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economic policies The economy of governments covers the systems for setting levels of taxation, government budgets, the money supply and interest rates as well as the labour market, national ownership, and many other areas of government interventions into the ec ...
proposed under the banner of "Islamisation" in Pakistan include executive decrees on ''
Zakāt Zakat ( ar, زكاة; , "that which purifies", also Zakat al-mal , "zakat on wealth", or Zakah) is a form of almsgiving, often collected by the Muslim Ummah. It is considered in Islam as a religious obligation, and by Quranic ranking, is ne ...
'' (poor-due), ''Ushr'' (
tithe A tithe (; from Old English: ''teogoþa'' "tenth") is a one-tenth part of something, paid as a contribution to a religious organization or compulsory tax to government. Today, tithes are normally voluntary and paid in cash or cheques or more r ...
), judicial changes that helped to halt land redistribution to the poor, and perhaps most importantly, elimination of ''
riba The Royal Institute of British Architects (RIBA) is a professional body for architects primarily in the United Kingdom, but also internationally, founded for the advancement of architecture under its royal charter granted in 1837, three suppl ...
'' (defined by activists as interest charged on loans and securities). Perhaps the foremost exponent of Islamisation among Pakistan's rulers—General
Muhammad Zia-ul-Haq General Muhammad Zia-ul-Haq HI, GCSJ, ร.ม.ภ, (Urdu: ; 12 August 1924 – 17 August 1988) was a Pakistani four-star general and politician who became the sixth President of Pakistan following a coup and declaration of martial law in ...
—advanced a programme in 1978 to bring (according to Zia and his supporters) Pakistan law in line with the principles of
Sharia law Sharia (; ar, شريعة, sharīʿa ) is a body of religious law that forms a part of the Islamic tradition. It is derived from the religious precepts of Islam and is based on the sacred scriptures of Islam, particularly the Quran and the H ...
. Conceived in late 1977 and carried out during his reign, the programme came in response to an upsurge in Islamic activism, and the problems and controversies associated with the policies of Zia's predecessor, Prime Minister
Zulfikar Ali Bhutto Zulfikar (or Zulfiqar) Ali Bhutto ( ur, , sd, ذوالفقار علي ڀٽو; 5 January 1928 – 4 April 1979), also known as Quaid-e-Awam ("the People's Leader"), was a Pakistani barrister, politician and statesman who served as the fourt ...
. Zia's stated intention was to "eradicate the scourge of interest" on loans and securities, and create an " interest-free economy". On January 1, 1980, approximately 7,000 interest-free counters were opened at all the nationalized commercial banks, making Pakistan the first country in the
Muslim world The terms Muslim world and Islamic world commonly refer to the Islamic community, which is also known as the Ummah. This consists of all those who adhere to the religious beliefs and laws of Islam or to societies in which Islam is practiced. In ...
with
Islamic banking Islamic banking, Islamic finance ( ar, مصرفية إسلامية), or Sharia-compliant finance is banking or financing activity that complies with Sharia (Islamic law) and its practical application through the development of Islamic economic ...
. However, in spite of the public support allegedly demonstrated for it (and other Islamisation policies) by the 1984 Islamisation referendum and the programme's initial gains and success, it failed to achieve international targets and to meet commercial interactions with other major international banks. Islamic activists were also displeased that Zia's ordinances and proclamations did not ban interest paying accounts. Zia's successors were not as active in their pursuit of Islamisation. While conservative Prime minister
Nawaz Sharif Mian Muhammad Nawaz Sharif (Urdu, Punjabi: ; born 25 December 1949) is a Pakistani businessman and politician who has served as the Prime Minister of Pakistan for three non-consecutive terms. He is the longest-serving prime minister of Pak ...
publicly supported Islamisation, his economic policies focused on
privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
and
economic liberalization Economic liberalization (or economic liberalisation) is the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities. In politics, the doctrine is associated with classical libe ...
. Many Pakistani economists and business people worry that attempting to impose an Islamic economy on Pakistan would have "devastating economic, political, and social consequences for the country", though others (such as governor of the State Bank of Pakistan, Ishrat Husain), have termed fears of Islamlisation "absurd" and based on Western stereotypes. Islamisation has continued through the efforts of the Islamic courts Zia created, including activists on the Shariat Appellate Bench of the
Supreme Court A supreme court is the highest court within the hierarchy of courts in most legal jurisdictions. Other descriptions for such courts include court of last resort, apex court, and high (or final) court of appeal. Broadly speaking, the decisions of ...
, although it was given a setback when the government of
Pervez Musharraf General Pervez Musharraf ( ur, , Parvez Muśharraf; born 11 August 1943) is a former Pakistani politician and four-star general of the Pakistan Army who became the tenth president of Pakistan after the successful military takeover of the ...
came to power and pressured a number of activist judges to retire.


