Alternative Proposals to Mobilise Resources for Government Transactions on Interest-Free Basis: Pakistan

A number of proposals have been made in the literature for attracting resources for the government use on interest-free basis. Some of them are discussed below:

Creation of Debt Retirement Mutual Fund

According to this proposal, the government should establish a mutual fund based on government-held shares of selected public enterprises. All the funds presently invested in saving schemes can be converted as part of this mutual fund. The fund can be managed by an independent group of portfolio managers who may be initially appointed by the government. Subsequently, the management of the fund can be chosen by the certificate holders. This is a useful proposal and* can attract resources for the government to further various projects.

Use of Current-Account Deposits for Financing Government Transactions

Most banks at present make use of the current accounts for profitable activities but do not share the profit with the government. With pertinent legal changes these accounts can be made accessible to the government for financing activities such as national defence.

Other Deposits

Besides encouraging people for depositing money with the government as qard-c-hasan of which the principal sum is ensured, the government should also accept deposits which are not qard-e-hasan but at the same time there is no guaranteed return on them. The government could only guarantee the principal and may announce at its own and without making it a condition some return on such accounts on the basis of their use from time to time. The government may allow concession on taxes to those holding these accounts. While this practice may be consistent with Shari‘ah there is likelihood that it is practised like one of the existing interest-based schemes. Therefore, the scheme should be introduced with sufficient precautions.

Business Transactions

As far as those activities of the government are concerned which can be run on business lines the government should raise funds using Islamically acceptable modes of financing. This should be particularly relevant to commodity operations of the government including its import and export operations.

Moratorium on Interest Payments

Finally, I believe that the government needs to take some radical steps to extricate itself from the existing debt, in particular the domestic debt. The present financial situation of the country demands that to the extent of existing domestic debt the government should stop paying interest with immediate effect. This will save huge sum of money for the government which can be used to clear the accumulated liabilities.

Dr Faiz Muhammad

Source: Elimination of Riba, Khurshid Ahmad, Khalid Rahman and Zahed A. Valie. Republished with permission.