P L d 2000 s c 225 (Riba prohibition stayed)

 

 

 

27. Here may be outlined the salient features of the foregoing analysis.

 

 

 

The essence of the conclusions, based on the preceding discussion, is that Islam does not permit Riba in any shape or form, whether amongst Muslims or between Muslims and non-Muslims (other than harbis), irrespective of the question where any of such contracting parties is domiciled or otherwise located. The prohibition applies equally to non-Muslims located within the bounds of a Muslim State. The commandments as to Riba, inclusive of the present day practices of interest and usury, being all pervasive, transcend individuals and envelope not only groups of men or their institutions but even geographical entities such as State edifices. The concept of Riba itself has no nexus whatever either with productive or non-productive loans or the soft or hard terms upon which Riba is generated incidental to such loans. As to the effect of Ribawi transactions, qua the persons or social structures targeted, such are void ab initio but, not unlike other void contracts, the beneficiary is obligated to return the benefit derived from the deed, to wit, the capital borrowed, as ordained in the Qur’an and Sunnah. Seen in this perspective, all interest bearing loans or advances, whether between depositors and banks, financial or other institutions or between any other category of borrowers and lenders, including Governments or their agencies, whether sovereign or otherwise, would be hit by the Islamic Injunctions concerning Riba and, as from the efflux of the time frame(s) prescribed no lender would be entitled to claim anything more than that loaned nor any borrower be liable to pay anything in excess of that borrowed. As for the interest, which has already accrued, accounted/paid for or otherwise standing appropriated in the context of Ribawi transactions such, as postulated in the Qur’an and Sunnah, would remain a matter between the offender(s) and his Creator.

 

 

 

28. Having discussed the connotations and implications of Riba and to what extent and in what manner or form Riba interacts with modern day economics, we may proceed to discuss as to what foreseeable consequences would follow if the command as to the prohibition of Riba is duly enforced. Another question, arising in the circumstances narrated in the main judgment, would be as to what should be the mode and method of necessary translation of the command into actual practice. All these aspects have been dealt with in the illuminating judgments of my learned brothers. However, the subject may brook a few more words.

 

 

 

