Q. "We
have come to know that the Pakistani Banks have abolished interest from
their transactions and they are now wor- king on the profit and loss sharing
basis.What is the correct position in this respect? Can we deposit our
money in the PLS (profit and loss Sharing) account and avail of the profit
accruing therefrom for our personal benefit without any fear of being
involved in interest? If the answer is in negative, are there any other
financial institutions where we can invest our sevings without being involved
in riba and who run their business on the Islamic principles and restrict
themselves to those transactions only which are lawful in Shariah?
(Jawald Sharafat, Karachi)
A. It is true that it was announced by the government of pakistan
about five years ago that the interest has been abolished from the banking
transactions which, in future, will be carried out on the basis of profit
and loss sharing. But, unfortunately, the methods adopted to substitute
for the interest transactions were not in conformity with the Shariah,
rather they were esentially nothing but a different form of interest.
No substantial change was brought out, neither in the whole system nor
in the nature of transactions. When one looks into the details of these
dealings, one cannot avoid the conclusion that it is change in nomenclature
only.
The result is that no actual change has yet taken place in the banking
system as a whole, and the profit given by the banks to their depositors
is another form of interest. Hence, it is not permissible in Shariah to
deposit money in a PLS account or in a fixed deposit account of the general
commercial banks. If someone wants to open an account in a bank, he should
deposit his money in a current account on which no profit (interest) is
paid.
As for other financial institutions,most of them are being run on the
basis of interest,and the same rule applies to them also.
However, during the last decade, some financial institutions have been
established on interest-free basis, and they are actually working, by
and large, on the basis of Islamic financial modes. I would refer to three
of them here :
1. National Investment Trust (NIT) in pakistan has been established
to provide investment facilities on Islamic principles. Since last two
years the majority of its investments has become free of interest. Their
investments are mostly restricted to the purchase of the Shares of different
companies, and to the Murabaha and leasing transactions.
I have gone through their model agreements of Murabaha and leasing, and
found therein nothing in conflict with the injuctions of Shariah.
However, the NIT keeps its surplus money in the PLS account of the normal
banks run on the basis of interest. Thus, a very small proportion of their
income consists of the interest accuring on their PLS accounts. This proportion
is not lawful according to Shariah.
Similarly, a very small amount of their income comes out of the profit
accruing on the participation term certificates (PTCs) purchase by them.
The transaction of these certificates is also objectionable according
to Shariah. Although they have now stopped the purchase of PTCs, yet the
PTCs held by them in the past are still alive and they form a small proportion
of their annual income.
Despite these shortcomings, most of their transactions are lawful according
to Shariah, and they have provided a facility to the people who want their
income to be free from any element of interest. in their membership form
they have mentioned all the heeds of their income and it has been left
to the member to mention in the form that he does not wish to receive
the income of some particular Heads.
Therefore, if a person states in the form that he does not want to receive
the income of PLS accounts and of PTCs, he can do so, in which case his
dividend will not consist of the income of these two heads, and the dividend
received by him can be treated as Halal.
2. There are certain Mudarabas floated by different Mudarabah companies
registered under the Mudarabah Ordinance. According to the Ordinance,
no Mudarabah can be floated unless it has obtained a certificate from
the religious Board to confirm that the proposed business of the Mudarabah
is not in conflict with the injunctions of Islam. This Religious board,
of which I am a member, examines various aspects of the proposed business
and brings amendments where necessary, and certifies after satisfying
itself with its conformity with Shariah. As a member of this board,
I had an opportunity to examine the main schemes and the model agreements
of most of Mudarabas floated in the market, except for two Mudarabahs,
namely, Grindlays Mudarabah and BRR Mudarabah. So far as these two Mudarabahs
are concerned, I cannot opine about them objectively. But the rest of
the Mudarabahs I can say that their business, if run in accordance with
their prosp- ectus and the model agreements approved by the Board, is
in conformity with the precepts of Shariah, and one can buy these Mudarabah
shares and enjoy the dividend distributed against them as halal.
3. The third financial institution which is based on an interest
free system is 'Faisal Islamic Bank'. The Pakistani branches of this bank
have restricted themselves to the Islamic modes of finance like Murabaha,
leasing and Musharakah only. I have gone through their model agreements
and found them, by and large, in conformity with Shariah. One can also
avail of the profits distributed by this bank to its PLS and investment
accounts.
Before parting with this queation, I emphasize that what has been said
above is based on my personal knowledge about the current state of affairs
in these institutions. But two points should always be kept in mind: Firstly,
a person like myself can only examine the main scheme of a business and
the broad principles underlying it. No outsider can scrutinize each and
every transaction going on in actual practice. Therefore, the aforesaid
comment on the business of these institutions is based on the basic principles
adopted by them in their scheme and their model agreements. If they contravene
any of these principles in their actual practice, the ruling may be different.
But so far as they claim to abide by these principles, a person can proceed
on the presumption that they are following the correct principles unless
otherwise proved.
Secondly, each of these institutions always remain subject to changes,
alterations and modifications. What is mentioned above is based on their
current position. If some substential change takes place in their procedure,
the Shariah ruling about them may also change. It is necessary, therefore,
that their current position be ascertained each year by consulting a Shariah
expert acquainted with such problems.
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