| 25 June 2004 | Friday | 06 Jamadi-ul-Awwal 1425 |
Peace process at work
Mark-up is permissible
The Quran, the ultimate book of divine guidance, addresses all those who desire to benefit from it. Its principles and teachings, which are valid for all times to come, govern the totality of human life in a wholesome manner. The following are mentioned in the Quran:
"...The Quran...a guidance to men and clear proofs of the guidance and the criterion...." (2:185). "... And We have revealed the Book to thee explaining all things...." (16:89)
"And certainly We have made clear for men in this Quran every kind of description...." (17:89). "And certainly We have set forth for men in this Quran similitudes of every sort." (39:27)
According to the subject, the laws given in the Quran can be divided into those which are concerned only with the spiritual aspect of individual life; that regulate men's relations to and dealings with one another; and those that not only concern the spiritual aspect of individual life, but also affect Muslim society.
When we talk of the legal significance of the Quran, in the western sense, we refer to the laws of the last two categories. There are about 70 verses on family law; an equal number on civil law; 13 dealing with evidence and oaths; 30 on criminal law; 20 discussing constitutional law, administrative law, and financial affairs of an Islamic state; and 25 on international law. Let us have a brief look at some of them.
International law: Deterrence: "And make ready for them whatever force you can and horses tied at the frontier, to frighten thereby the enemy of Allah and your enemy and others besides them, whom you know not - Allah knows them...." (8: 60)
Treaties: "... And break not oaths after making them fast.... You make your oaths to be the means of deceit between you because (one) nation is more numerous than (another) nation.
Allah only tries you by this. And he will certainly make clear to you on the day of Resurrection that wherein you differed." (16: 91, 92) War "And fight in the way of Allah against those who fight against you, but begin not hostilities. Surely, Allah loves not the aggressors." (2: 190)
Law of marriage and divorce: Maintenance of one's wife: "Men are the maintainers of women, with what Allah has made some of them to excel others and with what they spend out of their wealth...." (4: 34)
Dowry: "And give women their dowries as a free gift. But if they of themselves be pleased to give you a portion thereof, consume it with enjoyment and pleasure." (4: 4)
Maintenance of divorced women: "And for the divorced women, provision (must be made) in kindness. This is incumbent on those who have regard for duty." (2:241). Law of inheritance: "For men is a share of what the parents and the near relatives leave, and for women a share of what the parents and the near relatives leave... an appointed share." (4:7). (For a comprehensive description of shares, see 4: 11, 12, 177.)
Law of guardianship: "And give to the orphans their property, and substitute not worthless (things) for (their) good (ones), and devour not their property (adding) to your own property. This is surely a great sin." (4: 2)
"And test the orphans until they reach the age of marriage. Then, if you find in them maturity of intellect, make over to them their property, and consume it not extravagantly and hastily against their growing up.
And whoever is rich, let him abstain, and whoever is poor, let him consume reasonably. And when you make over to them their property, call witnesses in their presence. And Allah is enough a Reckoner." (4: 6)
Law of business transactions: Proof of contract: "... When you contract a debt for a fixed time, write it down... And call to witness from among your men two witnesses; but if there are not two men, then one man and two women... And have witnesses when you sell to one another...." (2: 282)
Performance of contract: "... And fulfil the promise; surely, the promise will be enquired into." (17:34). Measurements: "And give full measure when you measure out, and weigh with a true balance...." (17:35)
Law of crimes and punishments: Liability: "... And whoever goes astray, to its detriment only does he go astray...." (17:15). Vicarious liability: " ... And no bearer of a burden can bear the burden of another...." (17:15)
Theft: "And (as for) the man and the woman addicted to theft, cut off their hands as a punishment for what they have earned, an exemplary punishment from Allah...." (5:38).
Adultery and fornication: "The adulteress and the adulterer, flog each of them (with) a hundred stripes, and let not pity for them detain you from obedience to Allah... and let a party of believers witness their chastisement." (24: 2)
False accusation of unchastity: "And those who accuse free women and bring not four witnesses, flog them (with) 80 stripes and never accept their evidence, and these are the transgressors." (24: 4)
Homicide: "O you who believe, retaliation is prescribed for you in the matter of the slain...." (2:178). In an Islamic state, the Quran is the primary source of law. No legislature has any authority to override its rules, which are in the very words of God.
