunnah are not, I repeat, they are not products of human mind which are subject to the limitations of space and time. They come from Allah Who has His grip over past, present and future. To Him future is as clear as is present or past. So all the categories in which we classify knowledge, they are not relevant to Allah, the source of Islamic guidance. That is why universality and eternality of Islam are not dependent on any historic situation. Its inspiration comes from the Eternal. If we look into the Quran and the Sunnah of the Prophet (peace be upon him) we find that the Quran gives ideals, values and principles and not necessarily all the details about social regulations. Islam changes the individual from within his heart. He is transformed into a different being. Then a vast area is provided where he can experiment and where he can take care of the exigencies of his time.
Nonetheless certain key institutions and the border-lines have been identified properly. These institutions are not just expedients. They are integral to the system and even the border-lines are essential. There cannot be any playing with them. The Halal is clear and the Haram is clear and then there is the area of Mubah and this is the vast area where keeping in view the objectives of Shari'ah and keeping in view the guidelines which have been provided in the form of institutions and Hudood, the limits, we have to steer our way. Ijtihad does not provide the liberty to do whatever one wants to do to suit certain demands of the time. Ijtihad is a very carefully exercised process of reasoning for which there are clear principles given in the Quran, practiced by the Prophet (peace be upon him), and formulated by Mujtahidoon on the basis of the Quran and Sunnah. It is within this given framework that reasoning and experimentation have to be made and that is how a built-in machanism for change, to meet the demands of changing situations, has been created in the Islamic system. So this Islamic scheme wherein on the one hand the possibilities of learning from experience of others are always open yet the introduction of any anti-bodies into the Islamic system, which cannot go with this framework, is ruled out. It has to be done very carefully, very meticulously and very rigorously.
In the light of this assessment of the situation the challenge that besets the Muslim economists today invites us to start looking at our economic problems from an Islamic perspective. Our training so far has been in a profession whose conventional wisdom was that morality and ethics are not relevant to economic analysis and any efforts to bring them in will introduce a subjective element in an otherwise so-called objective system. We must realise that we have to shed that attitude off. A new beginning would have to be made. The unique characteristic of the Islamic system lies in the fact that it has brought economics under the suzerainity of values, of Islamic guidance and these values are eternal values. So we have to accept the sovereignty of these values. We would have to change our system. The new shape of the system would be spelled out by the value-framework given by Islam.
Of course, there would be quite a few technical relationships that would be common between Islamic and other economic systems, but nonetheless the total climate of Islam and the Islamic economics the framework, the matrix within which these technical operations take place, would change. And I submit in all humility that it will produce a new economics, and not merely a few marginal changes in the secular economics with which we are familiar. The change of matrix means a lot; in economics we have been talking about wants and any want is as good or as bad as any other want. It is a one dimensional plane. If a commodity can satisfy certain wants, good, bad or indifferent, it is providing utility and is good enough. In the value framework of Islamic system that emphasis would totally shift. I submit for consideration of my colleagues that perhaps our starting point would be, not wants, but needs. Now need is a very different concept. Needs have to be genuine and not spurious. There has to be a heirarchy of needs: physiological needs, material needs, social needs, moral needs, ideological needs. There would have to be an ordering of needs. It would no longer be a one dimensional plane. Our concept of opportunity cost would change in this framework. The question of distribution of wealth and income would become relevant because the society has to fulfil the needs of all its members and of the state and the economy as such. Then the priorities and preferences would be different. So I want to submit that the way we have been looking upon the economic problem, would have to be totally transformed and a new approach would be needed to the study of the economic problems of man and society. We would have to develop a fresh critique of contemporary secular economics, Western as well as Socialistic, and of the economies of the contemporary world, including the Third and the Muslim worlds. It would be in the light of this analysis that new policies, plans and programmes would be evolved to establish an Islamic economic order.
Here I think we have reached a point where we may stop for a moment and reflect upon another important issue. Although we are talking a lot about the Islamic economic system, but I would be failing in my duty if I do not submit that there is nothing like an Islamic economic system in isolation. Islamic economic system is part of the total Islamic system of life, al-Din, which covers all aspects of life: faith and morality, character and personality, politics and economy, law and judiciary, family and society, nation and international community. Of course, Islamic economic system would be unique in the sense that it would be different from Socialism and Capitalism and other economic ideologies. It has its own objectives, its own flavour, its own ethos. But it is an integral part of the Islamic way of life and we cannot establish Islamic economic order without establishing the Islamic way of life. It has to come in its wholeness, in all its dimensions. I want to emphasise that unless an effort is made to Islamise the society, to adopt Islam in its totality, in our personal as well as social life, we cannot just bring about changes by introducing certain piecemeal economic reforms even if they are taken from the economic programme given by Islam.