History and background

As a state created specifically for Muslims, Pakistan has long had Islamic activists advocating for more thorough Islamisation of that country, and specifically for the elimination of ''
riba The Royal Institute of British Architects (RIBA) is a professional body for architects primarily in the United Kingdom, but also internationally, founded for the advancement of architecture under its royal charter granted in 1837, three suppl ...
'' (defined as interest on loans). But the country has also had
Islamic modernist Islamic modernism is a movement that has been described as "the first Muslim ideological response to the Western cultural challenge" attempting to reconcile the Islamic faith with modern values such as democracy, civil rights, rationality, eq ...
s and secularists in positions of influence and "generations of Muslim usage and custom supported by the
fatwa A fatwā ( ; ar, فتوى; plural ''fatāwā'' ) is a legal ruling on a point of Islamic law (''sharia'') given by a qualified '' Faqih'' (Islamic jurist) in response to a question posed by a private individual, judge or government. A jurist i ...
of respected
ulema In Islam, the ''ulama'' (; ar, علماء ', singular ', "scholar", literally "the learned ones", also spelled ''ulema''; feminine: ''alimah'' ingularand ''aalimath'' lural are the guardians, transmitters, and interpreters of religious ...
that held low rates of interest to be acceptable, non-usurious, and not ''
riba The Royal Institute of British Architects (RIBA) is a professional body for architects primarily in the United Kingdom, but also internationally, founded for the advancement of architecture under its royal charter granted in 1837, three suppl ...
''", according to economist Feisal Khan. Khan, ''Islamic Banking in Pakistan'', 2015: p.79 Even
Allama Iqbal Sir Muhammad Iqbal ( ur, ; 9 November 187721 April 1938), was a South Asian Muslim writer, philosopher, Quote: "In Persian, ... he published six volumes of mainly long poems between 1915 and 1936, ... more or less complete works on philoso ...
"the Thinker of Pakistan" (''Mufakkir-e-Pakistan'') "cited approvingly" the fact that Muslim princely states in India did not restrict modern banking or "attempt to impose some sort of `Islamic` concept of interest-free financial transactions." Khan, ''Islamic Banking in Pakistan'', 2015: p.80 Consequently enthusiasm for Islamisation has waxed and waned throughout Pakistan's history. It has been strong when "religious elements are in ascendancy", such as during partition, the 1977 Nizam-e-Mustafa movement, and during the rise in fundamentalist after 2000. At other times "only lip service" is paid to the issue. Maududi and other Islamist hoped to make Pakistan "a new
Medina Medina,, ', "the radiant city"; or , ', (), "the city" officially Al Madinah Al Munawwarah (, , Turkish: Medine-i Münevvere) and also commonly simplified as Madīnah or Madinah (, ), is the second-holiest city in Islam, and the capital of the ...
" which would become "the leader of the Islamic world in the twentieth century, a laboratory where experiments in Islamic modernity would be successfully conducted en route' to ushering a new Islamic renaissance" Ashraf Qureishi and
Abul A'la Maududi Abul A'la al-Maududi ( ur, , translit=Abū al-Aʿlā al-Mawdūdī; – ) was an Islamic scholar, Islamist ideologue, Muslim philosopher, jurist, historian, journalist, activist and scholar active in British India and later, following the parti ...
, two of the pioneer theoreticians of Islamic banking, who preached that interest was riba, forbidden to Muslim, and "laid the foundations of current" Islamic Banking and Finance in the 1940, were from South Asia. (Maududi moved to Pakistan where he became an influential Islamist leader.) Khan, ''Islamic Banking in Pakistan'', 2015: pp.2, 60-64 According to Feisal Khan, "South Asians in general and Pakistanis in particular are `over-represented`" among Islamic Banking "theorist and practitioners," and Pakistanis are "found in Islamic banks and financial firms throughout the ersianGulf at all levels, from tellers to the boardroom." Khan, ''Islamic Banking in Pakistan'', 2015: p.2 Article 28 of Pakistan's 1956 Constitution called for the elimination of ''riba'' "as early as possible". The 1962 Constitution provided in the principles of policy that "usury" should be abolished. Similar provisions were found in the 1973 Constitution. In 1969 the state-sponsored advisory body known as the
Council of Islamic Ideology Council of Islamic Ideology (CII; ( ur, ) is a constitutional body of Pakistan, responsible for giving legal advice on Islamic issues to the government and the Parliament. This body was founded in 1962 under the government of Ayub Khan. Funct ...
(CII), declared that Pakistan's banking system was "fundamentally based upon ''riba''", and unanimously called for its elimination. The mid and late 1970s were a time of Islamic revivalism throughout parts of the Muslim world, including Pakistan. Zia's predecessor, leftist Prime Minister
Zulfikar Ali Bhutto Zulfikar (or Zulfiqar) Ali Bhutto ( ur, , sd, ذوالفقار علي ڀٽو; 5 January 1928 – 4 April 1979), also known as Quaid-e-Awam ("the People's Leader"), was a Pakistani barrister, politician and statesman who served as the fourt ...
faced economic problems of
stagflation In economics, stagflation or recession-inflation is a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions ...
and opposition to his programme of
nationalization Nationalization (nationalisation in British English) is the process of transforming privately-owned assets into public assets by bringing them under the public ownership of a national government or state. Nationalization usually refers to pri ...
and
land reform Land reform is a form of agrarian reform involving the changing of laws, regulations, or customs regarding land ownership. Land reform may consist of a government-initiated or government-backed property redistribution, generally of agricultural ...
. In 1976 and 1977, vigorous opposition to Bhutto's policies united under the revivalist banner of ''Nizam-e-Mustafa'' ("Rule of the
prophet In religion, a prophet or prophetess is an individual who is regarded as being in contact with a divine being and is said to speak on behalf of that being, serving as an intermediary with humanity by delivering messages or teachings from the su ...
") and preached that establishing an Islamic state based on
sharia Sharia (; ar, شريعة, sharīʿa ) is a body of religious law that forms a part of the Islamic tradition. It is derived from the religious precepts of Islam and is based on the sacred scriptures of Islam, particularly the Quran and the H ...
law would bring a return to the justice and success of the early days of Islam when the Islamic prophet
Muhammad Muhammad ( ar, مُحَمَّد;  570 – 8 June 632 CE) was an Arab religious, social, and political leader and the founder of Islam. According to Islamic doctrine, he was a prophet divinely inspired to preach and confirm the monot ...
ruled Muslims. In an effort to stem the tide of street Islamization, Bhutto also called for Islamisation and banned the drinking and selling of wine by Muslims, nightclubs and horse racing. Confrontation between Bhutto's PPP and the opposition
Pakistan National Alliance The Pakistan National Alliance (Urdu: پاکستان قومی اتحاد, Acronym: PNA), was a populist and consolidated right-wing political alliance, consisting of nine political parties of the country. Formed in 1977, the country's leading ...
, street protests, loss of life and property, all preceded the military overthrow of Zulfikar Ali Bhutto by Zia in 1977. On coming to power, Zia committing himself to enforcing ''Nizam-e-Mustafa'', a significant turn from Pakistan's predominantly
secular law Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its precise definition a matter of longstanding debate. It has been vari ...
, inherited from the British. Less than two years after the coup, Pakistan's
Shia Shīʿa Islam or Shīʿīsm is the second-largest branch of Islam. It holds that the Islamic prophet Muhammad designated ʿAlī ibn Abī Ṭālib as his successor (''khalīfa'') and the Imam (spiritual and political leader) after him, most n ...
neighbor, Iran, saw a very unexpected
Islamic revolution The Iranian Revolution ( fa, انقلاب ایران, Enqelâb-e Irân, ), also known as the Islamic Revolution ( fa, انقلاب اسلامی, Enqelâb-e Eslâmī), was a series of events that culminated in the overthrow of the Pahlavi dynas ...
overthrow its well-financed pro-
Western Western may refer to: Places *Western, Nebraska, a village in the US *Western, New York, a town in the US *Western Creek, Tasmania, a locality in Australia *Western Junction, Tasmania, a locality in Australia *Western world, countries that id ...
,
secular Secularity, also the secular or secularness (from Latin ''saeculum'', "worldly" or "of a generation"), is the state of being unrelated or neutral in regards to religion. Anything that does not have an explicit reference to religion, either negativ ...
monarchy A monarchy is a form of government in which a person, the monarch, is head of state for life or until abdication. The political legitimacy and authority of the monarch may vary from restricted and largely symbolic (constitutional monarchy), ...
. The new self-proclaimed revolutionary
Islamic Republic of Iran Iran, officially the Islamic Republic of Iran, and also called Persia, is a country located in Western Asia. It is bordered by Iraq and Turkey to the west, by Azerbaijan and Armenia to the northwest, by the Caspian Sea and Turkmen ...
believed in the necessity of Islamic sharia law for Islam to survive and prosper, and in the need to spread this doctrine to other Muslim states. While part of the Islamic revival, the revolution created a new conflict in the Islamic world by pitting revolutionary Shia Iran against its doctrinal and geopolitical rival the conservative
Wahhabi Wahhabism ( ar, ٱلْوَهَّابِيَةُ, translit=al-Wahhābiyyah) is a Sunni Islamic revivalist and fundamentalist movement associated with the reformist doctrines of the 18th-century Arabian Islamic scholar, theologian, preacher, an ...
Kingdom of Saudi Arabia Saudi Arabia, officially the Kingdom of Saudi Arabia (KSA), is a country in Western Asia. It covers the bulk of the Arabian Peninsula, and has a land area of about , making it the fifth-largest country in Asia, the second-largest in the Arab ...
, for leadership of the Islamic world. As poor, predominantly Sunni country, Pakistan has been closely tied to the petroleum-exporting Saudi Arabia which has employed many Pakistani guest workers. This competition for influence affected many things in Muslim countries, including economic policies.