However, where laws given in the Quran cannot be repealed or annulled, there is no restriction on their re-interpretation or extending them to cases not expressly covered by them.
It must be noted that the Quran, despite the above-narrated facts, is not a code of law in the western sense. Whereas, the western codes comprehensively and completely address all the aspects of the subject of the code; the Quran, whose subject is humanity, in spite of its already mentioned claims, neither prescribes every possible rule regarding each aspect of human life, nor does it fully address every single sphere of the ever- evolving human activity.
The fact is, instead of giving the minutiae, the Quran only indicates the basic principles that lead men in a certain direction. Where it has laid down complete law in respect of certain issues, there are instances where it only gives an idea as to how a thing should be without defining any details. These details are left to be determined by the concerned authorities according to the circumstances.
Peace process at work
There continues to be a question mark against the fate of the India-Pakistan peace process initiated by former prime minister Atal Behari Vajpayee. A young Indian peace activist, Amit Chakraborty, who spoke at a meeting in Islamabad the other day, maintained that Vajpayee, an unswerving Hindu fundamentalist all his political life, had been under pressure from "external elements" (which he did not identify) when he extended a hand of friendship to Pakistan President, General Pervez Musharraf.
He then came to Islamabad in February to participate in the Saarc regional summit and jointly with President Musharraf launched the peace process. Whether, with the induction of the new government in New Delhi, Prime Minister Manmohan Singh is also vulnerable to external pressure is of course anybody's guess.
However, following the substantial meeting in China last Monday between the foreign ministers of India and Pakistan and the preceding extensive official-level discussions on a whole range of bilateral issues including the sensitive nuclear weapons regime, there is reason to be optimistic and agree with Pakistani official spokesman Masood Khan who has declared that the peace process continues to be "on track and on schedule."
Pakistan's foreign minister Khurshid Mehmood Kasuri, in a needlessly effusive statement following his meeting last Monday with his Indian counterpart Natwar Singh went on record to say that the two countries have successfully "taken the first step in the right direction."
He also affirmed that Mr Natwar Singh has the desire to continue to work for the resolution of all the problems dividing India and Pakistan. Significantly, most reports appearing in the Pakistani press have quoted only Kasuri on his discussions with Mr Natwar Singh in China.
However, Mr Kasuri has reported his Indian counterpart as reiterating that the Congress-led government would take the peace process further than what the BJP-led government had done. He maintains that their discussions had helped to develop a degree of mutual trust and understanding; both were aware that the two countries faced "major problems."
Curiously, Mr Kasuri also said that he had not discussed with Mr Natwar Singh the details of either reducing the risk of nuclear confrontation or of solving the festering Kashmir issue.
Understandably, the details of any precise method of dealing with these two issues could not have come under discussion since no such method has yet been suggested. The risk of nuclear confrontation and the fallout of the Kashmir dispute are matters of utmost concern to both New Delhi and Islamabad.
Hopefully, too, the urgency of involving the people of the war-ravaged state of Jammu and Kashmir in any process for breaking the impasse would also have been duly brought out in the foreign ministers' meeting.
Mr Kasuri has underscored the need for durable peace in the region and this obviously cannot be achieved without the Kashmiri people's active involvement. As the peace activist Amit Chakraborty emphasized, any approach to the Kashmir problem had to be trilateral and not bilateral.
An opinion poll that Mr Chakraborty had conducted in Srinagar showed that the Kashmiri people overwhelmingly wanted to be rid of the Indian hold on their homeland. However, only about five per cent of them believed that Kashmir would want to exchange the Indian domination by an arrangement for Pakistani domination over the territory.
They clearly favour "independence" but what exactly they mean by that was not clear in his one-man opinion poll. Mr Kasuri contends that the top leadership of India and Pakistan would inevitably have to be involved in a resolution of the Kashmir issue.
He did not rule out the possibility of a meeting between General Pervez Musharraf and Prime Minister Manmohan Singh "once the ground had been prepared" for such an approach; the leaders had to meet to find a solution with which India and Pakistan as well as the people of the disputed state could live.
