Islamic banking by judiciary: The 'Backdoor' for islamism in Pakistan?

South Asia: Journal of South Asia Studies

Volumn 31, Issue 3, 2008, Pages 535-555

  Khan, Feisal ^a  

^a HOBART AND WILLIAM SMITH COLLEGES   (United States)

Author keywords

Banking; Constitution; Islam; Judiciary; Pakistan; Reform

Indexed keywords

BANKING; CONSTITUTIONAL REFORM; FINANCIAL SYSTEM; ISLAMISM; LEGAL SYSTEM;

ASIA; EURASIA; PAKISTAN; SOUTH ASIA;

EID: 56349088908     PISSN: 00856401     EISSN: 14790270     Source Type: Journal    
DOI: 10.1080/00856400802441938     Document Type: Article

References (105)

1. See, for example, Subodh Atal, 'Extremist, Nuclear Pakistan: An Emerging Threat?', in the Cato Institute Policy Analysis, No.472 (5 Mar. 2003), pp.1-13
2. or T.V. Dyk, 'Greatest Nuclear Threat is Pakistan', Seattle Post Intelligencer (12 June 2003) [http://seattlepi.nwsource.com/opinion/ 126198_vandyk12.html accessed 2 November 2006].
3. For a more balanced analysis see Stephen P. Cohen, 'The Jihadist Threat to Pakistan', in The Washington Quarterly, Vol.26, no.3 (Summer 2003), pp.7-25.
4. The highest ranking government official to be assassinated was the (female) provincial Minister for Women's Affairs in the Punjab in February 2007, although this appears to have been the work of a lone Islamic fanatic and not part of an overall terrorist campaign. The highest ranking security official assassinated was the Army's surgeon general in Febuary 2008 by a suicide bomber. Total civilian and military casualties of the suicide bombing campaign from January 2006 to June 2007 alone were at least 223 killed and 359 wounded. See Devyani Srivasta, 'Suicide Terrorism in Pakistan (January 2006-June 2007): An Assessment', in I-Post Quarterly, Vol.4, no.2 (Apr.-June 2007), pp.1-7 [http://suicideterrorism.org/I-POST-AprJun07.pdf, accessed 21 July 2008].
5. The unsuccessful October 2007 assassination attempt on former prime minister Benazir Bhutto in Karachi is estimated to have killed about 137 people and wounded at least 387. See CNN.com, 'Death Toll Rises in Bhutto Attack', [http://www.cnn.com/2007/WORLD/asiapcf/10/18/ pakistan.explosions/index.html accessed 21 July 2008].
6. It should be noted, however, that the Zia government did not bring Islam into the Pakistani Constitution; it simply instituted a mechanism by which existing Islamic provisions could be implemented.
7. Lawrence Ziring, Pakistan in the Twentieth Century: A Political History (Karachi: Oxford University Press, 2000), p.106.
8. Parvez Hassan and Azim Azfar, Moving Toward an Islamic Financial Regime in Pakistan, Harvard Law School Islamic Legal Studies Program Occasional Publication No.2 (Cambridge, MA: Harvard Law School, Sept. 2001), p.5.
9. Quoted in Marc Gaborieau, 'Islam and Politics', in Christophe Jaffrelot (ed.), Gillian Beaumont (trans.), A History of Pakistan and Its Origins (London: Wimbledon Publishing Co., 2002), p.238.
10. Ziring, Pakistan in the Twentieth Century, pp.243, 263
11. see also Ayesha Jalal, Democracy and Authoritarianism in South Asia: A Comparative and Historical Perspective (Cambridge: Cambridge University Press, 1995), p.58.
12. Gaborieau, 'Islam and Politics', p.244.
13. Hamid Khan, Constitutional and Political History of Pakistan (Karachi: Oxford University Press, 2004), p.278.
14. Later, after leaving Pakistan in self-imposed exile, Rahman became the Harold H. Swift Distinguished Service Professor of Islamic Thought at the University of Chicago.
15. Fazlur Rahman, 'Riba and Interest' (trans. Mazheruddin Siddiqi), in Islamic Studies, Vol.3, no.1 (Mar. 1964), pp.1-43.
16. Ibid., p.6.
17. See Mahmood Amin El-Gamal, '"Interest" and the Paradox of Contemporary Islamic Law and Finance', in Fordham International Law Journal, Vol.27, no.1 (Dec. 2003) pp.108-49
18. and Timur Kuran, Islam & Mammon: The Economic Predicaments of Islamism (Princeton: Princeton University Press, 2004), for broader discussion.
19. Khan, Constitutional and Political History of Pakistan, p.76.
20. The current Constitution and its various amendments are available online at http://www.pakistani.org/pakistan/constitution/, accessed 8 Oct. 2006.
21. Gaborieau, 'Islam and Politics', p.245.
22. Khan, Constitutional and Political History of Pakistan, p.640.
23. Ibid., p.641.
24. Ibid., p.662.
25. Charles H. Kennedy, 'Pakistan's Superior Courts and the Prohibition of Riba', in Robert M. Hathaway and Wilson Lee (eds), Islamization and the Pakistani Economy (Washington: Woodrow Wilson International Center for Scholars, 2004), p.102.
