Pakistan is an ideological country and since 1947 it was the burning desire of the Pakistanis that they should lead their lives according to Quran and Sunnah. In Islam interest is prohibited. Islamic economic system is an interest-less system. So the present Govt. accepted the challenge and has taken steps to Islamize the economy. Following are main steps :
1. Introduction Of Islamic Banking :-
The process of Islamisation of our banking and financial system was introduced in july, 1979. The Govt. of Pakistan decided that only Islamic economic system can ensure the better standard of life to the public.
2. Amendments In Banking Law :-
To facilitate the introduction of interest free banking necessary changes were made in the banking laws in June, 1980. Different companies were allowed to start the business on the basis of interest free system.
3. Profit And Loss Sharing Deposits :-
All the commercial banks and bank of Uman starting accepting deposits of profit and loss sharing on 1st Jan 1981. At the same time the banks were asked to invest the PLS deposits in specified interest-less business. The field of business was gradually extended during the year 1981-1993.
4. Modaraba Ordinance 1980 :-
A Modaraba means the business in which some persons participate with their money and the managers with their skill and knowledge. The profits are distributed among both the parties. But the condition for the business is that it should be according the principles of Shariah. In order to encourage the business on the basis of profit participation a law was introduced which is called Modaraba ordinance 1980. The Govt. has also appointed a Registration of modaraba companies.
5. Musharika :-
It is an organization in which all partners contribute the capital. Profit is distributed among the partners according their agreement. Banks have been permitted for investment on the basis of sharing in the profit and loss.
6. Equity Participation :-
Banks are also allowed to purchase the shares of the listed joint stock companies.
7. Participation Term Certificate (PTC) :-
Participation term certificate is an instrument of finance issued by the company for meeting to its medium and long term capital needs. A company is authorized under the companies ordinance to issue PTC according the Govt. instructions.
8. Mark Up Method :-
Mark up means the purchase of goods by banks and their sale to the customers if the payment is on deferred basis. The financier arranges for the purchase of goods requested by the customer and sells these to him the basis of cost plus agreed profit margin (mark up). The payment can be made by customer over a specific period in lump sum or in installments.
9. Mark Down :-
It is a purchase of moveable or immoveable property by the banks from their customers with buy back agreement or otherwise.
10. Leasing :-
It is a long term financing in which the financier retains the ownership of the as set over a specified period of time on the payment fixed amount. When the specified period is over then ownership of asset goes to lease.
11. Hire Purchase :-
On the basis of hire purchase banks are allowed to provide finance for the purchase of machinery to their clients in trade and industry. In a hire purchase deal the payment includes a portion of acquisition of ownership right and an element of rent.
12. Development Charges :-
The banks are also allowed to finance for the development of property.
13. Interest Free Loans To Farmers :-
Since July, the farmers, tenants and fisherman are receiving loans from the commercial bank. Cooperative banks and from the agriculture bank. The interest free loan has enabled the small farmers to use the modern inputs. The yield per acre is increasing due to this reason.
14. Qarze Hasna :-
The nationalized commercial banks provide interest free Qarze hasna to the deserving people in the country. These loans are payble as the borrower is able to repay. For example the commercial banks and banking council is providing loans to those students who want to get the higher and professional education inside and out side the country.
15. Investment Corporation (ICP) :-
The investment corporation has eliminated interest from the twelve mutual funds from July 1979. The ICP scheme was converted into profit and loss sharing on 1st Oct. 1980.
16. National Investment Trust (NIT) :-
The NIT was converted into interest free organization from July 1, 1979 to increase the process of Islamisation. After every three month NIT announces the rate of profit on every unit.
17. Small Business Finance Corporation (SBFC) :-
This corporation was also eliminated interest from its operation. The corporation had also provided financial assistance on Hire purchase system.
18. House Building Finance Corporation (HBFC) :-
The interest has been also eliminated from the operation of house building finance corporation from December, 1978.
19. Collection Of Zakat :-
Zakat is considered the backbone of Islamic economic system. So Zakat is also deducted by the commercial banks from the saving accounts of the public.
No doubt the Govt. of Pakistan is making sincere efforts to eliminate interest from economy. But still some doubt there in our minds such as the
1. National Saving Scheme which are still on interest basis.
2. The problem of international transactions which is on interest basis.
3. The loan against buy back agreement by the banks.
Any how, we can say that if our bankers, businessmen and governing body cooperate and behave honestly, the Islamic banking system will succeed.
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