In the first place, it is absolutely wrong to assume that a total disruption and irreversible chaos would follow upon a switch-over from a Ribawi economy to an Islamic economic order. It has correctly been pointed out by `Professor Khurshid Ahmad, who appeared before us, that the prevalent economic order in Pakistan would not collapse with the introduction of the Islamic system but that such would, surely, erode totally if the present system continues to have sway. Not only Professor Khurshid Ahmad, but many other eminent economists, scholars and juris consultants, who found time to appear before and assist us, have adverted to irrefutable data to bring home the reality behind the misleading facade of the current economic dispensation. In so far as the banking sector is concerned there are varying reports of the defaulted loans aggregating rupees 300 billion (neutral observers’ view) to rupees 211 billions (erstwhile official version) and, the latest, that of the present Finance Minister, Mr. Shaukat Aziz, of a sum in excess of rupees 148 billion but then the last-mentioned figure is backed by a definition of default, implying non-payment by a borrower for a period of one year on more, preceding the preparation of the data. Knowing, as we do, the continued so-called exercises of re-scheduling of bad debts in the banking sector, the figures premised on the foregoing definition of default have, at the minimum, to be taken with a grain of salt. Thus, the banking sector presents a very serious situation. Here, neither the lenders nor the borrowers fill the conventional roles and, in fact, these positions stand reversed in so far as the modern day banking is concerned. Contextually, the lenders (i.e., bank depositors) are small savers, virtually supplying their life blood in bank deposits and, being essentially from the middle and low income groups, run into millions. Their counterparts in banking transactions, banks filling the role of middle-men, represented by borrowers/entrepreneurs, supposedly engaged in agricultural, industrial, commercial or other productive pursuits, as elaborated by Mr. Shahid Hassan Siddiqui, are in thousands if not in hundreds. For decades the latter class has done little in generating the economy, has ensured a minimum stake in the enterprises run by it and, on top of everything, has syphoned away the cream of the profits, not merely out of the documented economy but from the domestic economy itself. The combined (liquid) wealth of these classes, together with members of a conniving officialdom is conservatively assessed at US $ 100 billion, reported conveniently to be deposited outside the country and in foreign banks. There is no tax culture in the country. What is worse, agricultural sector is not taxed at all. So-called land reforms of the Ayub and Bhutto eras, respectively, have been no more than a mere eye-wash, lands remaining where they always were and landless haris, our version of serfs, undergoing a perpetual slavery, without education and without any means of their own. On top of all this Shari’ah Courts having, only prospectively, declared compulsory and compensation-free acquisition of property to be against the precepts of Islam, the State, governed as it is, has conveniently construed the dicta as implying that even such land reforms, which have already been enacted, may not, in letter and spirit, be implemented. In a population of nearly 140 million hardly 2% pay taxes. The informal sector of the economy is as large, if not large, than the documented economy itself and probably, it is out of this documented economy that 13 % of the GDP, is villy nilly recovered as taxes, well below an average of above 29% of the real `GDP realized in developed countries. As a direct consequence of these horrendous imbalances, nay perversions, the elite classes of Pakistan, including very substantially Government officials in all fields of Government, semi-Government or local activities, live almost princely lives. Nowhere in the world the elitist classes own, possess or live in such palatial accommodations as in Pakistan. A ready demonstration of the same malaise would instantaneously be at hand if one were merely to step out on a busy road in any major Pakistani city. Such an observer, inter alia (e.g., bazaars stocked largely of foreign goods), would find latest model luxurious automobiles plying in profusion. Correspondingly, there is hardly any worthwhile public transport on the roads, local trains are almost non-existent and the elaborate railway system, which the British left behind, stands totally decimated. This is how the valuable resources (monetary equivalent of GDP) of an empoverished country are , frittered ‘away by those who matter here. It would not take a genius to visualize, in anticipation, the other side of the picture. As a corollary, the State of Pakistan is not only poor but, as the argument goes, has degenerated into virtually a highly indebted poor country (HIPC). By conservative estimates, about half the budget of the nation, currently, goes in debt servicing and that together with defence and other expenditures constitutes 83 % of the total outlay, leaving thereby a bare 17 % for other activities, including health, education development etc. As one analyst, taking only the expenditure-revenue ratio (deficit financing excluded) puts it, debt servicing and defence, put together, take away 120% of our budget. With illiteracy mounting by the hour, the population exploding and the country indebted, externally as well as internally, to a veritable chocking point, the present socio-economic dispensation. has not only failed but stands all but collapsed. As against this, the simple Islamic system of profit and loss sharing, free of Riba, ensures for banks and financial institutions alike, direct say in the conduct of business and other ventures they finance on behalf of their clients (depositors). The importance of this is self-evident, where defaulted bank loans, by all accounts, have become astronomical and carry their own tales of dishonest application of credit. Where periodic performance reports to the financing bankers become a norm and where these bankers physically oversee the actual profits earned by the enterprises financed, something, which should be one of the inevitable incidents of the profit and loss sharing system, the economy would necessarily come to be documented, due profits would be distributed and, what is more, requisite taxes would be paid. In situations, where the entrepreneurs continue to indulge in the current and prevalent mal-practices, their banker, upstaged as a vigilant partner in capital contribution, should catch the culprits sooner than later and forthwith choke any further such activities. Correspondingly, banks would contribute in capital mobilization not so much on the strength of collaterals as on the credit-worthiness of the entrepreneurs and the viability of the venture(s), sought to be financed. With a system of proper checks and balances at all levels and a contemporaneous cleaning up of the existing mess, the economy is likely to soar is not too distant a future. All it would take is the required will and an unswerwing belief in the righteousness of the cause.

 

 

 

Even so, it is argued that a complete shift from a Riba based economy to an Islamic one is no ordinary task. Apart from gestation throes. there are apprehended to be pitfalls at every juncture of the transaction. The fears and apprehensions on this score, even if bona fide, stem from an assumption that the transaction would not only be swift but abrupt. Undoubtedly, it has to be swift if Allah’s message has any meaning, but it need not be abrupt.