Timeline of ''riba'' and banking

*1956 - first constitution of Pakistan states that the state was to "eliminate riba as early as possible" (article 29(f)), but does not define riba. Khan, ''Islamic Banking in Pakistan'', 2015: p.40 *1969 - the Council on Islamic Ideology recommends that riba be abolished and the banking system be overhauled, recommendation is ignored by the government. *1971 - the Council on Islamic Ideology recommends that riba be abolished and the banking system be overhauled, recommendation is also ignored by the government. *1979, July - interest is eliminated from three financial institutions by order of General Zia. Effective 1 July 1979, General Zia declared that the affairs of the National Investment Trust, the House Building Finance Corporation, and the Investment Corporation of Pakistan were to be run on an interest-free basis through the adoption of profit-loss sharing (PLS). *1980, detailed ''Report on the Elimination of Interest from the Economy 1980'', is issued by the Central Institute of Islamic Research at the request of ruling General Zia-ul-Haq. Calls for a complete elimination of interest in Pakistan's economy over a five-year period. Khan, ''Islamic Banking in Pakistan'', 2015: p.78 *1991, November - "monumental decision" by Federal Shariat Court of Pakistan overturning 20 federal and provincial financial laws as repugnant to Islam, forbids riba absolutely without exceptions. Tanzil-ur-Rehman having been brought out of retirement and appointed chief justice of the FSC, rules the financial Islamisation of Zia inadequate. *1999 - decision upheld by Shariah Appellate Bench finding financial Islamisation of Zia inadequate. Khan, ''Islamic Banking in Pakistan'', 2015: p.7 After much stalling by the government and bureaucracy, the Faisal case was upheld by the Shariah Appellate Bench of the Supreme court (SAB) in the Aslam Khaki decision, with detailed orders to start the interest free economy. *1999 - SAB gives Pakistan government an additional year to Islamise. Pleading that implementation of the judgment would "create enormous problems" for the domestic, western-style banking and the economy, as well as Pakistan's "official and private business and financial dealings with the outside world", the government was given an additional year to Islamise by the Bench. *2002, May 24 - SAB is reconstituted by new President General Pervez Musharraf. With one Islamist removed and two new ulema judges added by order of Musharraf. Khan, ''Islamic Banking in Pakistan'', 2015: p.123 *2002 June 24 - decision by reconstituted SAB to "set aside" 1999 ruling banning all interest on bank loans. 1999 case is sent back to Federal Shariat Court (FSC) for "definitive finding on all the issues ..." Khan, ''Islamic Banking in Pakistan'', 2015: p.124 *2002 - "Reboot" of Islamic Banking. State Bank of Pakistan declares that banks and "windows" made "Islamic" as part of General Zia's 1979 Islamisation are not truly Islamic, but conventional. No new conventional banks are to be allowed in Pakistan. Khan, ''Islamic Banking in Pakistan'', 2015: p.96 Banks (such as Meezan Bank and Al Baraka Bank) are converted into "full-fledged" Islamic commercial banks, Khan, ''Islamic Banking in Pakistan'', 2015: pp.127-134 following global Shariah-compliance standards Khan, ''Islamic Banking in Pakistan'', 2015: pp.159 with Shariah Boards, Khan, ''Islamic Banking in Pakistan'', 2015: pp.97 but also following conventional global banking norms such as the Basel Accords.


Policies and difficulties

Despite its success in initial first five years, the programme was fractured in many obvious reasons, and the stagflation again began to bite the country's resources, as well as many technical and scientific problems arise in the new economic system that the military government and Zia-ul-Haq himself was unable to solve. The newly elected, but technocratic government of Prime minister Mohammad Khan Junejo refused to pass the new and more stricter version of Sharia bill. Zia abruptly dismissed the government on May 29, 1988, and the dissolved
parliament In modern politics, and history, a parliament is a legislative body of government. Generally, a modern parliament has three functions: representing the electorate, making laws, and overseeing the government via hearings and inquiries. Th ...
the next day, alleging a slow pace of Islamization, corruption, deterioration of law and order, and mismanagement of the economy.