Further I would submit that Islamic economic programme is an integrated whole. The Ahkam, the instructions that have been given about Zakah, about prohibition of riba, about business ethics, about distribution of wealth, about principles on which the economic organisations have to come into existence, the concept of Sharakah, Mudarabah etc., all these are extremely important in their own right. But they are elements of a system. They can be understood and can be functional only in the context of the overall Islamic scheme of life and the objectives which are to be served by them. If any effort is made to ignore those objectives or while leaving the whole thrust of the economy and the society in a different direction be content with introducing these elements, they, by themselves, would not bring about the revolution which we are aiming at. To me they are essential, they are indispensable, there cannot be any compromise on them, yet they are not sufficient. They are to be a part of a programme of total change. That is why I believe that while those who say that Islam can be established just in one go, in one simple stroke, are not fair to Islam or even to themselves, those who ignore the integrated nature of the entire scheme of Islamic way of life and are concentrating on isolated partial reforms are equally unjust to Islam.
We stand for Islam in its completeness. The change has to come. But that total change cannot come all of a sudden, in one stroke. It has to come through systematic but gradual reforms which are properly planned and so organised that each effort, each element fits into the other and produces a mosaic. This is how the Prophet (peace be upon him) changed the society during the twenty-three years of his prophetic career. So we have to take a leaf out of his strategy and this strategy is of gradual change, of evolutionary reform, but such gradual reform as continuously and effectively moves us in the desired direction. We must not simply juxtapose conflicting propositions. Definitely there would be certain incongruities in this phase and some of you are aware that I have been emphasising the concept of transition, that we have to pass through a period of transition before we can totally Islamise the economy and the society. But I have no reservation in saying that this transition should not become a kind of permanent buffer between Islamic order and non-lslamic order. This transition is nota permanent transition. It has to have a very clearly calculated time- span. We have to move in that direction. We cannot take a long leap but nonetheless every short step should be synchronised. It should bring us nearer to the society we want to create.
Similarly with great respect I would like to record my strong disagreement with those who suggest that Islamic economic system or Islamic state cannot be established unless we have a complete blue-print of the Islamic state or the Islamic economy. I am one of those who have been striving hard to try to develop certain policies, certain programmes, certain ideas, certain strategies for Islamisation but whatever little I know of history, I am not aware of any society where a complete blue-print was prepared first and then the society was cast into those moulds. What happens in human societies is that you have certain ideals, you have certain values and principles and you have committed people who are imbued with these ideas, who want to change the world in the shadow of these ideals and who are competent also to steer their way. Then a process is inaugurated through research, reflection, dialogue, discussion, dissent, and discovery — all of these are part of the game. But to prepare a blue-print before hand and then just enforce it, is not the way history has moved. Look to Islam, for example, how the Islamic state of Madinah was established? Not that a blue-print was given first and then the things were tailored accordingly. Look to the development of capitalism in Europe. It is not that any blue-print was given by Adam Smith, or his colleagues. The economists and social thinkers articulated a philosophy of individualism, a certain approach to the economic problem. It took 200 years to develop the sophisticated techniques for analysis. Look to the Communist revolution in Russia. In 1917 there was no blue-print of the socialistic society. Even the word “planning”, which is now the cornerstone of a socialistic economy, does not occur in any of the writing of Marx, Engles or Lenin before the revolution. But the basic concept was there.
An approach was there. And then a team was there, which, through efforts, evolved a process for the socialisation of the society and economy. New tools were developed, new plans were made and are still being made. The new reforms that are taking place in the socialist countries, whether that be Russia, or Eastern Europe or China, they are enough to suggest that Communism, even after over sixty years of the revolution, is not an accomplished fact; it is only a process which is unfolding.
In the same way I believe that we should be clear about our ideals and objectives, the distinctive characteristics of the Islamic system and some of the key instruments which are indispensable. But then it would be only through effort and experimentation, that we would be able to solve these problems, make mistakes and learn from them. I do not know of any Islamic text which ensures that Muslims in their effort to establish Islam would never make mistakes. What I know of is that they would always be self-critical and if they have committed a mistake they would rectify it.
So, my brothers and colleagues, I would invite you to reflect upon these, that while we should undertake research, while we should try to develop programmes, while we should give deep thought and reflection to the question of strategies we must not wait for blue-prints whether from skies or from research institutes. Research is a part of this process in the same way as the political effort, active efforts to establish this order, are an integral part of it.
The other point which I would like to emphasis at this stage is that while state must play a very active role in the lives of the people, particularly in inducting them in the processes of Islamisation, simple imposition of Islam by state fiat is not what I think to be a proper strategy for Islamisation. State power is necessary and Islam has assigned a very important and significant role to the state. So much so that the prayer that Allah taught to Prophet Muhammad (peace be upon him) before Hijra is very significant. It says:
“Oh my Lord! make my exist an exist with truth and my entry an entry with truth and make the state power my collaborator, my helper.” So, that state power could be harnessed for this purpose. But nonetheless, there should be active participation and mobilisation of the people. It is through motivation, through their participation in decision-making, through striking a new chord in hearts and souls of the people that effort towards Islamisation would really bear fruit. That is why I regard peoples’ participation and mobilisation, but not regimentation, as an integral part of any strategy of Islamization.