 

 

 

There can hardly be two opinions about the proposition that in commercial transactions, particularly of banks and financial institutions, it is rare that an advance, in good faith, is made without duly adverting to the economic feasibility of the venture, intended to be financed and without ensuring, in the way of collaterals, a virtual certainty of repayment. These, per se, a guarantee for a smooth transition, would, substantially, continue as the parameters within which Islamic Finance, essentially based on profit and loss sharing, would come to be extended, the only likely difference being a purposeful relaxation of the two considerations abovementioned, in a reasonable proportion, for those ventures, which are solely directed towards universal good and public welfare. The last, I repeat, shall only have to be in a reasonable proportion to purely commercially gainful activities anticipated to be pursued by banks and financial institutions in an interest free economy. Another, and again a largely beneficial difference, would be that finance for speculation, ostentatious pursuits and other ungainly activities would become scarce. Besides banks, because they would emerge as partners in business, would lose much of their existing role as creators of money, a circumstance, which has, in an unabated manner, continued to trigger an inflationary market. On the practical side, Islamisation of finance it may be added, is no longer a fanciful idea. For workable purposes, necessary documentation has already been accomplished. Fine tuning, if any, can take place within the visualized time schedule. As pointed out, in the main judgment and in his separate note ~ by my learned brother. Muhammad Taqi Usmani, J., Islamic banking is a physical reality all the world over and in so far as Pakistan is concerned we, specific to dealings having a nexus with financial institutions, at least on paper, have already gone completely Riba-free. All that has to be done is to forsake appearances and follow the realities of the Islamic economic order, a prospect neither too difficult nor toe remote.

 

 

 

29. It has been said, and to my mind correctly, that a Riba-free economy may be a non-starter if the same is introduced in a continually selfish, dishonest and corrupt socio-economic milieu, such as that which, regrettably, prevails in countries like Pakistan. Even so, these difficulties, posed by the unfortunate social factors on the ground, are not insurmountable. The system of proper checks and balances, as envisaged in the various reports for Islamisation of the economy submitted, from time to time, to the Federation should adequately and promptly take care of these negatives. It is unnecessary to give details of the possible pre-emptive measures, particularly, when the relevant reports are available and speak for themselves and, what is more, the other two judgments in these appeals have elaborately dilated upon the matter. Even so, a passing statement may be made: firstly, an all pervasive credit rating of the existing and proposed agricultural, commercial, industrial or other productive ventures has compulsorily to be effected and constantly kept up to date by the beginning of each financial year. Secondly, for effectively launching a profit and loss oriented economy, a qualitative and quantitative change in the practices of auditors has to be brought about, strict penalties being provided against irresponsible conduct of those experts, let alone their misconduct, which should be made an offence, subject to summary peer-oriented trials, ending in immediate disqualifications upon conviction, besides imposing sufficiently deterrent punishments in the way of prison terms. Indeed the crucial roles of independent valuers and auditors is to be made so effective and so trust inspiring that on the basis of reports of the latter alone income-tax and other revenue liabilities may be assessed, without the assessee having to go to the revenue offices or to have any truck with such bureaucratic sections of the society, obviously resulting in enrichment of the officials (focused below) and the business classes and the corresponding impoverishment of the State. The recommendation is by no means new, such is being practiced in developed countries. Thirdly, sine qua non for an Islamic economic order, in the modern day world, is an all out effort to document the entire gamit of trading activities. However, if insistence for documentation is made together with a hafty sales tax burden, the effort would surely fall prey to politisation, as has hitherto happened. This has to be done in stages. First, a reasonable time schedule for documentation needs to be framed. Then a moderate sales tax is to be imposed. Last, but most important of all, each business or industrial enterprise, subject to such tax, should justly, fairly and transparently be assessed to a tax liability on capacity basis, ensuring for no more than a couple of years, to begin with. This, because official interference, and what goes with it, always upsets the apple-cart. The move should require, strictness, on the one hand and cajolement on the other, a veritable carrot and stick policy. Fourthly, Islam permitting a large variety of taxes, not running contrary to its basic tenets, no section of the society should be left tax-free but such would necessitate a spreading of the tax burden equitably: Taxes, in Islam, must never be oppressive and always voluntary, without corrupt officials, the so-called tax hounds at the backs of taxpayers. This is easy; only the tax culture is to be generated. But tax culture can never evolve unless the taxpayers are convinced, less by proclamations and more by transparent public conduct, that their taxes would be well-managed and well-spent. This, however, must be accompanied by less and less official meddling and discretion but exemplary punishments for evasions not merely of assessees but also of conniving officials. Fault in the system lies not in under-spreading of the tax net, which is far too wide, but in the yawning gaps therein from which big sharks can conveniently escape whereas small fries get inextricably trapped. In short, without good governance a true Islamic economic order would remain a distant dream and all effort in that direction merely counterproductive. Lastly, because a Riba-free economy cannot be realised without the means to rid the country of the menace of an already deep-rooted Riba, internally as well as externally, transparency and purposefulness in managing the shift is a necessary concomitant. Undisputably the debt burden, both domestic and foreign, is multiplying at a furious pace. Those, who began with protestations of breaking the beggar’s bowl and sold away public sector enterprises (rightly termed as the equivalent of family silver) at throw away prices did no better than leaving behind a much larger inventory of liabilities. For any success in this direction, a faithful resolve and a workable strategy is to be planned. This is simple enough, provided the requisite will is not found wanting. To start with, there ought to be an absolute “no” to arty further loans at any level by the Government and its agencies. Then, a quick debt-equity swap in so far as domestic loans are concerned. Public sector enterprises, except where dictates of national security warrant otherwise, should be converted into limited liability companies or even corresponding mutual funds and their share capitals be publicly sold through stock exchanges etc. During the process, a rational subsistence must be paid on the deposits or other public issues contracted by the Government. This, hopefully, would clear the domestic debt and in a wholesome manner too. Care, however, must be taken of those who sit well entrenched in those white elephants of Government-owned or managed enterprises. They, sure enough, would do all that they can to engineer the failure of yet another of such-like efforts. Banks loans are no different. Immediate steps ought to be taken in that sector for a similar debt-equity swap. With that alone banks would become proportionate sharers in the financed institutions, individual and corporate. This would go a long way in curing the sick economic entities. External debt, which by all impartial estimates, has already exceeded US $ 32 billion is less challenging. The exercise, again, can only begin by a firm resolve of no more foreign loans. We are, in effect, a highly indebted poor country (HIPC) and should seek a write-off, wherever possible. I chanced to come across a very useful article entitled, “Of the Bank, the Fund and the Poor”, where the author, A.B.S. Jafri, analysed the background in which the Third World debt, with specific reference to HIPCs, came to be contracted, how unrepresentative regimes, apparently both dictatorial and having a mere facade of democracy, came to be propped up, how very conveniently generation after generation was trapped and correspondingly, public good became only scarcer than when the things began. The author, inter alia, wrote:

 

 

 

“If today Pakistan and so many other countries are in a state bordering perilously on financial bankruptcy, moral morass and environmental degradation, it is because of squalid governance, propped up largely by uncritical support and .instigation by powers on whose behalf the Bank and the Fund operate without any inhibition. The unrepresentative and anti-people regimes have squandered aid and loans. Nowhere have the people been the beneficiary. At no stage were the people associated with these arrangements. There is no way the people can be held morally or even legally responsible to honour commitments behind such loans.

 

 

 

It is indeed good to see that the Bank and the Fund are now moved by a sense of some sort of moral obligation (or remorse?) to relieve the distress of the `heavily indebted poor countries.’ They should first try to see what are the benefits from their loans over the years that have filtered down to the people. Also, in what manner these loans have contributed to the prosperity out of which the process of repayment of the loans should start. They would also do themselves a deal of good if they try to see what link there is between the billions that the Bank and the Fund have so generously poured into the coffers of the Governments of what are now the `heavily indebted poor countries’.

 

 

 

It is not unlikely that they find themselves confronted with the view that in one way or another the Fund and the Bank have wittingly or otherwise been an ally and privy to the regimes that have plundered their own people and drowned them into a sea of wretchedness that literally beggars description.

 

 

 

There are many who find themselves forced to the view that the Bank and the Fund have been instrumental in distorting the character and motivations of the nations in whose good name they have advanced money to usurpers, impostors and charlatans.”-

 

 

 

While negotiations for write off (in no case rescheduling because that, unceremoniously, multiplies the debt burden) would take their own time. a quick swipe may be directed at those, who illicitly hoard well over US $ 100 billion of our precious wealth abroad. Every bit of this money,  and when realised, should go for immediate clearance of the foreign debt, to the extent feasible at a given time. Correspond to this an end to living on undeserved imports. All luxury imports must forthwith cease There imports (dumping by veritable smugglers) have eroded our industrial base, factories have closed down. We are fast reverting to yet again becoming a raw material exporting country. Alas. with a dwindling agriculture, we may not be able to become even that. Enough of being a pliable market for others Private automobiles should he phased out in favour of public transport, both on intra and inter city basis. This should also ease our oil bill, already soaring beyond the $ 2.5 billion mark. Substantial export, and at that value added one, should be a priority area. No more smuggling. This too should be a significant foreign exchange saver. Land reforms of the Ayub and Bhutto eras need to duly enforced. There is no law against that. Agricultural produce, thus, induced, should even generally be encouraged. What a travesty, a basically agrarian, and once a wheat surplus country, is surviving on imported wheat. These and other cognate measures should generate a yearly surplus-of at least US $ 3 to 4 billion. That too should exclusively go towards debt servicing. Where there is a will there is a way, the foregoing and other similar measures should, in God’s good time, see us through our present plight of total helplessness.