Banning ''Riba'', building Islamic banking

General Zia declared that effective 1 July 1979 the affairs of the National Investment Trust, the House Building Finance Corporation, and the Investment Corporation of Pakistan were to be run on an interest-free basis through the adoption of
profit and loss sharing Profit and Loss Sharing (also called PLS or participatory banking) refers to Sharia-compliant forms of equity financing such as mudarabah and musharakah. These mechanisms comply with the religious prohibition on interest on loans that most Musli ...
finance (PLS). On January 1, 1980, he appeared on national television and announced the introduction of a "Profit and Loss Sharing System", according to which account holders were to share the losses and profits of the bank. In 1980 the Council of Islamic Ideology issued a report with "detailed and far reaching reforms" to eliminate interest. The military government employed Islamic scholars and economists led by professor Khurshid Ahmad to compile laws about Islamic financing. Zia's government responded to the council's report by replacing interest-bearing savings accounts with PLS instruments in Pakistan's five state banks. The government also introduced and encouraged such banks to adopt financing schemes based upon the principles of ''mudaraba'' and or ''musharaka.'' *'' Murabaha'' is a practice in which the "lender" (usually a bank) purchases, in its own name, goods that the borrower (usually an importer or trader) wants, and then sells the goods to him at an agreed mark-up. The technique is used for financing trade, but because the bank takes title to the goods, and is therefore engaged in buying and selling, its profit derives from a real service and entails a degree, albeit minimal, of risk. *'' Musharaka'' is a practice in which the "lender" (usually a bank) enters into a partnership with the borrower/client in which both share the equity capital—and perhaps even management—of a project or deal, and both share in the profits or losses according to their equity shareholding. However these Islamisation policies did not include a ban on interest-paying accounts and "in most instances" Pakistani banks continued to offer accounts with fixed interest rates. Kennedy, ''Islamization of Laws and Economy'', 1996: p.128-9 For example, for term deposits, the banks substituted the phrases 'rate of interest' with 'expected
rate of profit In economics and finance, the profit rate is the relative profitability of an investment project, a capitalist enterprise or a whole capitalist economy. It is similar to the concept of rate of return on investment. Historical cost ''vs.'' market ...
' and "kept the entire regime of interest-based deposits intact." Khan, ''What Is Wrong with Islamic Economics?'', 2013: p.297 While the
Federal Shariat Court The Federal Shariat Court (FSC) is a constitutional court of the Islamic Republic of Pakistan, which has the power to examine and determine whether the laws of the country comply with Sharia law. The court was established in 1980 during the gove ...
(FSC) — established by General Zia to, among other things, examine existing laws and strike down those that did not comply with Shari'a law —would have been the way to put a stop to such interest-paying accounts, Zia had created an article in the constitution (203B) which specifically removed from the FSC's jurisdiction "fiscal law or any law relating to the levy and collection of taxes and fees or banking or insurance practice and procedure", until government deemed it appropriate to withdraw the ban. Furthermore, after the death of general Zia-ul-Haq, this programme was neglected by his long-time opponent Prime minister Benazir Bhutto, while Zia ally
Nawaz Sharif Mian Muhammad Nawaz Sharif (Urdu, Punjabi: ; born 25 December 1949) is a Pakistani businessman and politician who has served as the Prime Minister of Pakistan for three non-consecutive terms. He is the longest-serving prime minister of Pak ...
launched a twin intensified programme, Privatization programme and the
economic liberalisation Economic liberalization (or economic liberalisation) is the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities. In politics, the doctrine is associated with classical liber ...
to promote the GDP growth rate as well as reverting the economy back to
Westernized Westernization (or Westernisation), also Europeanisation or occidentalization (from the ''Occident''), is a process whereby Society, societies come under or adopt Western culture in areas such as Manufacturing, industry, technology, science, educ ...
economic system. To surmount this obstacle, Islamic activists worked to #educate or convince the public that an interest-free economy was both viable and religiously necessary #pass a bill to make the shariat "superordinate" to the constitution #encourage superior courts to expand their definitions of jurisdiction of shariat to constitutional questions Kennedy, ''Islamization of Laws and Economy'', 1996: p.129-30 ;Education Muslims agree that the Quran condemns ''Riba'', but do not all agree over what ''riba'' is. Kennedy, ''Islamization of Laws and Economy'', 1996: p.130-1 While Muslim activists (and most Pakistanis) agree that ''riba'' is interest on debt, others believe that ''riba'' is
usury Usury () is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is ch ...
(unethical loans that unfairly enrich the lender) and not interest charged under state-regulated banking practices. Such people were to be found disproportionately among "the economists, bankers, politicians, and bureaucrats" who "would be responsible to administer an interest free system". Kennedy, ''Islamization of Laws and Economy'', 1996: p.131 To convince these people and others, Jamat-e-Islami and like-minded groups have sponsored, and
Saudi Arabia Saudi Arabia, officially the Kingdom of Saudi Arabia (KSA), is a country in Western Asia. It covers the bulk of the Arabian Peninsula, and has a land area of about , making it the List of Asian countries by area, fifth-largest country in Asia ...
has financed, numerous symposia "dedicated to the task of defining the modalities of an interest-free economy." A "vibrant" and abundant literature has emanated from these conferences, but many mainstream economists have remained unpersuaded. Activists also had no luck getting a law enacted to make the constitution subordinate to shariat, but had more luck in the courts. ;Superior Courts While Zia had blocked the shariah courts ability to ban interest with Article 203B, he had also added Article 2A (also known as the
Objectives Resolution The Objectives Resolution ( ur, ) was adopted by the Constituent Assembly of Pakistan on March 12, 1949. Prime Minister, Liaquat Ali Khan, had presented it in the assembly on March 7, 1949. Out of 75 members of the assembly, 21 voted for opposi ...
) to the constitution, which included the statement that Muslims' lives should be ordered "in the individual and collective spheres in accordance with the teachings and requirements of Islam as set out in the Holy Quran and Sunnah." One superior court judge known as a particularly "skillful" Islamic activist and judicial activist --
