THE 1973 Constitution of Pakistan requires the state, as part of its principles of policy, to eliminate riba as early as possible. It also requires all existing laws to be brought in conformity with the injunctions of Islam as laid down in the holy Quran and Sunnah (Injunctions of Islam) and provides that no law can be enacted which is repugnant to the Injunctions of Islam.

A law on the enforcement of Shari’ah has been promulgated with a view to providing the institutional framework for undertaking, inter alia, the Islamization of the economy. Under this law, the state is required to “take steps to ensure that the economic system of Pakistan is constructed on the basis of Islamic economic objectives, principles, and priorities.” Successive governments in Pakistan have taken a number of diffident steps towards Islamization generally and elimination of riba from the banking system specifically.

Pakistan started the process of Islamization in the 1980s. The process included the effort to eliminate riba. This effort led to the introduction of an interest-free banking system in the country. There was very little conceptual discussion or debate on the subject at the time. There was absolutely no change in the goals or objectives of banking, e.g., the elimination of exploitation. There was more emphasis on form than on substance.

An interest-free banking was introduced merely by replacing traditional forms of bank financing by twelve specified modes of Islamic financing. There was no corresponding change in either the legal or regulatory framework of banking. There was no consequent institutional restructuring of either the bank regulations or operations. Thus it was pretty much business as usual. The change was superficial. It was merely a change in nomenclature. Interest was replaced by “service charge”, “mark-up” or “profit” in lending, trade and investment modes of financing. The results have not, therefore, been much different. In fact, adversely, the cost of funding has gone up without any corresponding benefit.

The Supreme Court has recognized and condemned the superficiality of the change in the banking system in Pakistan. It has taken on an activist role in promoting a purer form of Islamic finance. In its landmark judgment on riba in the Khaki case in December 1999, it has done two things: First, it has specifically declared certain provisions relating to “interest” as contained in various laws to be repugnant to the injunctions of Islam with direction to delete the said provisions in those particular laws.

Second, it has generally defined riba in broad terms to include interest and declared that all the prevailing forms of interest are clearly prohibited by the holy Quran and Sunnah. The Supreme Court considered the earlier actions taken by the government to be inadequate and declared some of the most commonly used current interest-free banking practices as a sham. It has, for example, adjudged mark-up to be a negation of the principles of Islamic finance. The Supreme Court has, therefore, ordered the transformation of the banking and financial system into a purer form of riba-free system as specified by it.

It is not surprising that the Supreme Court has termed the current interest-free banking practices in Pakistan as a sham and directed the transformation of the present banking system into a genuine Islamic banking system. But in doing so, the Court has clearly gone beyond its judicial mandate to only decide the cases before it by also directing the transformation of not only the banking system as a whole but the entire financial system nationally as well.

The transformation directive has a binding effect as a consequence of the broad definition of riba even though it was initially intended to merely serve as a guideline. It is likely to have a profound impact not only on the banking and financial sectors but on the economy as a whole. Mindful of the economic impact of its judgment, the Supreme Court has suggested the restructuring of the economy as well.

The extension of the Supreme Court’s jurisdiction raises the issue of judicial competence and separation of powers between the legislative, executive and judicial branches of the government. It also raises a lot of other banking, financial, economic, political, religious, legal, administrative, regulatory, institutional, and contractual issues as well.

For example, an unplanned implementation of the Supreme Court judgment may, inter alia, jeopardize not only savings and deposits but also adversely affect loan recoveries. Furthermore, it is likely to cause uncertainty regarding existing domestic financial contracts and international financial transactions as well.

The Supreme Court definition of riba is not universally accepted. For example, in Egypt the Sheikh Al-Azhar considers ordinary interest (not usury) as Islamic. He emphasizes the exploitative nature of transactions that constitutes riba. But even if riba is deemed to include interest, it is pertinent to exclude inflation from the definition of riba. The Supreme Court has considered the issue of inflation and indexation but left the determination of this point for later. It has, however, closed the door for accommodation by giving a watertight definition of riba.