 

 

 

30. Now to our bureaucratic quagmire. Bureaucratic corruption, of which the revenue staff and the police force are outstanding contributories, has, in all promptitude, to be rooted out in an Islamic policy. There is no dearth of exercises in this direction so far as the Islamic Republic is concerned. However, it remains a fact that all such were either half-hearted measures, or substantially wanting in good faith and, in any case, inconclusive or selective. It is axiomatic that all local politics is about jobs. In Pakistan, by and large, these jobs are held, at every level, by either incompetent or dishonest or otherwise undeserving officials. On the other hand, better people are sitting out and remain jobless. In the current state of affairs, they have no chance! Every Government that comes reconciles itself with the incumbents, who soon establish their indispensability. It yet callously induct its own camp followers, adding to the burden of the exchequer, which, for all intents and purposes has gone bankrupt. Talking of bankruptcy, from the material, which has been produced before us virtually all Pakistani banks are in doldrums, presenting a totally moth eaten interior and there is little doubt that if the depositors, who are in millions, were merely to cease making further deposits in Pakistani banks, such banks and their hand-picked (defaulting) agrarian, ‘commercial and industrial entrepreneurs would be left with nothing else except to prey upon one another’s vitals. A very serious exercise to correct these imbalances is overdue. There is no need for witch hunting. All bureaucrats, as inclusive of bankers, should be required to submit details of assets owned or possessed by them, by members of their immediate families etc. and wherever such are, inexplicably, more than would be warranted necessary action should follow including compulsory or optional retirements. Correspondingly, all institutions, as have any nexus with properties, their allotments or transfers, banks, financial institutions or other connected entities may be required to provide details of individual and corporate holdings with which the above declarations of assets may be matched and discrepancies, if any, not only corrected but also penalised. Another link of the same exercise would lie in requiring similar compliances from the agrarian, commercial or industrial sections of the society, but of specific categories. The data, synchronised, thus, would lead to necessary remedial measures. Of particular importance is the matter of bringing back the above US $ 100 billion, belonging to Pakistanis and stated illegally to be parked abroad. Given the necessary will and resolve, there can be many ways to do it. First and foremost is to institute adequate awards, with corresponding secrecy, for would be informers. Then foreign Governments/lenders may be persuaded to cooperate with a firm commitment to clear their liabilities on priority basis, once necessary material to trace and recover evaded assets is made available. Last but not the least, tax and other incentives may be offered to the evaders themselves to restitute the valuable national wealth. This, and other moneys, realised sooner than later, should be utilised in paying off the foreign debt and the domestic liabilities of the country in that order. In laying down these guidelines, it is proposed to exclude the judicial segment of the State. An identical exercise can go on in the provinces at and below the levels of the High Courts and at the Federal level in the Supreme Court. Much as, basically, the cleaning up of the officials would be at the bureaucratic level itself, the cleaning up of the judiciary shall have to be by and under the members of the judiciary themselves. Neither politicians nor the armed forces should be immune from these exercises. The politicians would be covered, apparently, under the categories of agrarian, commercial or industrial classes, abovementioned and, if necessary, a separate dispensation. regarding them also can be worked out but the corrective machinery, as regards participation of their peers, should only comprise of political figures of high integrity and impeccable characters. As regards the armed forces the exercise can be internal but transparent and open to public view. Relevant to the tribunals of exclusive jurisdiction, which such matters should necessitate, two things must be ensured. One, these should be manned only by sitting and retired Judges of high integrity and two, the appointees should exclusive attend to these special assignments and for looking after their normal duties, if serving Judges are assigned these functions, temporary or other vacancies of their posts be created. Under no circumstances any direct appointment to these tribunals be made because such has never delivered. It is only from within the system that something good may yet come.