Tanzil-ur-Rahman Honourable Justice (R) Dr. Tanzil-ur-Rahman, Tamgha-e-Imtiaz, (born 1928) is a prominent Pakistani jurist and scholar of Islamic studies. He was the Chief Justice of the Federal Shariat Court (1990–92), member of the Islamic Research Counci ...
—argued that Article 2A required shariat law be enforced and was a "supra-Constitutional" '' grund norm'' of law in Pakistan, Kennedy, ''Islamization of Laws and Economy'', 1996: p.95 which meant that it gave superior courts jurisdiction to overrule parts of laws otherwise protected by the constitution if they are in violation of article 2-A, unless that court was specifically excluded. Kennedy, ''Islamization of Laws and Economy'', 1996: p.132-3 (Article 203B specifically excluded the FSC from examining fiscal laws for repugnancy to Islam, but not the high courts.) Several decisions handed down in the late 1980s and early 1990s supported Tanzil-ur-Rahman's interpretation, Kennedy, ''Islamization of Laws and Economy'', 1996: p.99-100 but most high court justices did not subscribe to his application of the
Objectives Resolution The Objectives Resolution ( ur, ) was adopted by the Constituent Assembly of Pakistan on March 12, 1949. Prime Minister, Liaquat Ali Khan, had presented it in the assembly on March 7, 1949. Out of 75 members of the assembly, 21 voted for opposi ...
, nor to a ban on interest, and Tanzil-ur-Rehman retired from the bench in 1990. ;Faisal Case However, in 1990, the
Benazir Bhutto Benazir Bhutto ( ur, بینظیر بُھٹو; sd, بينظير ڀُٽو; Urdu ; 21 June 1953 – 27 December 2007) was a Pakistani politician who served as the 11th and 13th prime minister of Pakistan from 1988 to 1990 and again from 1993 t ...
government was dismissed by the president and Tanzil-ur-Rehman was brought out of retirement and appointed chief justice of the FSC. In November 1991 in a "monumental decision" he overturned 20 federal and provincial financial laws as repugnant to Islam. Kennedy, ''Islamization of Laws and Economy'', 1996: p.134-7 The decision forbade ''riba'' absolutely without exceptions, defined it as "any addition, however slight, over and above the principal", including any system of markup, any indexing for
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reducti ...
, payment by value rather than kind. It forbid ''riba'' in "production loans" as well as "consumptive" loans. It specifically declared invalid two
Islamic Modernist Islamic modernism is a movement that has been described as "the first Muslim ideological response to the Western cultural challenge" attempting to reconcile the Islamic faith with modern values such as democracy, civil rights, rationality, eq ...
interpretations that avoided strict prohibition: considering anti-''riba'' Quranic verses (2:275-8) allegorical, and use of ''ijtihad'' (independent reasoning) of the issue based on finding the public good (''maslaha''). Kennedy, ''Islamization of Laws and Economy'', 1996: p.135-6 The government was publicly committed to Islamisation, but also pursuing a liberalization of Pakistan's economy and had a semi-autonomous state bank file an appeal. After much stalling by the government and bureaucracy, the Faisal case was upheld in 1999 by the Shariah Appellate Bench in the Aslam Khaki decision, with detailed orders to start the interest free economy. Pleading that implementation of the judgment would "create enormous problems" for the domestic, western-style banking and the economy, as well as Pakistan's "official and private business and financial dealings with the outside world", the government was given an additional year to Islamise by the Bench. By this time, however,
Pervez Musharraf General Pervez Musharraf ( ur, , Parvez Muśharraf; born 11 August 1943) is a former Pakistani politician and four-star general of the Pakistan Army who became the tenth president of Pakistan after the successful military takeover of the ...
had staged a coup and come to power and limited the power of the courts. He required judges to take a "fresh oath of office" in which they would undertake to uphold the "Provisional Constitution Order" established by the coup, which required judges to not "make any order against the Chief Executive or any other person exercising powers or jurisdiction under his authority." Two justices of the Shariah Appellate Bench resigned rather than take the oath, a new appeal with new judges found many "errors" in the Aslam Khaki case and overturned the ruling of a couple months earlier. Kennedy, ''Pakistan's Superior Courts and the Prohibition of Riba'', 2006: p.111-113 ;Aftermath In Pakistan's financial sector, as of 2006, a system of Islamic banking has been adopted that operates in parallel with the conventional banking system. Pakistanis can choose between the two modes of financing. Most informed Pakistanis, however, insist that there is "no concerted move" to do away altogether with the conventional banking system, or to replace existing linkages and relationships with international financial markets. Hathaway, ''Islamization and the Pakistani Economy'', 2006: p.2 As of March 2014, the new "rebooted" Islamic banking sector made up 9.4% of Pakistan's banking assets, Khan, ''Islamic Banking in Pakistan'', 2015: pp.130 but like the old Islamic banking sector is still overwhelmingly based on markup, not profit and loss sharing. Khan, ''Islamic Banking in Pakistan'', 2015: pp.131 As of 2015 the Faisal case decision that banned all interest on bank loans but was sent back to Federal Shariat Court (FSC) for "definitive finding on all the issues ..." in 2002 remains unheard in the Federal Shariat Court. Khan, ''Islamic Banking in Pakistan'', 2015: pp.162 Islamic activists (such as M. Akram Khan), maintained that Islamic banking and economics had "effectively failed" because of lack of "political will", ignorance of Islamic banking's "potential", the "inexperience" of the banking sector, failure to interest the public, etc. ;Studies of industry and customers Critic and economist Feisal Khan has noted that the Islamic banking industry in Pakistan has been supply driven rather than demand driven (mandated by General Zia-ul-Haq, court rulings, and the State Bank of Pakistan, rather than by customer interest or popular movements). Khan, ''Islamic Banking in Pakistan'', 2015: p.151 In series of interviews conducted in 2008 and 2010 with Pakistani banking professionals (banker in conventional and Islamic, Shariah banking advisors, finance-using businessmen, and management consultants), Khan noted many Islamic bankers expressed "cynicism" over the different or lack thereof between conventional and Islamic bank products, Khan, ''Islamic Banking in Pakistan'', 2015: p.138, 142 the lack of requirements for external Shariah-compliance audits of Islamic banks in Pakistan, Khan, ''Islamic Banking in Pakistan'', 2015: p.144 shariah boards lack of knowledge of un-shariah compliant practices in their banks or power to stop these practices. Khan, ''Islamic Banking in Pakistan'', 2015: p.138-9 However this did not deter patronage by the pious (one of whom explained that if his Islamic bank was not truly shariah compliant, 'The sin is on their head now, not on mine! What I could do, I've done.') Khan, ''Islamic Banking in Pakistan'', 2015: p.146 One estimate of banking customer preference (given by a Pakistani banker) was that out of the entire Pakistani banking sector, was that about 10% of customers were "strictly conventional banking clients", 20% were strictly Shariah-compliant banking clients, and 70% would prefer Shariah-compliant banking but would use conventional banking if "there was a significant pricing difference". Khan, ''Islamic Banking in Pakistan'', 2015: pp.138 A survey of Islamic and conventional banking customers found (unsurprisingly) Islamic banking customers were more observant (having attended