The government is, as a matter of policy, committed to eliminate riba and promote Islamic banking in the country and has taken various measures in line with the guidelines and directions of the Supreme Court. The finance minister of Pakistan made several commitments in this regard to the nation during his budget speech last year. Most of these commitments have already been fulfilled. It is the government’s intention to promote Islamic banking in the country while keeping in view its linkages with the global economy and existing commitments to local and foreign investors. The economic managers, while being fully committed to the transformation process, are obligated to:

* promote and protect the stability of the economic system;

* ensure that there is no chaos in the financial system;

* promote confidence in the economic and financial system with a view to generating savings;

* protect depositors, particularly small depositors (poor, pensioners, widows etc.);

* ensure that there is no improper benefit or unjust enrichment by loan defaulters;

* ensure the safety and soundness of the banking industry and the capital markets;

* ensure that the inherent risks in trade and investment modes of financing advocated by the new system are regulated prudentially; and

* ensure that Pakistan is not isolated in this era of globalization and remains an important part of the international financial system.

Pakistan does not currently have either the professional and institutional capacity or a well functioning legal and judicial system, which are prerequisites for the introduction and sustainability of an Islamic economic system.

The government has made reasonable efforts to comply with the guidelines and directions of the Supreme Court. It has taken the required actions, including the establishment of the Transformation Commission in the State Bank of Pakistan, the Task Force on Laws in the ministry of law, and the Task Force on Government Borrowing in the ministry of finance.

So far, only the Transformation Commission has submitted its report and recommendations to the government. But like half a dozen other reports commissioned by the earlier governments, the report of the Transformation Commission does not deal with the critical issue of safeguarding the liability-side of the balance sheet of banks and concentrates instead on the purification of the Islamic modes of financing.

The purification process has resulted in the reduction of the number of financing instruments available to banks in half. In the era of financial innovation, this recommendation alone appears to be retrogressive. In short, the Transformation Commission does not provide any meaningful or comprehensive plan for either a holistic or puristic transformation of the economic or financial system in Pakistan.

The critical evaluation of the substance and process of Islamization in Pakistan is not intended to negate the concept of Islamization. It is only intended to highlight the difficulties in total transformation. Mere transplantation of Islamic modes of financing is not likely to achieve the purpose of Islamization. Pakistan, which has so far only gone through the first phase of introduction, is now entering the second phase of development.

The instant transformation of the banking and financial system in particular is not possible in its purity and certainly not holistically. Nothing short of a revolution, as in the case of Iran and Sudan, can provide the instant transformation of the whole system but even that without the desired purity. Transformation is simply not feasible. The purity of the system is only likely to be achieved through an evolutionary process. Constructing a new system through consensus can do this. Development of a parallel system, as in Malaysia, may be the only viable way to go.

The Pakistan Constitution only requires the provision of an enabling environment and facilities for the Muslims to order their lives in accordance with the tenets of Islam. It requires the elimination of riba but does not define the term. Given the fact that it contains provisions regarding interest, it can be safely assumed that it does not consider simple interest as riba. The elimination of riba under the Constitution is a collective responsibility of the legislative and the executive branches of the government rather than the judiciary alone.

Mindful of the importance of the subject, the government should seek ijtehad or ijmaa on the subject not only nationally but also internationally among Muslim countries as well. Before eliminating riba in its wider manifestation, it would be expedient to introduce an Islamic banking system in parallel with the existing system. The alternate system may be allowed to evolve gradually through a viable long-term national plan for the banking and financial sector in Pakistan.

In the ultimate analysis, the transformation of the economy is not possible by judicial fiat alone. The proposed holy alliance between law and economics will only succeed by close cooperation among ulema, shari’ah scholars, lawyers, bankers, financiers, and economists. Such cooperation would require an inter-disciplinary approach by all these groups rather than independent input from each. Development of such capacity itself remains a challenge for Pakistan if not the remaining Islamic world. The writer is adviser to Pakistan’s finance minister.

The views expressed in this article are his own and are not attributable to the Pakistan government.

THE BJP does not seem to do anything right. Its participation in the government at Lucknow is not only ugly but immoral. The UP voters rejected the party in the state election. It finished third. After the defeat, its reaction was correct: people did not give it the mandate and it should, therefore, sit in the opposition.