It is important to realize that the so-called groundwork for a final, workable resolution cannot be entirely left to the discretion of the bureaucrats at the working level. As Mr Kasuri himself recognizes, Kashmir is a challenge to the leadership in the two countries.
There has to be a shift in the declared positions of the two countries and its nature and extent cannot be left to the bureaucrats to decide. It would inevitably be a political decision and the political leadership would be in the best position to decide about a strategy for such a shift and then get it accepted by the people.
Apparently, President Pervez Musharraf recognizes the need for a possible departure from Pakistan's declared position as he had at one time hinted that a solution outside the UN resolutions could perhaps provide a way out.
In his recent interview to London's Sunday Telegraph he affirmed that while Pakistan's stand continues to be a plebiscite under the UN resolutions to determine Kashmir's future he also accepts that when the concerned parties came to the negotiating table some sort of compromise could be considered.
Going by press reports, it would seem that he said that the time for each party to depart from its "maximalist position" "in a spirit of flexibility" would be at the negotiating table.
Nevertheless, he maintained that the core issue bedevilling relations between India and Pakistan was the Kashmir dispute. While reiterating that Pakistan was prepared to resolve all disputes in a sincere and honourable manner, he said: "We are not fighting on the Wullar dams and Sir Creek". The peace process he said, meant the resolution of Kashmir?
The reality of what the president has said cannot be disputed. However, it would be fair to suggest that peace in the region cannot for all time remain hostage to the Kashmir issue.
There is an overall demand in both countries for an end to the tensions between them, and the spontaneous response to the increased opportunity for an easing of people-to-people contacts in the recent months also strongly suggests that there is a sincere yearning for normalization of relations between the two countries on both sides of the border.
The extent of the agreement reached at the bilateral talks is a tricky matter, as exemplified by the nuclear policy. It also demonstrated the almost unprecedented will of both sides to eliminate the irritants standing in the way of a peaceful relationship.
However, what would probable bring about an enormous psychological change in the people's perception of each other in India and Pakistan could be the doing away with the present restrictions on sports and cultural exchanges, flow of information, books and newspapers, visa procedures and travel facilities.
In a tension-free atmosphere the people would hopefully get over their misapprehensions about the real motives of those who are in power on the other side of the border.
People in both countries have a right to breathe freely and be sure that they were not kept under watch as suspect or potential saboteurs while visiting their friends and relations across the border.
As far as Kashmir is concerned, considering the scale of hostility with which the people of the state view India's authority and the blood-letting which the Indian security forces have to suffer would sooner or later make New Delhi realize that it cannot keep the people of the disputed state under subjugation for ever.
They are fighting a valiant battle against the forces of occupation and their number and their determination to achieve their goal of freedom is what would ensure a victory. The reality is that there is very little that Pakistan can do to help them win this battle.
It is too early to suggest that the new Indian government's strategy in respect of its dealings with Pakistan has fully crystallized. It is still somewhat tentative but there are indications that New Delhi has no reservations about continuing with the peace process which began when Mr Vajpayee was in power.
Comments in the Indian press already suggest that Mr Natwar Singh who had the reputation of being "the angry old man of Indian foreign policy" when he was in government more than a decade ago, is beginning to find that the world has changed a great deal in the interregnum.
A commentator writing in the prestigious New Delhi weekly India Today has said that the policy objectives of Mr Manmohan Singh's government "take on a different outlook when confronted by the international dynamics which are radically different from what they were when the Congress left office in 1996."
The commentator goes on to say that "the peace process as it stands at present will need fresh fuel by the time Natwar and Kasuri meet to review things..." The meeting has taken place since the comment was published.
Presumably, the Indian foreign minister would now have a clearer perception of Pakistan's expectations. The perception should be even clearer after the meeting between the foreign secretaries scheduled to be held in New Delhi on June 27-28. However, there can be little doubt that it is in the vital interest of both India and Pakistan not to let the peace process go off the rails.
Mark-up is permissible
In his article "The debate over 'mark-up'" Dr Aqdas Ali Kazmi raises a question: "Does the Islamic Shariah regard mark-up, or a similar system, consistent with its basic precepts and principles?" (Dawn, May 29).