26. Khan, Constitutional and Political History of Pakistan, p.663.
27. Ibid., p.665.
28. Kennedy, 'Pakistan's Superior Courts and the Prohibition of Riba', p.106. The initial exclusion was for three years, later extended three times by the Pakistani government; see successive amendments to Clause 203(b) of the Pakistani Constitution for details.
29. Kuran, Islam & Mammon
30. Farhad Nomani, 'The Problem of Interest and Islamic Banking in a Comparative Perspective: The Case of Egypt, Iran and Pakistan', in Review of Middle East Economics and Finance, Vol.1, no.1 (2003), p.51
31. and Hassan and Azfar, Moving Toward an Islamic Financial Regime in Pakistan, p.18.
32. Mahmoud Amin El-Gamal, A Basic Guide to Contemporary Islamic Banking and Finance (Plain.ed, IN: Islamic Society of North America, 2000), p.1 [http://www.ruf.rice.edu/~elgamal/files/primer.pdf].
33. Ibrahim Warde, Islamic Finance in the Global Economy (Edinburgh: Edinburgh University Press, 2000), p.38.
34. M. Umer Chapra, 'The Major Modes of Islamic Finance', paper prepared for the 6th Intensive Orientation Course on Islamic Economics, Banking and Finance (Leicester: Islamic Foundation, 1998), p.1 [http://www.kantakji.org/fiqh/Files/Finance/ MAJOR%20MODES%20OF%20ISLAMIC%20FINANCING.doc].
35. El-Gamal, A Basic Guide to Contemporary Islamic Banking and Finance p.33.
36. For more details see Ch.2 in Kuran, Islam & Mammon.
37. V. Sundarajan and Luca Errico, 'Islamic Financial Institutions and Products in the Global Financial System: Key Issues in Risk Management and Challenges Ahead', International Monetary Fund Working Paper No.192 (Washington: The International Monetary Fund, 2002), p.20.
38. See Mohammed Taqi Usmani, An Introduction to Islamic Finance, Arab and Islamic Law Series (The Hague: Kluwer Law International, 2002), pp.5-17, for more details.
39. Ibid., pp.37-68, for more details.
40. Hassan and Azfar, Moving Toward an Islamic Financial Regime in Pakistan, p.18.
41. S.A. Meenai, Money and Banking in Pakistan (Karachi: Oxford University Press, 5th ed., 2004), p.222.
42. See, for example, Kuran, Islam & Mammon
43. Sundarajan and Errico, 'Islamic Financial Institutions and Products in the Global Financial System'
44. Usmani, An Introduction to Islamic Finance
45. and Warde, Islamic Finance in the Global Economy.
46. Warde, Islamic Finance in the Global Economy, p.240.
47. El-Gamal, '"Interest" and the Paradox of Contemporary Islamic Law and Finance', p.108.
48. Dahlia El-Hawary, Grais Wafik and Iqbal Zamir, 'Regulating Islamic Financial Institutions: The Nature of the Regulated', World Bank Policy Research Working Paper No.3227 (Washington: The World Bank, 2004), p.15.
49. Rajesh K. Aggarwal and Tarik Yousef, 'Islamic Banks and Investment Financing', in Journal of Money, Credit and Banking, Vol.32, no.1 (Feb. 2000), p.100.
50. Calculated from Table 3.3, 'Approved Project and Technical Assistance by Mode of Financing', 29th IDB Annual Report 1424H (2003-2004) [http://www.isdb.org/29annualreport/Chapter%203.pdf, accessed 16 Aug. 2006].
51. Feisal Khan, 'How "Islamic" are Islamic Banks?', paper presented at the Sixth Annual Meeting of the Association for the Study of Religion, Economics, and Culture, 2007, provides more details on these and related issues. As the Enron, Parmalat, and many other Western financial scandals show, this situation is not unique to Muslim or Third World countries; all banking and finance textbooks in OECD countries point to the prevalence of information asymmetry issues, and the resulting problems, in their economies too.
52. Badr el Din A. Ibrahim, 'The "Missing Link" Between Islamic Development Objectives and the Current Practice of Islamic Banking - The Experience of Sudanese Islamic Banks (SIBs)', in Humanomics, Vol.22, no.2 (2006), p.60.
53. Endre Stiansen, 'Interest Politics: Islamic Finance in the Sudan, 1977-2001', in Clement M. Henry and Rodney Wilson (eds), The Politics of Islamic Finance (Edinburgh: Edinburgh University Press, 2004), p.160.
54. Ibid., pp.163-4.
55. Calculated from Kuwait Finance House, 'Consolidated Balance Sheet', 2005 Annual Report [http://www.kfh.com/english/AboutUs/ Annual-Report/AR2005/KFH-AR2005.pdf, accessed 18 July 2007].
56. See Kristen Smith, 'The Kuwait Finance House and the Islamization of Public Life in Kuwait', in Clement M. Henry and Rodney Wilson (eds), The Politics of Islamic Finance (Edinburgh: Edinburgh University Press, 2004), pp.168-90, for more details on the Kuwait Finance House and its role in Kuwait.