It is not the noble desire to span the distance between the upper castes and the dalits which has motivated the BJP to support Mayawati of the Bahujan Samaj Party (BSP). It is the ambition to stay in power which has effected the alliance. On the top has been the consideration of 13 BSP members in the Lok Sabha, without whom the BJP-led government would have been in trouble to win the censure motion on its failure in Gujarat.

How long the arrangement between the BSP and the BJP will last is anybody’s guess. Each of the two earlier tie-ups collapsed after a few months. The present one too is bound to cave in because of the difference in their outlook. But by then both the BSP and the BJP would have corrupted the system more and exploited the state still more for their personal and party ends.

That the lure of power should lead the BJP to defy the people’s wishes is a sad comment on the party leadership, which is already in trouble after its complicity in the Gujarat carnage. The resignations of coal minister Ram Vilas Paswan and Omar Abdullah, minister of state for external affairs, have shaken the Vajpayee government because it can be the beginning of the end of the National Democratic Alliance (NDA). At least it indicates that all the constituent parties have not sold their conscience for the saddle as the Samata Party of George Fernandes has done. During the debate, the defence minister sounded like the drumbeater of the RSS.

However, I am surprised at the BJP’s persistent hidebound attitude, spending all the time in manoeuvring support at the centre and getting a substantial share in the UP cabinet, rather than quenching the fire which the Sangh parivar had lit in Gujarat. The president’s appeal for peace on the eve of the Gujarat discussion in parliament is eloquent enough to censure the government even though it has managed to win in the Lok Sabha, numberwise. (BJP minister for information and broadcasting Sushma Swaraj ordered Doordarshan not to telecast live the Gujarat debate in parliament.)

Yet, the question facing the nation is not the BJP-BSP alliance in UP but the normalization of the situation in Gujarat where the government is asking refugees to fend for themselves without the state repairing their houses and shops or giving them even the meagre compensation. It not only shows insensitivity but also vendetta.

The first and foremost requirement for peace is the exit of chief minister Narendra Modi. The prime minister had said before he went to Gujarat that Modi “is already behaving like a hero,” meaning thereby that he would try to parade himself as a martyr if and when ousted. But this was a wrong impression. Once the BJP withdraws its backing from him, he would get deflated in no time and his supporters will disappear. They are there because he is in power and because the BJP is behind him.

Some reports suggest that Modi may be out before long. I believe the apex meetings of the BJP and the RSS discussed prime minister Vajpayee’s “unhappiness” over Modi’s governance. Even if this is true, the RSS will not easily jettison him because he is the one who has implemented its philosophy of exterminating the minorities. Still, if the BJP continues with Modi, the only way out is for the president of India to take the initiative.

Normally, it is the central government which recommends the dismissal of a state government. Let him reverse this process and make Modi’s resignation a point of his prerogative under Article 356, which empowers the president to dismiss a state government on the failure of the government machinery. The BJP government will not risk a constitutional impasse over Modi. The president should also insist on changing the state governor, another RSS man, who was hand-in-glove with Modi during the massacre in Gujarat.

The president should at least ask the centre to entrust the inquiry on Gujarat carnage to the CBI. The state inquiry is half-hearted and superficial. The CBI has already been told to probe into the Godhra train incident. There is no reason why the agency’s purview cannot be extended to the rest of Gujarat. New Delhi’s plea that the state has to permit the CBI does not wash because the BJP rules at the centre as well as at Gandhinagar.

The inquiry will understandably take time to reach conclusions. The immediate problem is the rehabilitation of lakhs of uprooted Muslims. Prime minister Vajpayee had announced during his visit to the refugee camps that his office would monitor the resettlement work. The state, biased as it is, is dragging its feet. Necessary funds are not coming forth. What do the refugees do?

There are cases where the refugees have been promised assistance on the condition that they withdraw their FIRs, which, in any case, are not many in number because the registration has been selective. The evidence of the boys who have seen murders and rapes with their own eyes is not being taken into account because they are not adults.