He has discussed stance of Islamic jurists on mark-up during the past two to three decades and drawn the conclusion: "In its operations, structure and use, mark-up resembles interest.... if the Shariah accepts mark-up as valid, it is left with no basis to reject interest.... Shariah jurists cannot reject interest if they accept 'mark-up'".
He has quoted from the Report of the Council of Islamic Ideology (June 1980) that the mark-up mode should not be used as a back door for allowing interest into the banking and financial system.
The main thrust of this article is to explain Shariah position of the difference between cash and credit prices of a commodity and the possible modus operandi of time valuation according to the precepts of the Shariah. The steps taken by the State Bank for maintaining the purity of Bai Murabaha are also given in the end.
With regard to the credit trade, there had been some difference of opinion among the jurists on the Shariah position of the difference in cash and credit prices of a commodity.
Notwithstanding this difference, there is almost a consensus among the Shariah scholars that credit price of a commodity can genuinely be more than its cash price provided one price is settled before separation of the parties.
Accordingly, the Islamic Fiqh Academy of the OIC and Shariah Boards of all Islamic banks approve the legality of this difference. This is tantamount to the acceptance of time value in the pricing of goods.
What is prohibited is any addition to the price once mutually agreed because of any delay in its payment. This is because the commodity once sold, even on credit, belongs to the purchaser on a permanent basis and the seller has no right to re-price a commodity that he has sold and which does not belong to him.
According to many jurists this aspect is approved by the Nass (clear text of the Shariah). The Holy Quran has reported non-believers saying, "The sale is very similar to Riba."
Their objection was that they increase the price of commodity in the original transaction of sale because of its being based on deferred payment and it is treated as a valid sale.
But if they add to the due amount after the maturity date and the debtor is not able to pay, it is termed as Riba, while the increase in both cases is similar. This argument has been specifically mentioned by the famous exegetist Ibn-Abi-Hatim (d. 327 AH) (Tafseer, 1999, Vol. 2, p. 545).
The Holy Quran's reply to the above thinking of the non-believers is that "Allah has permitted trading, and prohibited Riba". Allamah Sayyuti and Ibne Jarir Tabari have reported the similar situation of Riba involvement in which a person sold any commodity on credit; when the payment was due and the purchaser could not repay that, the price was enhanced and the time for payment extended (Sayyuti, Lubaab al Nuqool: 1423 and Tabari, Jami al Bayan, Vol. 6, p. 8).
The great Muhaddith Tirmidhi has reported that the Holy Prophet (pbuh) forbade two sales in one contract. Jurists have explained it to mean that a person asks someone, 'I sell this cloth on cash for ten and on credit for 20 (dirhams)' and at separation, one price is not settled.
If one of the two prices is settled, it is not prohibited (Tirmidhi, 1988, No. 1254). Tohfatul Ahwazi, Sharah Jam'i al Tirmidhi, explains that if a seller says that he sells the cloth for 10 on cash and 20 on credit and the buyer accepts any of the two prices; or if a buyer says that he purchases for 20 on credit or the parties separate on any of the prices, the sale will be valid (vol. 2, p. 236).
Shukani explains the above Hadith of the Holy Prophet by concluding that if the purchaser in such a situation says, "I accepted for 1000 on cash", or "for 2000 on credit", it would be all right. He adds that 'Illah (effective cause) for the prohibition of two sales in one is non-fixity of the price (Nail al Awtar, Vol. 5, p. 12).
Shah Waliullah in Muaswwa, Sharah Al Muwatta, writes that if the parties separate after settlement on one price, the contract is valid and there is no difference of opinion in this regard (Al-Musawwa, vol. 2, Pp. 28, 29).
Among the scholars of the present age, the late Shaikh Abdullah ibn Baz, who was the most honoured Grand Mufti of Saudi Arabia, permitted the instalments sale wherein the credit price could be higher than the cash price (Abdullah ibn Baz, Fatawa, Urdu translation, KSA, 1995, P.142).
Jurists allow the difference between cash and credit prices of a commodity considering it a genuine market practice. It is quite natural that in the market credit price of a commodity is more than its cash price at a point of time while in contracts like Salam (the mode of future trade allowed by the Holy Prophet) the future price will be less than the cash price.