Now, I would like to make a few submissions about two very important planks in the strategy of Islamisation, i.e. the introduction of Zakah and abolition of riba or interest. I believe that both of them have to act as catalyst for changing the system. The capitalistic system which is based upon the concept of unlimited private property, a system of rewards and incentives based entirely on pecuniary motives, and a class structure of society and economy, would not go with Islam. But we must also be careful that centralisation of the means of production, the model of collectivism, is as foreign to the Islamic system as is the capitalistic mode of production and property. We must not commit the mistake of assuming that as there is no capitalism in Islam so we can rush for those institutions or those instruments which have been developed under a collectivistic system. I am open to learn from the experiences of both, but we must learn with great caution, go with great discretion, so as to see that the uniqueness of the Islamic system, which has been very aptly described as the concept of trusteeship, is established and maintained. But trusteeship and private ownership are not conflicting terms. There is no contradiction between the two. There can be private ownership and there can be state ownership and in certain areas there has to be state ownership. Nonetheless, in both, the mode of relationship has to be on the basis of trusteeship and not on the basis of capitalistic models of private property or the socialistic model of nationalisation and collectivist control.
The objective for which Islam has prohibited riba is, freeing society from Zulm, from exploitation and I agree that there are other forms of exploitation as well. Islam is equally enimical to all those forms of exploitation. But we must be careful that profit and profiteering the exploitative profit, are not the same thing. While we have to fight exploitative profit, just profit, just wage, and just price are the targets we have to seek for. And I would humbly submit that this area deserves to be examined in greater depth and with greater care. I for one had reservations, and had expressed them publicly, about introducing the riba-free counters in riba-based banks. But once this has been introduced I feel it my Islamic duty to try to see that the experiment is successful. My dissent, my differences were there and at the academic level remain there, but an effort which has been made in the name of Islam deserves our support, provided the Government is prepared to sincerely cleanse this step of whatever elements, direct and indirect, of riba that continue to linger in it. I had preferred an alternate strategy, but I would not like this step to fail, despite my reservations. But the Government must move fast to remove all the doubts and objections that have been expressed and inspire confidence in the people that whatever little is being done, is really free from riba and is going to be a stepping stone towards total elimination of riba.
I would also like to emphasise that we should also be very careful that this process should not take too long. We must try and try hard to see how we can shorten the period of transforming this system so that the incongruity because of the introduction of one element on a riba- based system, is removed. I would suggest that total elimination of riba from domestic and commercial banking should be given top priority. Research scholars as well as action-oriented groups should sit together and work constantly so that within a reasonable period of time the idea of interest-free counters extends to all banking counters in the country. If this period of transition takes too long, then I am afraid, it may defeat the purpose for which this effort is being made.
I may be allowed to make a little digression at this stage. I think I am not far wrong when I suggest that by the grace of Allah there is now 'a consensus amongst the Muslim economists and religious scholars that the Islamic concept of riba includes interest and usury in all thier forms. The distinctions, which were once the stock-in-trade of many an apologist, between interest and usury, between interest on consumption loans and on productive/commercial loans, between low and high and ‘reasonable’ and ‘unreasonable’ rates of interest with a view to limit riba to one category and exclude others therefrom, are now a thing of the past. We all agree that these distinctions have no relevance in the context of the concept of riba, which covers all fixed and predetermined increases on loan-money, whatever be the rate of that fixed return, and whatever be the end-use of the money so loaned. We must not waste any more of our valuable time on these controversies, whose right place are the pages of history. All our efforts should now be concentrated on replacing the r/60-based system by a system based on the concept of variable return to all factors of production and to all participants in the system.
It would be unjust to deny that there are certain economists, bankers and administrators, competent and well-meaning, who still have reservations about the viability of an interest-free system. They feel that the traditional functions of interest in the economy, particularly as an incentive to saving, as the allocator of resources among different economic alternatives, and as a conceptual tool for valuation of capital are too important and too powerful to permit healthy transition towards an interest-free system. Although I do not share the views or reservations of these friends, I do not deny that there is some basis for their concern, particularly in view of the fact that our professional training has been in secular economics whose gospel has been authored among others by “St. Interest”! We have not been able to free ourselves from the hegemony of secular economics and cannot help thinking in its brow-beaten grooves. There is also the difficulty of consciously or unconsciously assuming that the economic structure and institutions inherited from colonial capitalism are going to provide the framework within which Islamic reforms are going to take shape. This assumption is totally unfounded. Islam stands for structural change and efforts towards the elimination of riba will finally succeed by changing the entire structural arrangement and the network of relationships, inter-institutional as well as inter-personal. Similarly, the view that the only alternative to the riba-based system is abolition of private property on means of production is ill-thought, both Islamically as well as economically. The Islamic alternative is basically different from the socialist alternative, which in iteslf could not succeed in evolving an interest-free system, despite Marx’s tirade against interest. Islam brings about structural changes, not by abolishing private property, but by transforming it into a system of trusteeship, involving private as well as social control and regulation.