The prime minister is saying again and again that Gujarat is a “shame.” What has he done to erase the black mark? Modi is there and so is his terrorist instrument Vishwa Hindu Parishad. The state machinery is the same, with the biased officers and the police in position. Vajpayee has admonished the foreigners. They are not interfering but feeling appalled over the country which they have found more liberal and accommodative than many in the democratic Europe.

I am amused to read the comment by human resource development minister Murli Manohar Joshi. He has referred to the treatment meted out to the Negroes in America. (Incidentally, Washington is conspicuous by its silence on the Gujarat happenings.) Of course, there is discrimination against the black in the US. But every time an incident takes place, it is followed up by quick and effective action. Only the other day did a Negro in Los Angeles get $ 6 million as compensation for the injuries he got when four white policemen beat him up. The state does not join the rioters as it happened in Gujarat.

The manner in which America prosecutes the offenders is an example for India. The 3,000 Sikhs killed in 1984 are still a matter of various committees and commissions. None has been punished for the crime committed 18 years ago. In comparison, an American who killed a Sikh at the petrol pump after the September 11 attacks in New York and Washington has already been tried and punished. In India, the state machinery has got contaminated and there is very little possibility of getting justice, at least in a short time. The essence of any action is quick prosecution of the guilty. If this is not done the murderers and rapists would not be afraid. This is exactly what has been happening in India.

Situations of mass violence are a challenge to our legal system and social conscience. Failure on this count will upset judicial norms and undermine the standing of state institutions in the minds of the citizenry. It is still not too late to give due respect to the rule of law.

The writer is a freelance columnist based in New Delhi.

THE SELECTION of the prime minister should not be the sole domain of the establishment. It is time for the people to speak out. After all the PM has to be elected by the electorate and not by the outdated ‘baboos’ of Islamabad.

The selectors at the capital have always done a very poor job mainly because their approach has been seriously flawed. Zulfikar Ali Bhutto was the last real PM of Pakistan with an able assembly. By all standards the performance of the 1970 House was remarkable. It not only legislated but also delivered.

Muhammad Khan Junejo, the hand-picked PM of the establishment did break loose from the controls of his mentors. Finally he had to pay for his pro-people policies and was dismissed by the dictator who had selected him to take dictation. The question arises: Can the problems of the country be resolved with the dictation of the ‘baboos‘? If Islamabad has all the answer, why has it failed to deliver? The absolute rule of the establishment under generals Ayub, Yahya, Zia and Musharraf failed to meet the expectations of the people. Why? Dictation is no solution. Obedient servants of Islamabad may be good listeners but are poor managers and leaders.

With hands tied Benazir Bhutto was inducted PM twice. Nawaz Sharif was allowed to become PM on two occasions. Then there were the brief interludes of the caretakers. Since 1988 no one has been able to remove the rot and deliver. While Islamabad has insisted on dictation, the people of Pakistan have suffered.

In 2002 the dictation givers, takers and seekers should be bundled out of the democratic process as they are the custodians of the status quo and stagnation. Unlike his predecessors Gen Musharraf seeks ‘real’ democracy and change which the champions of status quo cannot deliver. The next PM will have to break the inertia and deliver. Selectability/ electability of the desirable will bring dictation seekers to the fore with no results or relief for the masses.

Outside the regime of dictation several options are available to the general. In Iran there is a Council of Elders which scrutinizes all candidates before clearing them to contest elections. The entire record of the individual is checked with special emphasis on public service. Once cleared, the voters make the final choice. The reformist president of Iran was also approved by this Council. Selective accountability and checks are not effective. Accountability is like law, either it applies to everyone or to no one. The disqualification process must apply uniformly to all candidates. The condition of Bachelors degree is too stringent for a country with a literacy rate under 40%

The educational standard can be lowered to intermediate with other strict evaluation factors like loans/tax/bills default, community service, reference check, public inputs, employment record, litigation and conviction, cases and claims pending, personal/family profiles, conflict of interests, standing in community, financial strength, etc. Even after elections the candidates should be subject to disqualification or withdrawal by the electorate. Only an able house will be able to elect an able PM. The council should be able to simplify the choices for the common man.