hajj The Hajj (; ar, حَجّ '; sometimes also spelled Hadj, Hadji or Haj in English) is an annual Islamic pilgrimage to Mecca, Saudi Arabia, the holiest city for Muslims. Hajj is a mandatory religious duty for Muslims that must be carried o ...
, observing
salat (, plural , romanized: or Old Arabic ͡sˤaˈloːh, ( or Old Arabic ͡sˤaˈloːtʰin construct state) ), also known as ( fa, نماز) and also spelled , are prayers performed by Muslims. Facing the , the direction of the Kaaba wit ...
, growing a beard, etc.), but also had higher savings account balances than conventional bank customers, were older, better educated, had traveled more overseas, and tended to have a second account at a conventional bank. Another study, using "official data" reported to State Bank of Pakistan, found that for lenders who had taken out both Islamic ( Murabaha) financing and conventional loans, the default rate was more than twice as high on the conventional loans. Borrowers were "less likely to default during
Ramadan , type = islam , longtype = Religious , image = Ramadan montage.jpg , caption=From top, left to right: A crescent moon over Sarıçam, Turkey, marking the beginning of the Islamic month of Ramadan. Ramadan Quran reading in Bandar Torkaman, Iran. C ...
and in big cities if the share of votes to religious-political parties increases, suggesting that religion – either through individual piousness or network effects – may play a role in determining loan default." Khan, ''Islamic Banking in Pakistan'', 2015: p.149-50 ;Criticism Other economists had different and more critical explanations and observations. In 2000, the
Governor A governor is an administrative leader and head of a polity or political region, ranking under the head of state and in some cases, such as governors-general, as the head of state's official representative. Depending on the type of political r ...
of the
State Bank of Pakistan The State Bank of Pakistan (SBP) ( ur, ) is the Central Bank of Pakistan. Its Constitution, as originally laid down in the State Bank of Pakistan Order 1948, remained basically unchanged until 1 January 1974, when the bank was Nationalized and ...
, Ishrat Hussain contended that "Pakistan is far removed from the day when it will be ready to adopt a full-fledged Islamic economic system. ... Most of the assumptions and premises on which the (scientific)
hypotheses A hypothesis (plural hypotheses) is a proposed explanation for a phenomenon. For a hypothesis to be a scientific hypothesis, the scientific method requires that one can test it. Scientists generally base scientific hypotheses on previous obser ...
about the Islamic economic system have been constructed are serious flawed... " Hathaway, ''Islamization and the Pakistani Economy'', 2006: p.4 A report by the IMF noted that the government has been unable to formulate non-interest based instruments for financing budget deficits, "thus the government, which is the major exponent of the implementation of the Islamic system, is forced to raise funds through borrowing on the basis of a fixed rate of return". Another critic of "Islamization" of the economy, Feisal Khan, argues that one reason for the failure of the equity investment proposed by Islamic finance proponents to catch on is the "long established consensus" that debt finance is superior to equity investment because accurately determining the credit-worthiness of the borrower/investee is both time consuming and expensive, and much more crucial for equity investors than debt lenders. The quality and quantity of such information is particularly problematic when tax evasion is high and the underground economy large. This is very much the case in Pakistan where the 2005 incidence of tax evasion was between 5.7 and 6.5% of GDP, and the size of the unofficial/underground economy as between 54.6 and 62.8 percent of GDP, "among the world's highest". Khan,'' Islamic Banking in Pakistan'', 2015, p.99 (The average size of the informal economy is about 30% in Asia.) Economist Izzud-Din Pal argues that "Islamising" the economy in Pakistan cannot be seen apart from the wider attempt of regimes and political elites with low levels of legitimacy and popularity to use religion to win public support. Unfortunately, according to another author Yoginder Sikand, "rather than focusing on the Islamic imperatives of equality and social justice, which are so central to the Qur’anic text, successive regimes in Pakistan have sought to focus on particular economic injunctions of the Qur’an abstracted from wider issues of justice and equality". Because the debate on "Islamising" Pakistan's national economy has been reduced to issues related to interest-free banking, the abolition of ''riba'' (interest), the laws of inheritance and the levy of the "''zakāt''", Sikand believes all that is being offered are "magical solutions" to the complex modern problems of Pakistan's economy. Feisal Khan also argues that instituting a strictly Islamic banking system of ''mudaraba'' and ''musharaka,'' as called for by the 1999 Aslam Khaki decision of the Shariah Appellate Bench could lead to financial catastrophe. If ''murabaha'' and other fixed income instruments were banned and replaced by the more "authentic"
profit and loss sharing Profit and Loss Sharing (also called PLS or participatory banking) refers to Sharia-compliant forms of equity financing such as mudarabah and musharakah. These mechanisms comply with the religious prohibition on interest on loans that most Musli ...
, banks could only finance enterprise by taking "a direct equity state" as called for in ''mudaraba'' and ''musharaka.'' Credit would contract and
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
s would be unable to prevent a
liquidity crisis In financial economics, a liquidity crisis is an acute shortage of ''liquidity''. Liquidity may refer to market liquidity (the ease with which an asset can be converted into a liquid medium, e.g. cash), funding liquidity (the ease with which borrow ...
by buying bonds, commercial paper, etc. to expand credit. Khan, ''Islamic Banking in Pakistan'', 2015: pp.160-61


