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Review of the conventional and existing operational business practices of the Islamic banks in Pakistan

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Muhammad Arif
Muhammad Arif (Chairman CAIF)

A conventional bank gets money from the public as deposits and offers a large part of it as loans on interest and distributes the interest received on its loans amongst its account holders. In contrast to this, an Islamic Bank in Pakistan gets money from public on Mu??rabah (It is a contract in which a party provides capital to the other party who offers his labor based on risk and profit sharing) and a large part of it, invests in lease purchase of vehicles or housing financing schemes and a fixed percentage of the profits earned out of it, are distributed amongst those who had put their money in saving accounts, business profit accounts, income certificate and certificates of Islamic Investments etc.

A question arises that the profit earned from such saving schemes and certificates is Halal or Haram? This would be determined on the basis of where the bank invests the money it has received from its account holders. We have already explained that an Islamic Bank in Pakistan invests a large part of its deposits through Ij?rah wa Iqtin?? (Lease and Purchase), Mush?rikah Mutan?qi?ah (Diminishing Partnership) and Mur?ba?ah (Cost plus Profits) schemes.

During Quarter end March 2018, 13.1 % of the investment was made in Mur?ba?ah, 21.2 % in Mush?rikah Mutan?qi?ah and 6.4 % in Ij?rah wa Iqtin??. (Islamic Banking Bulletin March 2018)

We shall now do an analytical study of these business types of an Islamic Bank. After a study of the various types of the business practices of the Islamic Banks, we assess that the Islamic Banks have adopted the path of unfair subterfuges to convert a wrongful thing into allowed.

According to the Quran, in a Jewish town on the seaside, Allah SWT disallowed fishing on Saturdays so that they could worship on that day. With this Allah STW put them in a trial as on Saturdays the fish would, by coming on the surface, provided them with big temptation for fishing whereas on other days these used to go in deeper waters. One group of Jews did not fare well in this trial and devised a subterfuge to fish on Saturdays.

They dug small ditches near the sea and linked these to the sea through small channels.

On Saturdays this group would push the fish to these ditches and catch these on Sundays.

Apparently they were obeying Allah’s command by not fishing on Saturday, whereas the real objective of Allah’s order of reserving Saturdays for worship was not being fulfilled.

A second group asked the first to refrain from such subterfuges but the first group declined. The third group consisted of people who told the people of the second group that there was no use counseling the first group on this issue.

These people neither fish with such subterfuges like the first group, nor did they restrain them from this act. Thus Allah SWT, for adopting this subterfuge to circumvent the Sharia command by the first group, levied punishment on them, which is described in the Quran as under.

Allah SWT says: “Ask these Jews about the people living in the settlement on the sea side while they were committing excess on Saturdays when the fish would appear on surface of the water on Saturdays and when it was not Saturday these would not appear before them. This way I was giving them a trial because they were disobedient.

When one group from this settlement said to the other why do you guide the group whom Allah SWT is about to destroy or give severe punishment, they replied, “so that we could offer a justification to our Lord [that we had counseled them] and may be some of them get alarmed] and refrain from such subterfuges]. Thus when they ignored the advice which was conveyed to them, we saved those people who forebode them from vice and those who had committed excess we put them to sever punishment for their disobedience.” (Quran: 7: 163-165)

Similarly, Prophet (PBUH) said: “Let there be the curse of Allah upon the Jews that fat was declared forbidden for them, but they melted it and then sold it.” (Bukh?r? 1997) There is a consensus among the jurists that all subterfuges by which Sharia laws are made void or a Haram could be made Halal are unlawful (J?mi? al-U??l n.d.).

As an example, if one million rupees are lying for last 11 months with some body, and in order to avoid zakat, two weeks before the end of the year, he gifts this money to his wife, there would be no Zakat on this, since one full year has not been completed on this money. Similarly, his wife, in the next year, before the completion of full year, gifts this back to her husband, this money is again excluded from zakat. Some subterfuges are such that on surface there seems to be no violation of any Fard (Obligatory) or W?jib (Mandatory) ruling, but the real Sharia aims of such command are not fulfilled. Some contemporary scholars do believe in such subterfuges.

