Islam, development and banking

The subject "Islam and development" is so comprehensive that it is not possible to deal with all its pertinent aspects, tenets, doctrine and issues, in this brief article. It is, therefore, necessary to analyse only those issues, which are pertinent to the role of Islamic banking in development.
The treatment and coverage of the pertinent aspect are by no means exhaustive and have to be limited in the interests of brevity.
Several prejudices are prevalent in the West against Islam. An important one is that Islam and development are incompatible.
The Islamic society is frozen and lacks dynamic growth. Nothing can be far from the truth than this. While modern Muslim scholars are convinced that 'Islam and development' are synonymous and that there is no incompatibility between them.
It is also clearly understood that the concept of 'development' in Islam is more comprehensive than the concept of 'development' as ordinarily defined by development planners and economists.
In simple terms, economic development is a dynamic process of growth to bring about increase in the productivity of the economy as a whole through a series of economic activities, which are usually measured in real per capita terms over a period of time. It is also a process to bring change in the economic and social structure of human society.
Development in Islam does cover these two aspects. In Islam development is essentially a process of human development much beyond the physical aspects. In short, the dimension of development in Islam includes not only the economic well-being and social progress of human society based on growth-oriented and change-oriented strategies but also the moral and spiritual dimension of human being.
It deals with all aspects of economic development in the framework of a broad spectrum covering the well-being of mankind.
In short, it aims at total human development covering both the moral and material well-being, apart from the objective of making a breakthrough in the poverty barriers.
The philosophic-base of development in Islam is founded on four fundamental principles as enumerated by the Holy Quran.
They are: (1) Tawheed (God's unity and sovereignty), (ii) Rubuyiyyah (Divine arrangements for nourishment, sustenance and directing things towards perfection's); (iii) Khilafah (man's role as God's representative on the earth) and (iv) Tazkiyah (Purification plus growth).
Within the arena of these four tenets, Islam stands for efforts, struggle, movement and reconstruction - elements of social change.
However, growth and change in Islam, aims not only at change in the environment or physical conditions of life but also change within the heart and soul of human beings.
In Islam the main focal point of development is mankind as opposed to material well-being.
The doctrine of "Tawheed" is the basis of faith and vision. It goes beyond the circumference of 'faith in one God'. It leads to a vision of oneness of mankind irrespective of colour or gender difference, the concept of Ummah.
In Pakistan we do believe in 'Tawheed' as a cardinal point of faith but we do not practise this doctrine in our daily life? If so, why the Pakistani nation is not yet born. We are still a fragmented group of people.
The doctrine of 'Rubuyiyyah' is the fountain source of the cycle of production, distribution and consumption. It does not necessarily relate to attaining the material means of gratification. It encompasses the rhythm of life, the alternation of day and right, the photosynthesis effects, the falling of dews, the coming of cloud and rain, the canopy of air and, above all, living in balance with animal and plant worlds.
The doctrine of "Khilafah" sets forth the driving force as to how to lead a clean but prosperous life as God's representative on earth. We are not supposed to lead a morally or materially debased life.
The concept of 'Halal' and 'Haram' cuts at the root of conspicuous consumption, ostentatious living, VIP culture, corruption and nepotism. It forbids to make money and amass wealth by using substandard materials in construction of infrastructure facilities, inadequate and sub-standard provision of gas, water and electricity at exorbitant rates, the production and distribution of third rate medicine, vaccine, foodstuff and a lost of things which constitute basic human needs.
The doctrine of "Tazkiyah" provides the foundation of the regulatory aspect of life both in the qualitative and quantitative sense. In Pakistan 'Adl wil Ehsan' is almost non-existent.
What we have in a highly corrupt system, both in the public and private sector social injustice, class discrimination, exploitation of the poor by the rich, exploitation of women by men, the menace of child labour, and a host of other social, political and administrative evils. Worst of all, they continue to grow, unchecked. In short, while the believe in these doctrines we do not practise them.
The strategy for development as particularly emphasised by Islam is based on a double-edged dimension.
Firstly, Islam stresses optimal and optimum utilisation of resources God has endowed to man and his physical environment and, secondly, their equitable use and distribution and promotion of human relationships on the basis of Right and Justice.
Islam commends the values of 'Shukr" (Thankfulness to God by availing from His blessings) and 'Adl' (Justice) and condemns the disvalues of Kufr (denial of God and his blessings) and Zulm (injustice).
