The Supreme Court of Pakistan, in determining the applications and implications of the term “Riba” asked for assistance of religious scholars and other interested people of the country. For this purpose, answers to ten questions were sought. The seventh among these questions was:
If all the forms of interest or mark-up are held to be repugnant to the Islamic injunctions, what modes of financing do you suggest for: a) financing trade and industry; b) financing the budget deficit; c) acquiring the foreign loans; and d) similar other needs and purposes?
My Reply to the question follows:
In my opinion, this question is a misdirected one. This question should be addressed to Muslim economists and Muslim experts in the field of trade, commerce and finance. Scholars of Islam should only be consulted for clarifying the directives of the Shari`ah. In my opinion, the reason why this question has remained unanswered for such a long time is that scholars of Islamic sciences, who normally do not even fully understand and appreciate the intricacies of the working of the economy have tried to give answers to this question and have understandably failed miserably in doing so.
The answer to this question should therefore be sought from expert economists and financiers of the country and the Ummah. Scholars of Islamic sciences should be consulted in appraising the work of these economists and financiers in the light of the directives of the Qur’an and the Sunnah.
As a guidelines, I shall like to state that any system of financing that is based on a predetermined rate of return (percent per annum) on a loan is “Riba” and stands prohibited in the Islamic Shari`ah. A system of financing that is not based on predetermined rate of return can be termed as a non-Riba based system of financing. This principle should be kept in mind to judge the correctness or otherwise of any system that is proposed as a substitute of the prevalent system.