Articles

The article addresses Pakistan's move towards an interest-free financial system and the positive consequences for the nation. While Pakistan was founded on the ideology of

There is continued disagreement amongst Islamic legal scholars and Islamic economists regarding interest rates and Islamic banking. Some Western-influenced thinkers hold that a small degree of interest is not against the spirit of al-Qur'an.

The author, a consultant at International Legal Consultants in London and an advocate in a Pakistani firm, undertakes a number of goals in the article. First, he seeks to generally analyze the regulatory system of Islamic banks in this developing stage of the system. The analysis he offers is a critical one. Second, he hopes to point out the ideas and the legal principles behind the Islamic banking system. Third, he offers a recommendation regarding the formation of a legal body to compose a set of laws for Islamic banking that would be in conformity with the dictates of Islamic law.

Ziad H. Rawashdeh, Manager of the Projects and Trade Finance department for the Islamic Investment Company of the Gulf, is interviewed. His group is a subsidiary of the Dar al-Maal Al Islami Group. The total capital investment involved with Rawashdeh's corporation is over $300 million. The projects funded have been contributing positively to the economies they take place in. Commerce between

Al-Qur'an and the sunna speak out against economic exploitation.

A circular of the State Bank of Pakistan requires all finances provided by Pakistani banks to be based on prescribed Islamic financing methods after January 1, 1985. After July1, 1985 banks will only be allowed to accept deposits on a non-interest bearing profit and loss sharing basis. The categories of profit and loss sharing financing are lending, trade-related, and investment-type financing. Banks will only be allowed to extend interest-free loans and loans based on compassion. Modes for each category of financing are specified.

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Fixing the value of Islamic banks in the Gulf simply cannot be done, due to a lack of reliable data and information. Furthermore, due to disagreements as to what is Islamic, there are numerous ways of figuring the total assets of Islamic banks depending on what banks one feels should be included in the count. Some Islamic institutions in the Gulf are Kuwait Finance House, Dubai Islamic Bank, The International Investor, and Faysal Islamic Bank of Bahrain--a member of the Dar al-Maal al-Islami group.

The Pakistani government is under pressure from Islamic groups to eliminate interest from financial and banking sectors of the economy. Pakistan's federal shari`a court has classified interest as riba (usury) and forbidden it.

The author devotes the article to a discussion of the implications and consequences of Pakistan's move from an interest-based banking system to an interest-free one. The author relates that the role of interest in modern economics is so central that it requires a degree of creativity to envision what things would be like without any interest at all. Some criticisms of the new system, and especially of a mark-up practice that resembles simple interest and was only hesitatingly approved by the ideological board, are mentioned.