I have very strong reservations about the validity of the traditional arguments in defence of interest and its functions in a modern economy. That savings in a society are influenced by the rate of return on capital is understandable. But there is no reason to assume that this rate of return must be interest — a fixed rate. A variable rate of return over a period i.e. the profit, is as powerful, if not more, an incentive as any other. In fact, even in a secular economy, in the long run, it is the rate of profit which is more important than the short period rate of interest. To the best of my knowledge, no one has so far unequivocally demonstrated that a variable rate of return is not capable of performing the incentive function for savings and capital accumulation as against a fixed rate of return. Looking into whatever empirical evidence is available about the capitalistic economies over the last two centuries, it is very difficult to argue whether there is an incontrovertible positive correlation between the rate of interest and the volume of savings in the economy. In fact, the famous Keynesian thesis about savings as a function, not of interest, but of income level is rooted in a similar appreciation of the economic variable in a capitalistic economy. Similarly, the allocative function of interest is shrouded in controversy as well as mystery. Contemporary market economy is infested with so many rigidities, deformities, and incongruities that the textbook rate of interest can no longer be complimented for bringing about rational and efficient allocation of resources in an economy. The need for resorting to shadow rate of interest to overcome, to some extent, some of these distortions is proof enough that the market rate of interest is not, and in the context of the prevailing circumstances, cannot perform this function. To assume that the role of interest remains unaffected, despite these developments, would be a heroic assumption. Those who stick to this view may be complimented for their bold innocence, but not realism.
We have every reason to believe that once the economy has been freed from the exploitative institution of interest and the economy, operating on the principle of profit-sharing, discovers a new equation, there is every reason to believe that the equity-based system would be more efficient, more growth-oriented and more just.
Now I would like to say a few words about the second plank of this strategy, Zakah, the most important, but not the only instrument of equitable distribution of wealth and income in society. Zakah aims at sharing the wealth of the society, amongst its members in such a way that all persons are enabled to participate actively and effectively in the economic life of the society. It ensures basic needs of life to those who are unable to make a living, but it does not put able-bodied people on a system of permanent doles.
Zakah is a system for moral and social progress and for the mobilization of the people. Islam does not want a permanent class of the deprived! Islam wants to lift up all. I am reminded of an important incident when a person came to Saiyyedena Umar to get Zakah from him. He gave him three camels. One of his colleagues asked the caliph as to why he was giving three camels when one camel would have been sufficient. He answered “so that next year he does not come to get Zakah and may be enabled to pay it.”
So the idea is to lift the society, to build a new social order based on active participation and equitable sharing. That, should be our effort. For that, our first concern should be to use all the instruments described in the Quran and Sunnah. Drawing inspiration from the Islamic injunctions we must strive hard to evolve a new growth strategy, a growth strategy based upon Islamic concepts of justice, of trusteeship, of human welfare. A growth strategy based upon the Islamic concept of self-sufficiency of the Muslim Ummah. I want to emphasise and emphasise with all the force at my command, that Muslim Ummah is Allah’s vicegerent (Khalifa) on the earth. Muslims are (Shuhada ‘ala al-Nas) witnesses of Islam to the whole of the world and they cannot act as witnesses of God if they are dependent on the non-Muslim world. To me, self-reliance and development of the Ummah in such a way that it is not dependent on the non-lslamic world is a sine qua non for the Ummah's role as God’s vicegerent and deputy on earth. We need a new growth strategy, a new monetary policy, a new fiscal policy and a new incomes and wages policy enabling us to play this role in the world. We must re-examine our entire taxation system, which has been built up in a very arbitrary way. All these deserve to be changed and changed radically. Econorqic planning and policy-making have to assume a new shape and a new role. This is the economic challenge of Islamic resurgence. This new strategy should also have a regional policy. It is my humble submission that in the participatory model of an Islamic economy, balanced regional development and decentralized and broadbased growth occupy an important position. The Islamic injunctions about Zakah distribution in a manner that the locality from which they originate has first claim on them lays the foundations of a regional policy. There are the areas we have to re-examine, so as to evolve a new strategy to establish the Islamic life of the people on the foundations of equity and justice.
Source: Fiscal Policy and Resource Allocation in Islam, Ziauddin Ahmed, Munawar Iqbal and M. Fahim Khan. Republished with permission.