In the words of eminent Hanafi jurist Sarakhsi, "Selling on credit is an absolute feature of trade.... We hold that selling for credit is part of the practice of merchants, and that it is the most conducive means for the achievement of the investor's goal, which is profit.
And in most cases, profit can only be achieved by selling for credit and not selling for cash. He further observes, "A thing is sold on credit for a larger sum than it would be sold for cash" (Al Mabsut, Vol.22, P. 45).
The comments of Abraham L. Udovitch on the views expressed by Sarakhsi are worth mentioning, "This statement makes clear as to why there was a greater profit to be derived from credit transactions..."
The difference in price between a credit and cash sale also helps explain why the prohibition against usury, to the extent that it was observed, did not exercise any crippling restriction on the conduct of commerce... (Udovitch, 1970,p.80).
Islamic economics has the genuine provision of converting money into assets on the basis of which one can measure its utility. While it concedes the concept of time value of money to the extent of pricing in credit sale, it does not uphold generating rent to the capital as interest does in credits and advances leading to a rentier class in society.
As per rules of the Shariah, the aspect which matters is the conversion of Rs 1000, for example, into an asset in which case that Rs 1000 asset may be worth more or less in future leading to profit or loss. This conversion into assets is subject to well articulated rules governing profit/loss sharing, trading and leasing.
The concept of time value of money in the context of Shariah is also established from the fact that Shariah prohibits mutual exchange of gold, silver or monetary values except when it is done simultaneously.
This is because a person can take benefit by use of a currency which he has received while he has not given its counter value from which the other party could take the benefit.
It further transpires that time valuation is possible only in business and trade of goods and not in exchange of monetary values and loans or debts. Loaning is considered in Shariah as a virtuous act from which one cannot take any benefit. Therefore, no time value can be added to the principal of a loan, or a debt after it is created or the liability of the purchaser stipulated.
There should be no confusion in this regard about interest vis-a-vis the concept of rent in Ijarah (leasing). It might be argued, for example, that as per approved Shariah principles, predetermined rent includes a time-value of money, therefore, a predetermined time value of money in loans/debts should also be permitted by analogy.
This argument does not have any substantive basis. The rent in leasing is calculated on the basis of capacity of the asset to give usufruct, which is in principle uncertain.
Hence, it remains uncertain how much time-value of money is actually realized until the asset has completed its economic life. Lessor, as owner of the leased assets, is also the owner of risk and reward of that asset. Further, anything which cannot be used without consuming its corpus cannot be leased out like money, eatables, fuel, etc.
The above discussion leads to an important conclusion that while time-value of money is acceptable in respect of the pricing of assets and their usufruct, it is not acceptable with regard to any addition to the principal of loans or debts.
Valuation of credit period based on value of the goods or their usufruct is different from the conventional concepts of 'opportunity cost' or the 'time value'. As such, "mark-up" is permissible provided Shariah rules relating to trade or leasing are adhered to, but interest is prohibited due to being increase over any loan or debt.
While Shirkah based modes are preferable to debt creating modes based on trade and Ijarah, the permissibility of the latter category of modes is beyond doubt. The permission of charging 'mark-up' in Murabaha is subject to fulfilment of trading rules and conditions set out by the Shariah for such transactions.
It goes without saying that the mark-up technique, or for that matter any Islamic modes, should not be used as a back door for allowing interest. The State Bank as a regulator is in the process of designing a framework to ensure compliance of Shariah principles relating to Islamic modes of financing.
Guidelines on various modes as approved by the Commission for Transformation of Financial System and the Shariah Board of the State Bank of Pakistan have been placed on SBP Website for seeking comments from bankers, Shariah scholars, economists, educational institutions, business community, etc.
As and when these guidelines are finalized through consultative process the same would serve as the basis of the regulatory framework of Islamic banking in the country.
Similarly, the State Bank of Pakistan is the only central bank in the world that has so far planned Shariah compliance audit of Islamic banks/branches. Let's hope that with these steps Islamic banks in Pakistan would be doing Murabaha in line with its true spirit. The experts of finance, economics and fiqh can play their role in developing the system to make it viable as also Shariah compliant.
The writer is senior joint director in the Islamic banking department of the State Bank of Pakistan. Views expressed in the article are of the writer's and not necessarily of the State Bank.