In the following lines, assertions related to Islam are based on the interpretation of the Qur’ān and the Sunnah and on the ensuing spirit of this religion.

I  Regarding Islam

1. Islam has not given any economic system. In fact, it has not given any social system. A system is essentially a set or assemblage of interconnected and interdependent things that form a complex unity1. If Islam had given social systems in that sense it would have been obsolete long ago. It has however given certain universal ethical principles for the purification of human soul.

2. In the case of vices which have pervaded society to the extent that their eradication in one stroke can only cause greater disruption and evil than the one which is sought to be rooted out, Islam has always had a gradual approach towards implementation (for example, its gradual prohibition of intoxicants during the Prophet’s time -- sws)

3. Islam does not take away the freedom of an individual to own and use wealth. Only in exceptional cases, where the chances of exploitation are great, does it take away the right to ‘use’ wealth2. Also, it acknowledges the fact that there are natural differences among humans in relation to their abilities, circumstances and wealth. These differences create a harmonious society if each individual is given a fair and just  opportunity to utilise his or her potential. Islam restrains the freedom of an individual seeking his or her material benefit only to the extent that there is no exploitation and that the collective and personal activities of an individual do not hinder his or her soul’s purification, which purification is essential for enabling an individual to become a true servant of God. Purification of human soul is the underlying spirit of injunctions as the prohibition of Ribā and of directives as the implementation of Zakāh.

II  Regarding Economics

1. There is no viable basis for institutional credit creation -- the primary function of banks -- apart from interest. If there had been, someone would have found it by now. The Jews tried it, the Christians tried it, the Muslims tried it3. All failed. It’s time we started looking for an alternative solution rather than wasting further efforts on looking for alternatives to interest as a basis for institutional credit creation. Perhaps, the solution lies in looking for a banking-free economy rather than in looking for an interest-free banking system. A radical idea perhaps, but one that needs looking into, especially since preserving the existing structure of banking is not a Divine commandment.

2. Since, as Paul Samuelson has put it ‘A thing is worth what people think it is worth’4, values can have the profoundest economic impact. In the promotion and preservation of any value, the affluent and the elite who are at the helm of affairs have a great role to play. It is not only through laws but also through personal example that values are inculcated. That is why it used to be a convention in true Islamic societies that a ruler’s standard of living never went above that of an average person.

3. An economic system does not exist in isolation. Any successful economic guideline requires certain accompanying factors in the political, legal, social and cultural set-ups shaping the economy5.

III  Recommendations

The economy should be re-structured on the bases of a just distribution of wealth and self-reliance in such a manner that gradually the government is left with no need to impose any tax on its citizens others than Zakāh6.

Details of this suggestion, which is based on the ideas of Javed Ahmad Ghamidi7, are presented by Shehzad Saleem in the next appendix. While considering these suggestions in relation to budget making, the following points must also be considered:

     1. Usually, policy makers in our country think of only one way of reducing the gap between revenue and expenditure: increasing the revenue -- which is generally done through additional borrowing or increased taxation or both. Yet, another way has always been there: reducing the expenditure -- the wrong kind of expenditure. Expenditure which eats up the stock of capital goods more quickly than it adds to it or leads to such patterns of production and distribution as make the rich richer at the cost of the development of the rest certainly needs to be curtailed. Changing the structure of expenditure requires courage, commitment and sagacity. But it can be done.

     At the moment, the greatest curse our nation is facing is debt-servicing. Domestic debt servicing alone is around 60% of the total debt servicing in the revenue account. If the government, by taking the masses into confidence, musters up enough political support to get the majority vote on this one8, it can declare a moratorium on the payment of domestic debt on the basis of the Qur’ānic verse which urges a lender to extend the time of ease for a borrower in straitened circumstances9. All interest payment on domestic debt can immediately be stopped on the grounds of interest being un-Islamic. The current value of debt may be linked to gold and re-payment assured on that basis so that no panic results. The facility of sale (through the Exchange) of marketable instruments of this debt may continue. The time-period for re-payment in gold (or value thereof) may be delayed for at least 15 years so that ample time is available for generating income by using the saved funds for productive and developmental enterprise. With this one stroke, the largest chunk of expenditure can be dealt with. All other superfluous expenditures must also be curtailed or stopped.

     2. Zakāh is usually thought of as a very narrowly-based tax. This tax, with its inherent appeal of being an obligatory ritual of worship for a Muslim, has a very wide base (as is explained ahead) and can be used for all collective and state purposes. In this regard, the condition of Tamlīk imposed by some jurists, which restricts the use of Zakāh to personal possession at the level of individuals who belong to the destitute class, has no basis in the Qur’ān or Sunnah10. It is suggested that this tax be used to the fullest extent to broaden the base of taxation, especially by including agricultural produce in real terms.