Land reform and Islamisation

Land ownership is concentrated in Pakistan — as of 2015 a reported one-half of rural households in Pakistan are landless, while 5% of the country's population owns almost two-thirds of its farmland. Some reformers believe concentrated land ownership plays a part in "maintaining poverty and food insecurity" in Pakistan, and several attempts have been made to redistribute land to peasants and landless (laws created in 1959, 1972 and 1977). However, most provisions of these laws have been overruled as un-Islamic by Pakistan courts. The first attempts at
land reform Land reform is a form of agrarian reform involving the changing of laws, regulations, or customs regarding land ownership. Land reform may consist of a government-initiated or government-backed property redistribution, generally of agricultural ...
in Pakistan occurred under
Ayub Khan Ayub Khan is a compound masculine name; Ayub is the Arabic version of the name of the Biblical figure Job, while Khan or Khaan is taken from the title used first by the Mongol rulers and then, in particular, their Islamic and Persian-influenced ...
's government in 1959, were successfully opposed by the landed elite who mobilized the Islamist party,
Jamaat-e-Islami Jamaat-e-Islami ( ur, ) () is an Islamic movement founded in 1941 in British India by the Islamic theologian and socio-political philosopher, Syed Abul Ala Maududi.van der Veer P. and Munshi S. (eds.''Media, War, and Terrorism: Responses fro ...
to defend the "sanctity of private property in Islam". In 1971 when
Zulfikar Ali Bhutto Zulfikar (or Zulfiqar) Ali Bhutto ( ur, , sd, ذوالفقار علي ڀٽو; 5 January 1928 – 4 April 1979), also known as Quaid-e-Awam ("the People's Leader"), was a Pakistani barrister, politician and statesman who served as the fourt ...
and the
Pakistan People's Party The Pakistan People's Party ( ur, , ; PPP) is a centre-left, social-democratic political party in Pakistan. It is currently the third largest party in the National Assembly and second largest in the Senate of Pakistan. The party was founded ...
came to power, land reforms were "at the center" of that government's plans to transform Pakistan in to a "democratic Islamic socialist" state. The regime issued two land reform laws. A 1972 law (Martial Law Regulation - MLR 115, "promlogated" by the prime minister rather than passed by the National Assembly) was designed to place ceilings on the agricultural holding of Pakistan's large landlords (usually 150 acres but 300 acres if the land was unirrigated; exceptions were granted for tractors or installed tubewells Kennedy, ''Islamization of Laws and Economy'', 1996: p.122). Land was to be seized by the state without compensation and distributed to the landless. Kennedy, ''Islamization of Laws and Economy'', 1996: p.109 Another provision of the law gave "first right of pre-emption" (right of first refusal to buy the land) to the existing tenants. In 1977, a bill was passed by the National Assembly, reducing the ceiling still further to 100 acres—although this act provided for compensation to landlords. The implementation of land reforms was criticized for the modest amount of land seized and redistributed to the peasants, less-than-equitable administration—implementation was much more robust in the NWFP and
Balochistan Balochistan ( ; bal, بلۏچستان; also romanised as Baluchistan and Baluchestan) is a historical region in Western and South Asia, located in the Iranian plateau's far southeast and bordering the Indian Plate and the Arabian Sea coastline ...
, where opposition to Bhutto was centered—and for being inherently "un-Islamic". Kennedy, ''Islamization of Laws and Economy'', 1996: p.110 Many of Pakistan's large landlords mobilized against the reforms which they saw as "a direct challenged to their long-standing interest in maintaining political control in Pakistan's rural areas". ;Undoing After Ali Bhutto was overthrown, landlords who had lost as a result of land reform appealed to "Islamic Courts" (i.e. the Shariah Appellate Bench and
Federal Shariat Court The Federal Shariat Court (FSC) is a constitutional court of the Islamic Republic of Pakistan, which has the power to examine and determine whether the laws of the country comply with Sharia law. The court was established in 1980 during the gove ...
), established by Bhutto's successor General Zia-ul-Haq, and these, rather than the executive or legislature of Pakistan, undid much of Ali Bhutto's reform program. According to scholar Charles H. Kennedy, the courts effectively "suspended implementation" of the land reforms, "repealed the reforms, drafted new legislation, and then interpreted the new laws' meanings". "In early 1979, the "Shariat Bench" of the
Peshawar High Court The Peshawar High Court ( ur, ) is the highest judicial institution of Khyber-Pakhtunkhwa. It is located in the provincial capital Peshawar. The Parliament passed a bill extending the jurisdiction of the Supreme Court (SC) and the Peshawar High ...
" found the section of the 1972 law granting tenants the right to buy land they worked before other offers ("right to preemption") was "repugnant to Islam" and thus void. The petitioners against the law had successfully argued that "nowhere in the Holy Quran or
Sunnah In Islam, , also spelled ( ar, سنة), are the traditions and practices of the Islamic prophet Muhammad that constitute a model for Muslims to follow. The sunnah is what all the Muslims of Muhammad's time evidently saw and followed and passed ...
" was there mention of a tenant's right to preemption. Kennedy, ''Islamization of Laws and Economy'', 1996: p.111 The right to preemption according to the ''a
hadith Ḥadīth ( or ; ar, حديث, , , , , , , literally "talk" or "discourse") or Athar ( ar, أثر, , literally "remnant"/"effect") refers to what the majority of Muslims believe to be a record of the words, actions, and the silent approval ...
'' (the recorded reports of the teachings, deeds and sayings of the Islamic prophet
Muhammad Muhammad ( ar, مُحَمَّد;  570 – 8 June 632 CE) was an Arab religious, social, and political leader and the founder of Islam. According to Islamic doctrine, he was a prophet divinely inspired to preach and confirm the monot ...
that make up much of the ''Sunnah'') according to the petitioners and judges of the Shariat Bench went instead to the #''shafi sharik'' (in ''Shariat'' law, "cosharers" or co-owners of the land) Kennedy, ''Islamization of Laws and Economy'', 1996: p.114 #''shafi khalit'', ("participants in immunities and appendages", i.e. those sharing special right on the property such as right of passage, right of irrigation, etc.,); # ''shafi jar'', (contiguous owners, those "owning an immovable property adjacent to the immovable property sold"). This decision was reaffirmed by the
Federal Shariat Court The Federal Shariat Court (FSC) is a constitutional court of the Islamic Republic of Pakistan, which has the power to examine and determine whether the laws of the country comply with Sharia law. The court was established in 1980 during the gove ...
in 1981 Kennedy, ''Islamization of Laws and Economy'', 1996: p.112 (although the court acknowledged that "Islam recognized the validity of state imposed limits on wealth for the purpose of alleviating poverty or providing for the public good", which was a goal of the land reform laws), and upheld by the Shariah Appellate Bench of the Supreme Court in 1986 in a 3 to 2 decision. This decision was "clarified and reclarified" in subsequent decisions, Kennedy, ''Islamization of Laws and Economy'', 1996: p.117 (but confusion over what land transfers were valid or not under the "old law" remained since legal proceedings with "final decree" prior to the August 1986 ruling remained valid). In August 1989 the Shariat Appellate Bench struck down several more measures of the 1972 land reform law.Case: Qazalbash Waqf and Others vs. Chief Land Commissioner It ruled unanimously that provisions that allowed the confiscation of land without compensation were un-Islamic. On other measures it divided 3 to 2. It ruled that
Waqf A waqf ( ar, وَقْف; ), also known as hubous () or '' mortmain'' property is an inalienable charitable endowment under Islamic law. It typically involves donating a building, plot of land or other assets for Muslim religious or charitabl ...
(an Islamic religious endowment, typically a donated plot of land or building) land was exempt from any provision of land reform laws; that the ceilings on amount of land owned were an undue restriction on property rights, Kennedy, ''Islamization of Laws and Economy'', 1996: p.119 on the grounds that "Islam does not countenance compulsory redistribution of wealth or land for the purpose of alleviating poverty, however laudable the goal of poverty relief may be." Dissenting justices argued that under Islam the rights of property holder must be balanced against the needs of the community. Kennedy, ''Islamization of Laws and Economy'', 1996: p.120 (The repudiation of a major feature of Ali Bhutto's domestic policies during the regime of his daughter underscoring judicial independence (i.e. power), and the weakness of the elected government.) According to barrister writing in dawn.com, "The net result of the Qazalbash Waqf v Chief Land Commissioner (the 1989 Shariat Appellate Bench decision) is that land reforms in Pakistan are now at the same level as they were in 1947, as the 1972 regulations and the 1977 act have seen their main provisions being struck down and the 1959 regulations have been repealed."