Strategy for development in Islam, in essence, is both growth-oriented and change-oriented. They are also both inward-looking and outward-looking. All these aim at one goal ie the emergence of an Islamic economic and social system through evolutionary processes.
In the history of mankind, an Islamic economic system did exist ie about 14 centuries ago in the lifetime of the Holy Prophet (Peace Be Upon Him) and during the days of the first four Caliphs. Hence it is no utopia that we aim to achieve. The evolution of an Islamic economic system is possible and achievable.
In very brief terms the salient features of an Islamic economic system are as follows:
(i) the banking and financial segment of the economic system must be based and run without Riba; the fiscal policy based on 'Zakat' and the institutional thrust being provided through 'Baitulmal' (Treasury); the consumption and production patterns should be based on the concept of 'Halal" and "Haram," the distribution of wealth should be based on the concept of social justice; emanating from 'Adl wil Ehsan'; economic co-operation being the core of inter-relationship between the individuals, the institutions and the State considered as the main change-agents; and economic co-operation between Muslim countries and Muslim communities.
In short an Islamic economic system covers all aspects of human life both material and spiritual.
There is an imperative need to make a breakthrough in the poverty barriers, in the Muslim countries by accelerating the pace of their economic development. With this end in view, the Islamic Development Bank was established in August 1974, as a result of mutual agreement among the Muslim countries.
THE MAIN OBJECTIVES OF THE BANK ARE:
(i) To foster the well-being of the peoples of Muslim countries and to achieve a harmonious and balanced development of these countries on the basis of Islamic principles and ideals; to ensure the development of these countries through mutual financial and economic co-operation; to promote and strengthen co-operation among Muslim States in the economic; social and other fields of activities; to mobilise financial and other resources from within and outside the member countries; to promote domestic savings and investments and to ensure a greater flow of development funds to Muslim countries; and above all; to evolve an economic system based on Islamic principles and ideals and to give a practical expression to the unity and solidarity of Muslim Ummah.
The writer was Operational Advisor to the Islamic Development Bank in 1976 on deputation from the Asian Development Bank. During his six months' stint in Jeddah he had the benefit of interfacing several Muslim divines, jurists and commentators.
On their advice he developed the policies and procedures of the Islamic Development Bank, which formed the basis of its operation.
Muslims intellectual and economists all over the world are unanimous that Islamic Banks can play crucial role in the development process of a country.
The arena of Islamic banking includes several modes of financing such as Musharika, Modarba etc.
THE ESSENTIAL FEATURES OF ITS OPERATIONAL FRAMEWORK INCLUDE THE FOLLOWING:
(i) To participate in equity capital of productive projects and enterprises; (ii) to invest in economic and social infrastructure projects; (iii) to make loans to the private and public sectors for the financing of productive projects, enterprises and programmes without riba; (iv) to establish and operate special funds for specific purposes, including a fund for assistance to Muslim communities; (v) to operate Trust Funds; (vi) to accept deposits and raised funds without riba; (vii) to assist in the promotion of foreign trade: (viii) to provide technical assistance to developmental agencies in private and public sector; (ix) to extend training facilities for personnel engaged in development activities; and (x) to undertake research for enabling the economic, financial and banking activities in the Muslim countries to conform to Shariah.
In the light of the functions enumerated above, the major thrust of Islamic bank's operations will be in the direction of equity financing of projects, enterprises; and investments on the basis of profit sharing in investments and enterprises.
It does not mean that the Islamic banks should neglect projects which are of considerable social and economic importance. For such projects, the Bank should make interest-free loans.
In other words, the cardinal principle of Bank's operations is that it will not charge any interest or commitment charge on the projects it would seek to finance and apply strictly the principles of Shariah in its operations.
There is a gradual awakening of Islam. Islamic banking is on the move. Apart from Saudi Arabia, Islamic banking has taken deep roots in Egypt, Philippines, (Muslim region), Malaysia, Indonesia, Sudan, Algeria and Turkey and in a number of Muslim countries in a small measure.
In Pakistan it has yet to make a good start. Although Malaysia made a late start but its accomplishments are substantial and praiseworthy. Former PM Mahathir Mohammad took a personal interest in developing Islamic banking.
Today Malaysia is proving to the world that banking based on Shariah is possible and practicable and worthy of being emulated by others.
(The writer is a former director of the Asian Development Bank)