57. Kuran, Islam & Mammon.
58. Kennedy, 'Pakistan's Superior Courts and the Prohibition of Riba', p.104.
59. Ibid., p.106.
60. Hassan and Azfar, Moving Toward an Islamic Financial Regime in Pakistan, p.22.
61. Nomani, 'The Problem of Interest and Islamic Banking in a Comparative Perspective', p.49, states that there were 119 cases challenging 22 separate laws. However, I am inclined to believe that the Hassan and Azfar numbers (115 law suits challenging 20 laws) are more accurate as they are lawyers based in Pakistan whereas Nomani is a French academic.
62. Kennedy, 'Pakistan's Superior Courts and the Prohibition of Riba', p.107.
63. Hassan and Azfar, Moving Toward an Islamic Financial Regime in Pakistan, p.19.
64. Ibid., p.20.
65. Kennedy, 'Pakistan's Superior Courts and the Prohibition of Riba', p.108.
66. The exact differences between the prime minister and the chief justice involved several issues, including which courts would have jurisdiction over terrorism/violent-crime cases, who could nominate judges to existing vacancies on various benches, and so on. Matters came to a head when the chief justice instituted contempt of court proceedings against the prime minister, which would have removed him from office if convicted. The prime minister ordered several busloads of his party workers, led by cabinet members and MPs, to literally storm the Supreme Court building on 28 November 1997, roughing up several Court officials and forcing the justices to flee through the rear entrance. Following the refusal of the Army leadership to provide military protection for the justices, and the refusal of several justices to accept his authority and their continually staying whatever orders he issued, the chief justice resigned on 2 December 1997. See Khan, Constitutional and Political History of Pakistan, pp.820-30, for more details.
67. Iqbal Jafar, 'Judgement on Riba: An Analysis', Dawn Wire Service, Issue 06/12 (17 Mar. 2000) [http://www.lib.virginia.edu/area-studies/ SouthAsia/SAserials/Dawn/2000/mar17.html, accessed 10 June 2006]. Portions of the judgment are available online at http://albalagh.net/ Islamic_economics/riba_judgement. shtml.
68. Kennedy, 'Pakistan's Superior Courts and the Prohibition of Riba', pp.110-11, describes the full text as running only to 534 pages
69. while Hassan and Azfar, Moving Toward an Islamic Financial Regime in Pakistan, p.24, give it as 400 pages, lengthy 'even by Pakistani standards'. In any case, it should be clear that the Bench did not rule hastily.
70. I. Pal, Islam and the Economy of Pakistan: A Critical Analysis of Traditional Interpretation (Karachi: Oxford University Press, 2006), is extremely critical of the Western sources used by the SAB to conclude that many Western economists are also opposed to an interest-based economy.
71. Kennedy, 'Pakistan's Superior Courts and the Prohibition of Riba', p.109.
72. Jafar, 'Judgement on Riba: An Analysis'.
73. Hassan and Azfar, Moving Toward an Islamic Financial Regime in Pakistan, p.27.
74. Ibid., pp.43-4.
75. Jafar, 'Judgement on Riba: An Analysis'.
76. Ibid., quoting from the FSC judgement.
77. Ibid.
78. Ibid.
79. Kennedy, 'Pakistan's Superior Courts and the Prohibition of Riba', p.110.
80. Ibid., p.109.
81. Ibid., p.112.
82. Meenai, Money and Banking in Pakistan, p.220.
83. That doctrine in English Common Law which holds that exigent circumstances that preclude any other conduct might mean that some laws will have to be violated; i.e., necessity makes legal what otherwise would be illegal. It is often cited by Pakistani courts to justify/ excuse successful military coups.
84. 'AG hints at Invocation of Doctrine of Necessity: Riba Issue', Dawn Wire Service Vol.7, no.24 (16 June 2001) [http://www.lib.virginia.edu/area-studies/SouthAsia/SAserials/Dawn/ 2001/jun1601.html accessed 15 July 2006].
85. Ibid.
86. Rafaqat Ali, 'Riba Deadline Frozen by a Year: SC Refuses Extension till 2005', Dawn Wire Service, Vol.7, no.24 (16 June 2001) [http://www.lib.virginia.edu/area-studies/SouthAsia/SAserials/Dawn/ 2001/jun1601.html, accessed 15 July 2006].
87. The other ulema judge had resigned to take a different government post; see 'Two Ulema made SAB ad hoc Judges', Dawn, Internet edition (25 May 2002) [http://www.dawn.com/2002/05/25/nat16.htm, accessed 16 July 2006] for details.