One form of such subterfuges which is commonly practiced by some present day experts involves, for anyone who wants to avoid paying zakat, to find first a Zakat deserving person, then a deal is struck with this person that out of the Zakat to be paid to him, he would keep a small amount with himself and gift the balance back to him. Thus if somebody’s Zakat assessment is Rs50,000., the Zakat deserving person, would keep 2-3 thousand with himself and return the balance amount to the assesse as gift.

As a result of such subterfuges, the basic purpose of Zakat in Sharia of helping the poor, the destitute and the deprived or the self-cleansing of the rich is lost. It is the Sunnah of the Messenger of Allah that Zakat should be collected from the rich and paid back to the poor of the same settlement (Bukh?r? 1997). If any scholar adopts such subterfuges as would return back the Zakat collected to the rich, such subterfuges would be Haram and unjust as per Sharia. Such tricks being Haram is proved by the tenets of Sharia, as has been described above.

Dr. A?mad ?asan writes, “It is accepted by all jurists that for the negation of Sharia law or principles, use of such subterfuges is incorrect. With some ?anaf?s we however find the justifications for use of such tricks. There is also a book on this topic attributed to Im?m Muhammad bin al-?asan and there is a book of Im?m Kha???f on tricks. By these subterfuges, these ?anaf? scholars do not mean trick which would negate Sharia laws and ruin the public interests for which these subterfuges were devised, rather the objective of these tricks is to find ways and means by which these public interests are realized and not the negation of Sharia laws (J?mi? al-U??l n.d.).”

This was the position on subterfuges of the former ?anaf? jurists, but some of the present day scholars adopted a softer position. Since with the cotemporary scholars there is a full chapter on the usage of subterfuges and these tricks are commonly used. These tricks are also used to sort out economic problems of people as well.

There is no doubt that any subterfuge which annuls a Sharia law or by which a Haram is described as Halal is considered wrong by all the Muslim jurists. However with the present day scholars many such subterfuges have been accepted as correct, by which even the Sharia objectives of the Divine law are compromised and these are the ones which form the basis of Islamic Banking. We are of the view that till such time that a critical research in the validity of basic principals involved for such subterfuges, is not carried out, it is not possible to carry out any meaningful evaluation of Islamic Banking.

Some proponents of Islamic Banking sometimes quote such precedents as would justify use of such tricks, e.g.; The prophet Ayy?b?s AS hitting of his wife with a broom in place of the sworn lashes (Quran 38:44) or The Prophet Yousaf?s AS tactful hiring of his brother (Quran 12:70-76) or Holy Prophets PBUH advice to the companion Bil?l RA not to sell inferior quality of dates in exchange of superior kind with some price adjustments and if at all, it was necessary, to first sell the inferior quality and then buy superior dates (Bukh?r? 1997) or again Holy Prophets PBUH sentencing of an old and sick person on adultery charges by hitting him with date palm twig with hundred offshoots in place of hundred lashes (Sunan Ab? D?w?d 2006). The reason for all such instances was that a trick is lawful or acceptable in Islamic Sharia if its objective is to secure ones right or it is for elimination of some excess or it is for removal of some such pain which had the possibility of inflicting death, provided fair means and methods are used in such subterfuge. Some scholars like Im?m Sh??b? do not include such tricks even in the definition of a subterfuge since for them a prohibited trick is some subterfuge which is unlawful and illegal. In contrast to this some other scholars like Im?m Ibn al-Qayyim have divided subterfuges in to two types, i.e., valid and void subterfuges (J?mi? al-U??l n.d.). The prophet Ayy?b?s AS once swore during his illness that he would give one hundred lashes to her wife for her ungratefulness, once he recovers from his sickness. The offence committed by Ayy??s AS wife was not that serious as to warrant such a punishment, but then there was the question of Prophet Ayy?b?s oath, so to save Ayy?b?s AS wife from this punishment, for which she had no capacity, Allah SWT brought about a trick in his mind. So, a subterfuge which is employed to ward off a suffering is a valid subterfuge.

