‘Running Mushārakah’ by Islamic Banks in Pakistan: Running from Mushārakah or Moving back to Square One - [Journal of Islamic Business and Management (JIBM)]

Year: 2016






A common man, anywhere in the world, who knows a bit about Islamic finance, may consider Islamic banking as a system based on the principle of not charging interest, prohibited under Islam; instead, the lender shares a part of the profit – or loss – with the borrower. Despite a basic flaw in this layman definition – using the words lending and borrowing, as nothing could be charged in lending, borrowing process – it points to the fundamental principle of Islamic banking that the investor or financier has to participate in the profit, or bear the loss, or take the business risk.

Islamic economics, banking or finance was conceived about seven / eight decades ago to avoid the impacts of capitalism and its relationship to inequality. The vision, in the words of Muhammad Ali Jinnah, the Father of Pakistani nation, was “to work our destiny in our own way instead of following the Western economic theory, and present to the world an economic system based on true Islamic concepts of equality of manhood and social justice” (Inaugural Speech at SBP, July 1, 1948). Accordingly, Islamic banking was launched originally with specific objectives of replacing interest with profit / loss sharing and reducing inequalities.


The main problem, rather scourge of the conventional system is the socialization of loss and privatization of gain. Banking and non-banking financial institutions are earning huge profits using the tools of interest, short selling, pre-mature off-setting of contracts and speculation, thus rendering loss to the masses in general, and to the poor and the middle income groups all over the world in particular. Islamic banking formally emerged in 1970s and became a buzz word by the end of 20th century when it started replicating conventional tools of producing money. The Western / American economists are worried about the future of their own nations due to problems created by the capitalistic system. But Islamic banks are increasingly following the conventional tools; they are doing almost the same and, as such, they are generally criticized for replicating the conventional products carrying fixed / inflexible rates of return and not using the partnership based modes namely mushārakah and mudārabah for their financing operations, and not taking business risk even in debt

creating modes.


The objective of introducing Islamic banking is firstly to transform the process and procedures of financing transaction to Islamic principle of ribā prohibition, and secondly to realise ideal objectives of Sharī‘ah with socio-economic benefits (Usmani4 : 24; also see Pp. 238-246) in the shape of broad based financial inclusion and providing opportunities to all for employment, income and growth. According to the Holy Qur’ān, those who are unable to discharge their social obligations due to economic constraints are to be accommodated while those who do not have such constraint are not exempted from discharging their social responsibilities Hasanuzzaman S.M; 1999: 148). Islamic banks could be the most pertinent institutions to realise this objective.

Islamic banking was visualised as a means to end discrimination against the down-trodden and the poor groups in the societies which Qur’ān abhors and treats it equivalent to fasād (corruption) (2:27, 11:85; 28:4 and 77). The frequent mention in the Qur’ān that Allah does not like fasād and ╘ulm (one meaning of ╘ulm is depriving others of their rights as directed implicitly in verses 2:, 279, 282) make it obligatory for the State and the management and Sharī‘ah boards of the IFIs to plug all loopholes which make it possible for the people to indulge in corruption and unjust economic practices...more


Vol 6 Issue 1 (December-2016)

Open Access:  www.jibm.org/sites/default/files/files/3_%20Editorial%20-%20Running%20Musharkah-%20Running%20from%20Musharakah%20(26-7-16).pdf




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