Finance & Banking


Keynote Speech by the President of the Islamic Republic of Pakistan at the 10th Global Islamic Finance Awards


This is an excerpt from the speech given by the Chief Guest, His Excellency Dr Arif Alvi, the President of the Islamic Republic of Pakistan at the 10th Global Islamic Finance Awards.It is a matter of great pleasure that the 10th Global Islamic Finance Awards ceremony is being held in Pakistan that recognises the contributions made in the sector. Islamic financing has been increasing throughout the world and the figure mentioned was USD2.7 trillion in products in all countries of the world. But at the same time, the global finance is much bigger than this and Islamic finance is probably not even 1 or 2 % of what is possible. It is worthy to mention here that 17% of Pakistan’s banking sector is attuned to Shari’a-compliant instruments, out of which 50% of auto and about 60% of house financing is in Shari’a-compliant mortgages as well as the 400 billion rupees Sukuk floated in the energy sector. The role of State Bank of Pakistan is, of course, very commendable, as well as the Securities and Exchange Cooperation of Pakistan. There is, however, one issue, which was also pointed out in a recent study, is the awareness of the masses as far as Islamic banking is concerned. As a layman, I can say that I took a loan from a Shari’a-complaint instrument, only because of the fact that the product had Islamic banking stuck to it. I don’t know the difference, I didn’t know the difference, I still don’t know the difference, but it gave me satisfaction that it was a Shari’a-compliant instrument, which means there is an anomaly somewhere. Islamic financing is a far bigger area than just lending money in a Shari’a-compliant way; Shari’a[1]compliant mudaraba, which is profit and loss; muskaraka, which is a joint venture; ijara, which is leasing, muharbaha etc. are looking at ways and means whereby the spirit of Islam does not get trampled upon by the financial instruments, which were developed over the last 500-600 years. The concept of making a profit out of lending has always been there, but it is a fact that the institutions lending in Europe matured in the 13th and the 14th century. In Venice, for example, where there were people’s investments, rather than just a deposit and a loan related to the deposit, putting gold in to a bank or with a person and taking a loan out of that money. Beyond that, financial instruments started developing. But the biggest challenge happened in the recent pandemic. It posed a challenge to governments with regard to the employment of the people, similar to what happened in the wake of the Black Plague in Europe. At that time 30-40% of the young population died, resulting in a disruption in the supply and demand chain in many countries. At that time, many financial institutions were emerging in addition to the incumbent, namely France, England and Spain, and some in the Eastern Europe. England passed new law requiring restoration of wages to the pre-Pandemic era, which was not appreciated, as workers didn’t want to work for the (lower) pre-Pandemic wage. To address this, the government passed another coercive law allowing the government to implement its wage policy; posing restrictions on changing jobs, accompanied by other changes, as these countries were on specific development trajectories. Spain was, in those times, pursuing its colonial agenda in Peru and other Latin American countries and hence benefitted from the influx of wealth. In England, on the other hand, the situation was different as the British Crown faced a fiscal deficit.