Similarly, holding back of his brother by Prophet Y?suf AS was his moral and legal right. Additionally he wanted to save his brother from further fury of his step brothers as described in the Quran (12:69). And the Holy Prophet PBUH did not award the punishment of hundred lashes to an old and sick person because there was a very strong possibility of his death, so to save him from a possible fatal punishment, a subterfuge was employed. In the tradition involving Bilal RA, the Holy Prophet PBUH guided him to right and proper subterfuge to meet a personal situation i.e. as per the normal practice in selling, to first sell the inferior kind of dates and then buy the superior quality. In this case the Holy Prophet PBUH is persuading him to follow the commonly used practice in buying and selling to get the quality dates in exchange for inferior dates and not coaching him in devising a subterfuge to make a Haram into a Halal.

Even if it is accepted as a subterfuge, with this kind of trick neither any Sharia Law or provision has been annulled nor any objective or public interest has been lost whereas the subterfuges which form the basis of Islamic banks, not only destroy the objectives of the, these also annul the Sharia rulings.

According to a group of Pakistani scholars, subterfuges being used in Islamic Banking are the same back door tricks the Jews had been using to change a Haram into Halal. Recently a group of ?anaf? scholars have issued a unanimous Fatwa from Karachi on the existing Islamic Banking, which says: “Since the unreal and temporary grounds of Islamic Banking are Mur?ba?ah and Ij?rah (Leasing), banking with such provisional basis and making these short lived subterfuge a permanent means of earning, it becomes rather difficult, both morally and as per Sharia, to call and consider it as Islamic Banking. Some of the reasons for this are:

1) The unreal foundations (Mur?ba?ah and Ij?rah) are mere subterfuges and making a permanent system out of these tricks is not lawful. Any Business settled by employing such subterfuges would also be invalid. As the subterfuge of ‘Bay? ??nah’ (It means to sell something for a price to be paid at a later date, then to buy it back for a lower price to be paid immediately) according to Imam Muhammad is wrong, similarly the subterfuges regarding Mur?ba?ah and Ij?rah and making money using these tricks is also inappropriate.
2) These subterfuges were devised by the former scholars for an interim period for particular circumstances.

3) These are very delicate and dangerous subterfuges. A slight carelessness would make these a part of ‘interest system’.

4) Using these subterfuges as permanent system is not only wrong but unfair as well.

5) In Islamic banking the volume of Mur?ba?ah and Ij?rah must be abolished, otherwise no Islamic Bank would be justified in calling itself ‘Islamic Bank’; instead these would best be called as ‘??lah Bank’. (The Unanimous Fatwa 2008)
Later a press release on eight pages containing this detailed Fatwa was issued. It is said in this publication that the existing Islamic Banking is absolutely unlawful and illegal. The ruling is the same for banks characterized as Islamic banks as is for other normal conventional interest banks. Participants of this session included Muft? ?am?dull?h J?n from J?mi?ah Ashrafiyyah, Lahore, Mawl?n? Muft? ?Abd al-Maj?d D?np?r?, Mawl?n? Muft? Raf?q A?mad and Mawl?n? Muft? Shu?ayb ??lam all from J?mi?ah Binawr? Town, Karachi Muft? Ghul?m Q?dir from D?r al-?Ul?m ?aqq?niyyah Akura KhatakMawl?n? Muft? Ihtish?m al-?aqq ?siy? ?b?d? from Baluchistan with other Muftis.

However to find out a way out to get out of this discussion following steps are required.
1. Defining Riba or interest by Sharia court.

2. Proper legislation on Islamic Banking and Finance.

3. Finding or designing products in accordance with defined definition of Riba or interest.

Till above steps are not made such debates would continue on with suspicions of lot of people on Islamic Banking.

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