     3. Since the government has the right to take away the right of use from incompetent owners of wealth so that exploitation in society is checked11, it should look into the possibility of sharing in the management of large, under-utilised tracts of agricultural lands. Some suggestions in this regard follow in the next appendix.

     4. The financial system should be restructured in such a way that interest is abolished and indigenous entrepreneurship, especially at the middle-income levels and at the levels of cottage industry, is encouraged. (See the first suggestion in the next appendix for how this restructuring may actually be done).

     5. Further foreign loans should not be taken. Efforts should be made to retire all foreign debt in the next 15 years. Superfluous expenditure must be put to an end, the government and its members should promote austerity by personal example, and the more well-off segments of society should take the lead in making the dream of full retirement of debt a reality. Had the present government been a true leadership of the masses rather than of the affluent and of the industrial bourgeoisie, one might even have suggested some drastic measures for the retirement of debt, considering the gravity of the situation. These drastic measures would have included among many others, redistribution or acquisition of land on the basis of original ownership before the British took control from the Muslim rulers of India and acquisition of or sharing in the management of enterprises set up in the private sector through funds borrowed from the State controlled banks and DFI’s. (Alternatively, a system of Khirāj as suggested in the next appendix could be used for ‘less drastic’ measures).

The unhallowed hand of this scribe presents these suggestions with full awareness that in all probability the rulers of today will rather choose to ignore them. But since there is hope in the younger generation, these suggestions it must present. Perhaps, the rulers of the future will pay heed to them in a time when there is no difference between making money and making goods, when the man who makes most money is no longer one who exploits others or stifles indigenous enterprise with his interest-based business expansion and cut-throat competition or who, with his speculation and interest-based business activity, creates for small investors, entrepreneurs and for the majority of people in society problems as panics, industrial failures and unemployment.

But until then, until darkness gives way to that daylight, it seems that the worship of avarice, interest and precaution as gods will continue in nations as ours.12

1. Koontz and Weihrich, Management, 9th ed. (New York: McGraw-Hill Book Company, 1988) p. 44.

2. See the Qur’ān (4:5). Although this verse relates to a specific group in society, the underlying reason for this directive extends the application to include any person(s) who does not have the mental competence to manage his wealth appropriately; for example, the directive may be used by the government as a basis to take away the use (not the ownership) of excessive, under-utilised land from incompetent owners.

3. It may be surprising for some, but in all the three great religions: Islam, Christianity and Judaism, interest had been prohibited. Adherents of all three religions tried subterfuges ranging from defining interest as exploitative usury to different ‘modes’ of financing. (See Appendix 4)

4. Paul. A Samuelson, Economics, 11th ed. (Tokyo: McGraw-Hill Kogakusha, Ltd. 1980), p. 67

5. For our suggestions on changes required in these areas, see Renaissance, VI (Feb. 1997).

6. Islam does not allow the Islamic State to charge any tax on its Muslim citizens apart from Zakāh. For details see Shehzad Saleem, ‘The Islamic Concept of Taxation’, Renaissance, II (Oct. 1992), 3-12 and Shehzad Saleem, A New Economic Framework, (Lahore: Al-Mawrid, 1995), p.13.

7. President and Research Fellow of Al-Mawrid, Institute of Islamic Sciences.

8. Since such a radical step can incite a lot of opposition, the government, for taking this step, might require majority vote in accordance with the Qur’ānic principle of government for the Muslims: amruhum shurā baynahum (42:38). (Their affairs are by consultation among them).

9. (The Qur’ān 2.282)

10. For details see Nadir Aqueel Ansari, ‘Tamlīk As a precondition in Zakāh’, Renaissance, VII (May/June 1997), pp 53-56. For further detail see Amīn Ahsan Islāhī, Tawdīhāt, (Lahore, Islamic Publishing Centre, 1985), pp. 107-173. See also Shehzad Saleem, A New Economic Framework: Ghamidi’s Proposition, (Lahore: Al-Mawrid, 1995). For details of other Islamic guidelines for the economy, see Javed Ahmad Ghamidi, Qanūn-i-Ma‘īshat, (Urdu), (Lahore: Al-Mawrid, Islamic Centre, 1997).

11. (See the Qur’ān 4:5)

12. See Shaikh Mahmud Ahmad, Towards Interest Free Banking (Lahore: Institute of Islamic Culture, 1989), pp. 27-29 for a criticism on the Keynes’ apprehension that owing to psychological factors it will not be economically feasible to let the interest rate fall too low or to let it become zero (despite the advantage of ridding the economy of unemployment -- an advantage he himself conceded).