At the same time, there was a struggle going on between the Royalists and the Democrats. Due to this, major disruption took place in England and to some extent in France and even lesser in Spain. In the Eastern European countries, however, no major legislative changes took place and, in the absence of a well-developed financial system, the governments continued to adopt a coercive policy towards the farming communities. COVID-19 could be seen as posing a similar challenge to the financial markets today. There are four or five basic principles of Islamic finance. Fairness is one. Fairness is not just about returning the loan in the exact amount. It should also ensure social justice. Second is justice as a corollary to fairness. Third is equality of opportunities and choice such that whatever is available in the society must be offered to everyone from top to the bottom. Fourth is transparency. Nothing should be hidden. Secrecy and asymmetric information in an Islamic context and also according to the general world-view lead to malpractices. Fifth is the pursuit of social harmony. It is strange that this reference was considered odd only 15 to 20 years back. Making capitalism responsible to society was an alien concept. Maulana Taqi Usmani, has pointed out the issue of concentration of wealth in an Islamic context. According to him, accumulation and concentration of wealth through financing and even trading is contradictory to the Islamic principles. I don’t believe it is good that some businesses and companies have become even richer than some countries and, hence, through their Board of Directors comprising unelected members should run the world affairs. We (in government) even have to appeal to Facebook to take actions against those who are contributing to social anarchy. Do they have any morality check and its determination of any sort? There is another dimension, which is exploitation that emerges from this system. This is consistent with Maulana Taqi Usmani’s views. Thomas Piketty, in his books titled Capital in the Twenty First Century (2013) and Capital and Ideology (2020), discusses the concentration of wealth, which is relevant to Islamic banking and finance. He asserts that capitalism is accumulating money and concentrating wealth rather irresponsibly and through exploitative means; between 2014 and 2018, the increase in wealth disparities has been the highest in India and the Gulf countries. The gap of wealth accumulation between the common man and the top segments has thus increased. The accumulation of wealth through exploitation can never be a target and an adopted direction in a country like Pakistan. Under Islamic financing and through the use of Islamic instruments of trade in a true Islamic society it is not possible to let the wealth be concentrated in a few hands. In an Islamic society, there is no room for elitism. In the book Revelation, the author says that the real Islamic revolution wasn’t entirely about Tawhid. It was, of course, a part of it, as worshipping of idols and other gods was challenged by Islam. But the real message wasn’t only this. The message was anchored by the word of God, which was communicated and practised by the Prophet (peace be upon him). This challenged the elitist establishment of Makkah and the wider Arabia. This was the essence of the message. It put all human beings on equal footings. It was all about financial dealings, which had the spirit of unity (Tawhid), amply practised by the Prophet (peace be upon him). When this was implemented, it brought a change in the world. In our world, there is (unfortunately) no room for morality. If we have to change the world and humanity, then morality must serve as an anchor. By hoarding wealth, we haven’t only harmed humanity but have also adversely affected the production capacity of the earth. This has introduced misery in the world, and doom and gloom in the future. Multinational and financial institutions must have some principled stances. Profit shouldn’t be the sole objective. The businesses should also good to its employees. It shouldn’t exploit them, rather should care for their safety and welfare. In Pakistan, if the government fixes a certain minimum salary of employees, say PKR17,000, then businesses start opting for contract-based engagement for PKR11,000. This kind of injustice produces difficulty in the society. There is no Islamic way that can justify it. Also, consideration should be made if the business, say financing business, is good for the society. You can’t do a business which is harmful for the community or which could be exploitative. We have to come up with some measures to determine, for example, what is the maximum limit of earning a profit. As a doctor, I know what is my limit to charge when I receive a patient in a critical condition. Is it allowed for me to charge PKR10 million for a medicine in such a situation? If not then, it should be applied to all other businesses. Profitability must be limited. Once upon a time, monopolies were broken. Large corporations were broken down to small entities to curb monopolies. Then the Western governments realised that it wasn’t easy any more to send their troops to other countries to conquer them. [Hence, they started tolerating monopolies and aligning with them]. The East India Company that invaded India was also created through a financial instrument. There must be a deliberation on the limits to profit. Banks don’t have the instruments to monitor and assess profitability of the businesses they finance. Thus, banks don’t have the capability to capture concealed information about profits of the businesses. The banks therefore opt to charge small amounts on financing (interest) and prefer not to employ professionals to assess the true profitability (which is expensive). It is simply difficult for them to curb moral hazards. Also, inflation makes it difficult for lending without a return. Having said that, there must be some kind of linkages with inflation and profitability (while determining return on financing). In China, many banks require their clients to share their financials with them for some time prior to financing them. That expedites the decision process within the banks. Also, the use of artificial intelligence and insurance contracts have made it easy to make decisions. These are scientific instruments used for risk mitigation. In our society, we haven’t accommodated women enough. No society can prosper without involving women, especially when we have 51 or 52 per cent of women. With reference to small and medium enterprises, financing women could be rewarding. We must refer to the Bangladeshi economist (Professor Muhammad Younus) in this respect. It is now an empirical truth that women are more reliable and trustworthy to work with. I just want to emphasise the spirit of Islam and the principles of the first Islamic state of Medina, which offers the poor equal footing. In the contemporary capitalist world, the poor is just an instrument of labour, which is compensated merely on the basis of supply and demand. The notion of the State of Medina endeavours to target a more just and less exploitative world and that is what we should also be targeting.

Thank you very much, ladies and gentlemen

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