Pakistan with a population of 140 million people is not an easy country to govern. The PM as the head of government has no easy job. In parliamentary democracy the PM is both the leader of the house and the executive head. He has to command support from fellow members and attain cooperation from the administrative set-up and of course keep the establishment happy. Over the years, the overwhelming status quo has produced its own inertia. The state has emerged as a major nuisanse. Parasites have taken over. Authority is associated with abuse of power and national resources.

Can anyone in authority in the last two decades stand up and tell the nation what has he/she done for the people of Pakistan? There is a long list of excuses, justification and blame to pass around but no results. The everlasting ‘baboos’ blame the politicians for faulty rules of business. The politicians are frustrated at the ‘karwai’ and no results’ approach of the bureaucrats. The ‘khakis’ blame everything on corruption and adhocism. Who is thinking of producing results?

Somehow honesty of purpose and consideration for conflict of interests (COI) has been lost over the years. There is no one left to guide the guardian or stand up to him. Dictation, not dissent, has become the norm. Survival and longevity in power is considered success. With the electronic media in control of the establishment, projection and drama has taken over. Press remains free and the only reliable link to a democratic order.

In order to institutionilize change, massive cleansing of the system was carried out in Iran. National interests were declared supreme. Individuals working against common interests were prosecuted and punished. Everyone was required to do his best for the nation. Iran is now emerging as a strong democratic country with sound economic foundations.

The next PM of Pakistan will have to move fast to dislodge the establishment‘s stranglehold over Islamabad. He would need consensus and support from the house. Without that, his/her task would be very difficult. Once the political framework is evolved, the task of management will start. These days, there is much emphasis on having ‘technocrats’ in the assemblies. As always, there is confusion about their identification and selection.

A ‘technocrat’ is a ‘technical manager.’ Every doctor, engineer, scientist, accountant, lawyer etc cannot be termed a ‘technocrat.’ When management issues became complicated the know-all ‘generalists’ were replaced by professionals who were trained to manage in their own areas. A doctor once trained in ‘health care administration’ or an engineer in ‘technology management’ qualifies to be called a ‘technocrat.’ Usually technocrats replace bureaucrats not politicians. The ‘generalists’ were replaced by ‘technocrats’ world over about half a century ago. Unfortunately only the bureaucrats have survived in Pakistan.

Most ‘technocrats’ are not trained to be politicians as the skill sets are different. Politicians excel in public dealing and usually know what the people desire. Their strength is in their inter-personal skills. No politician has ever been successful without good public contact. People’s Party has survived as a political force due to its grass-root linkages with the common man. The Muslim League by contrast has relied more on the establishment for support. The Jamaat-i-Islami has relied on ideology and discipline but has not been able to win mass public support.

‘Technocrats’ with no political background are unlikely to succeed as a good PM. Appropriate national priorities can only be fixed by the inputs from true representatives of the people. Gen Musharraf has rightly pointed out that the Social Action Programmes failed because most of these initiatives were thrust on the people without discussion, debate and consensus. Politicians too have to learn the art of consensus which the establishment politicians did not practise. Political maturity can only be achieved if the democratic process is allowed to function.

Liaquat Ali Khan performed reasonably well as the first PM of Pakistan. He was an honest politician with solid political background and experience. Zulfikar Ali Bhutto was the first elected PM under the 1973 Constitution. He successfully completed his tenure and called for general elections. ZAB’s administration was very efficient. No one doubted his ability to deliver but his heavy-handed methods eventually cost him his political career. His credentials stand out. Muhammad Khan Junejo performed reasonably well as PM. Despite pressures from the establishment, he stood his ground and played an important role in the restoration of democracy.

Individuals come and go while institutions remain. Let us think about Pakistan, its people and its institutions. The next PM has to steer the country out of the quagmire of the status quo. There are unfinished agenda and un-implemented plans. The devolution process is still incomplete. It is time to assemble the comrades of change at Islamabad. Pakistan deserves the best. Real men have to take charge of the country and implement the people’s agenda.