88. Salman Akram Raja, 'Islamisation of Laws in Pakistan', in South Asian Journal, No.2 (Oct.-Dec. 2003) [http://www.southasianmedia.net/ Magazine/Journal/previousissue2.htm].
89. Kennedy, 'Pakistan's Superior Courts and the Prohibition of Riba', p.114.
90. The official reason given for his removal, after the fact and after some public outcry about it, was that Justice Usmani was on the Shariat Advisory Board of several banks in Pakistan and thus had a monetary conflict of interest in ensuring that all banks were now forced to become completely Islamic.
91. For more details see Rafaqat Ali, 'Usmani's Monetary Interest Led to His Removal', Dawn, Internet edition (12 June 2002) [http://www.dawn.com/2002/06/12/nat19.htm., accessed 16 July 2006]. The career of Justice Usmani exemplifies the rout of a more progressive interpretation of Islam in Pakistan. Justice Usmani was a member of the government's Council of Islamic Ideology that issued the 1980 report calling for the abolishment of riba from the Pakistani economy, a judge of the Federal Shariat Court (1980-82) and the Shariat Appellate Bench of the Supreme Court (1982-2002). Usmani is also a son of the founder, as well as a graduate, and currently a vice-president, of the Dar ul Uloom Karachi madrassah. The Dar ul Uloom Karachi, the oldest, largest and most in.uential Deobandi seminary in Pakistan with strong links to Saudi Arabian Wahhabism, is the chief promulgator of an extremely narrow and restrictive, if not outright reactionary, version of Islam. Progressive, or even pragmatic, interpretations of Islam which had held sway in the 1950s and 1960s were completely absent from government-sponsored think-tanks, advisory panels and the like in the 1980s and 1990s.
92. '6 SC Judges Validating Army Coup get Retired', Dawn, Internet edition (6 Dec. 2002) [http://www.dawn.com/2002/12/06/nat9.htm, accessed 16 July 2006]; this extension was later rescinded after much protest by the Pakistan Bar Association and other organisations.
93. Ibid.
94. Kennedy, 'Pakistan's Superior Courts and the Prohibition of Riba', pp.112-3.
95. Ibid., p.114, misquotes Wilde as 'consistency is the hallmark of a weak mind'.
96. The full text of the Supreme Court decision on the United Bank appeal, Civil Shariat Review Petition No. 1 of 2000, is available at http://www.supremecourt.gov.pk//judgment.htm.
97. Ibid.
98. As the November 2007 declaration of a State of Emergency by President Gen. Pervez Musharraf and the wholesale sacking of Supreme Court justices, including the recalcitrant chief justice, showed, independent judges have a short lifespan in Pakistan. The reconstituted Supreme Court has endorsed all of President Musharraf's actions.
99. Zahid Hussain, 'The Judiciary on Trial', Newsline (Feb. 1993), p.32.
100. Ibid.; from the quotation's context, it appears likely that the source was a High Court judge.
101. In November 2002 the State Bank of Pakistan, the central bank, allowed a 'parallel' Islamic Banking system to initiate operations and designated the existing system as 'conventional' banking. The resulting Islamic Banking sub-system is functionally virtually indistinguishable from the conventional one, but this practical convergence is in light of the 2002 SAB ruling and directly contradicts the 1999 ruling that mandates direct 'equity participation' as the sole permissible Islamic financing mode. It cannot be determined, without the 2002 SAB ruling, what the effect of implementing the 1999 SAB ruling would have been by looking at the current Pakistani Islamic Banking model.
102. This is not loan sharking but credit made available to businesses which, for whatever reason (usually lack of tax records, audited accounts, clear title to property, inadequate credit history, etc.), are not able to meet the formal sector's documentation requirements for loans.
103. Kuran, Islam & Mammon, p.82. See Ch.4 for more details.
104. Robert Looney, 'The Iranian Economy: Crony Capitalism in Islamic Garb', in Milken Institute Review (First Quarter 2006), p.29 [http://www.milkeninstitute.org/publications/review/2006_3/ 28_37mr29.pdf].
105. Most of the Islamist parties boycotted the elections (on the ostensible grounds that the elections would be neither free nor fair) and, consequently, suffered a massive electoral defeat. However, this has simply changed their parliamentary representation; their organised cadres - especially those of the Jamaat-i-Islami - still remain intact.