Promotion of a Riba-Safe Business Environment

Had there been Islamic banks with branches in several countries or an international network of such banks, a lot of riba problems would not have arisen. In the absence of such institutions, one can contemplate an international settlements setup more conducive to riba-safe transactions. Such an arrangement can be developed along the lines of the International Monetary Fund (IMF).

Exporters and importers have concerns which are similar to those faced by countries with balancc-of-paymcnLs problems. One can, therefore, imagine a national fund or syndicate with exporters and importers as subscribing members. There can be registration fees supplemented by annual membership dues set in the light of anticipated costs of the facility. In addition to the nonrcfundable fees and dues, all members may make regular monthly, quarterly, biannual or annual contributions which may be refunded at par value upon expiry of the contribution period. The fund may also be supplemented by levies on exports and imports as the last resort. The operation of this syndicate can be envisioned as follows:

It may act as an intermediary in the collection or payments process for imports and exports. Whereas the usual payments services for importers may be on the basis of a service charge, the collection services can be cost-free for exporters to make it an attractive proposition for them. By ensuring prompt payment, this fund will cover the lacuna created when foreign banks commit their funds in the L/C collection process. The covering contracts with importers can be simple loan contracts, letter of credit, mudarba, musharakah or trading agreements. An actual contract would depend on the size of an importer’s contribution to the fund, cost of services sought by the importer and the safeguards deemed necessary to minimise the incidence of loss on the fund. Similar practical details can be worked out for exporters. The members may also use their stakes in this revolving fund as collateral to draw riba-free credit according to some criteria equitable for all.

The proposed arrangement is not an extension of flic notion of an export-import bank operating without riba or an international interest-free commercial bank. It is rather an IMF- type arrangement, but at the national level and without the special drawing rights. The membership fees and other dues would represent the price various parties place on their various legitimate concerns. Initially, the idea may be applied on a voluntary basis. If international riba pressures necessitate, it may be obligatory for all exporters and importers in an Islamic state.

Dr Sayyid Tahir

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