Other issues

Other ordinances dealing with Islamic finance included the ''
Zakāt Zakat ( ar, زكاة; , "that which purifies", also Zakat al-mal , "zakat on wealth", or Zakah) is a form of almsgiving, often collected by the Muslim Ummah. It is considered in Islam as a religious obligation, and by Quranic ranking, is ne ...
'' and '' Ushr'' Ordinances issued on 20 June 1980, to Islamize taxation. The new system expelled the secular and international financial institutions and consisted only Islamic organizations, associations and institutions. The ''Zakāt'' was to be deducted from bank accounts of Muslims at the rate of 2.5% annually above the balance of Rs. 3,000. The ''Ushr'' was levied on the yield of agricultural land in cash or kind at the rate of 10% of the agricultural yield, annually. Authorized by General Zia-ul-Haq, the government appointed Central, Provincial, District and Tehsil Zakat Councils to distribute Zakat funds to the needy, poor, orphans and widows. The
Shia Shīʿa Islam or Shīʿīsm is the second-largest branch of Islam. It holds that the Islamic prophet Muhammad designated ʿAlī ibn Abī Ṭālib as his successor (''khalīfa'') and the Imam (spiritual and political leader) after him, most n ...
Muslims were exempted from Zakat deduction from their accounts due to their own religious beliefs. According to critics (Arskal Salim) the program has not been a great success:
"Since it was introduced through the Zakat and Ushr Ordinance No. 17 of 1980 ... the real lives and economic conditions of millions of Pakistani citizens have been completely unchanged, but a great number of socioreligious and political problems have arisen from state involvement in zakat administration."
Another economist (Parvez Hasan) writing in 2004 states ''zakat'' collections were insufficient to help the poor as it makes up only "0.17 percent of GDP ... Rs. 5-6 billion". The present level of grants "would add only 5-6 percent" to the income of the 1.2 million of the poorest Pakistani households even if every rupee of ''zakat'' collected went directly to these poor.


See also

* Zia-ul-Haq's Islamisation *
Islamic economics in the world :''This is a sub-article of Islamic economics and Muslim world.'' Between the 9th and 14th centuries, the Muslim world developed many advanced economic concepts, techniques and usages. These ranged from areas of production, investment, finance, ec ...
* Privatization in Pakistan *
Economic liberalisation in Pakistan Pakistan began a period of economic liberalisation in the 1990s to promote and accelerate economic independence, development, and GDP growth. This policy programme was first conceived in early 1980s and thoroughly studied by the ministry of ...


References


Notes


Citations


Scholarly references

* * * * * * * {{Economy of Pakistan Military government of Pakistan (1977–1988) I
Pakistan Pakistan ( ur, ), officially the Islamic Republic of Pakistan ( ur, , label=none), is a country in South Asia. It is the world's fifth-most populous country, with a population of almost 243 million people, and has the world's second-lar ...
Conservatism in Pakistan
Economic An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the p ...
Law of Pakistan
Pakistan Pakistan ( ur, ), officially the Islamic Republic of Pakistan ( ur, , label=none), is a country in South Asia. It is the world's fifth-most populous country, with a population of almost 243 million people, and has the world's second-lar ...
Pakistan Pakistan ( ur, ), officially the Islamic Republic of Pakistan ( ur, , label=none), is a country in South Asia. It is the world's fifth-most populous country, with a population of almost 243 million people, and has the world's second-lar ...