In just one year, poverty in Pakistan surged from 34.2% to 39.4%, with 12.5 million more people slipping below the USD 3.65 per day income threshold.
Presently, approximately 95 million Pakistanis endure poverty, and the country exhibits the lowest per capita income in South Asia, alongside the highest number of out-of-school children globally.
Despite possessing significant natural resources, minerals, and land, the nation struggles to escape its economic challenges.
Our GDP stands at USD 1,597 per capita, ranking Pakistan 42ndamong major economies (if that is any rank); the country is now ascending to the fourth rank on the list of debtors of the International Monetary Fund (IMF).
The entrenchment of economic, social, and cultural issues over the last few decades also remains a critical challenge.
How has the regression set in and why nothing has worked? The answers reflect many theories. But the fact is that economic, social, and cultural issues have dogged this country so critically since the last two decades of the 20th century, that despite having major assets of natural reserves, minerals, land, and mountains, we have failed to clamber out of this sinking pit.
Primarily, we seek stability and continuity of policies, but, as they say, change does not happen without a change; therefore, I do feel that Islamic economics needs to be visited, in terms of not just banking, but an overall infrastructure that is imbued with the ethos of welfare and wellbeing, above the profitability factor.
The resilience of Islamic financing has already been witnessed globally. I do believe that Islamic principles will add the resilience needed in all the respective systems of our state.
Let me begin with the concept of chambers of commerce, formalized organizations representing the interests of merchants and businesses, which did not exist in the pre-Islamic era in the form that we recognize today.
However, we know that before and during the time of the Prophet Muhammad (PBUH), “Dar al-Nadwa,” established by the Hashemites, served as a chamber of commerce and was instrumental in securing safe trade routes and trade relationships, enabling Makkah to become a fiscal hub.
The monetary potential of the city was optimized during the annual pilgrimage when broader international communities came together, giving way to contracts, rights, and exchange rates for the region and beyond. Souq Al-Mawasim, a seasonal market that attracted traders and merchants from far and wide, functioned as a dynamic platform.
The economic model of Medina, though founded on the premise set by Makkah, had the additional pillar of cooperation and support for an equitable alliance and shared profit and loss between the natives and the immigrants.
The concept of mutual assistance, or “Ta’awun,” encouraged community members to collaborate for economic wellbeing, from agriculture to trade, laying the groundwork for a self-sufficient and interdependent society. Usury, or Riba, was deemed exploitative and detrimental to economic justice and was completely removed, replaced by the interest-free loans and partnerships, fostering fair and ethical financial practices.
As the Bard would say, the Shylocks were shown the door, and Antonis gained control of the Rialto.
This saw the rise of a city-state that eventually transformed into three successive empires, controlling major trade routes, and shaping the world economy until as recently as the first two decades of the last century.
Eradication of Riba was a major development. The deeper one delves into the impact of “No Interest,” the clearer the understanding of healthy ‘economic’ or social profit becomes.
The concept of Zakat, a mandatory charitable contribution, played a central role in wealth redistribution. Zakat is a one-way donation to underprivileged communities for development. With no payback attached, the recipient community becomes free to deploy it for communal benefit.
I previously referred to the example of a forest community in Indonesia’s Jambi province, which can now access green electricity, thanks to Zakat, in one of my earlier pieces, highlighting the impact of one-way donations at the state level for deserving causes.
Pakistan’s entire public education system is facing challenges, and the transparent channeling of Zakat can be a viable solution.
Globally, the Islamic principles of the Shariah economy have unleashed the much-needed funds, to the tune of billions of dollars, to support sustainable development and address the climate crisis without burdening the local population.
In Pakistan, Islamic banking is emerging as a dynamic and ethical alternative to conventional banking systems, with the potential to revolutionize the investment climate.
Its wellbeing narrative is grounded in the Islamic principles that emphasise risk-sharing, fairness, and ethical considerations.
Ethical finance excludes speculative activities and promotes socially responsible financing. In the larger picture, we are not only assisting individuals or teams in starting an operation but also calculating the far-reaching effects from the onset.
Examining the outcomes as part of the initial vision ensures the business trajectory stays on track, with a measurable scale of how it benefits society at large.
Islamic banking’s emphasis on risk-sharing and equity-based financing can be particularly beneficial for the Small and Medium Enterprises (SMEs), which often struggle to access financing through conventional means.
Islamic banks can play a pivotal role in supporting entrepreneurship by providing capital through Mudarabah (profit-sharing) and Musharakah (joint venture) arrangements, fostering innovation and job creation.
Pakistan boasts a growing number of IT professionals, young women entrepreneurs, and online businesses. Utilizing an Islamic approach, each can be supported with a financial programme of profit and loss partnerships, enabling the investors to collaborate with the entrepreneurs.
Conditions may involve localization, promotion of indigenous products, and the creation of alternatives for imports. This approach can contribute to the establishment of a very ethically strong “shark tank” of our own.
The distinctive feature is the emphasis on risk-sharing. In conventional banking, interest-based transactions often lead to a transfer of risk to the borrower. Islamic banking encourages partnerships and profit-sharing arrangements, creating a more equitable distribution of risk.
Islamic banking serves as a catalyst for financial inclusion in Pakistan, where a significant portion of the population remains unbanked due to the issue of Riba. By offering Shariah-compliant financial products, Islamic banks appeal to the segments of society that have been hesitant to engage with conventional banking.
This inclusivity not only expands the customer base for financial institutions but also empowers individuals and small businesses through access to ethical and accessible financial services.
Similarly, Sukuk can be a game-changing element in infrastructure development, whether in health, education, or addressing the effects of climate change. Pakistan’s infrastructural needs are immense, and high markups and compounded interest have led many projects to a state of paralysis.
By facilitating the funding of infrastructure initiatives through Islamic bonds (Sukuk), the country can attract both domestic and international investors increasingly interested in socially responsible investments.
Pakistan’s external debt reached USD 128.1 billion in September 2023, compared with USD 124.6 billion in the previous quarter. How do we combat this? As ethical investing gains momentum globally, Pakistan could position itself as an attractive destination for Islamic investments.
The principles of Islamic banking resonate with a growing number of ethical investors seeking opportunities in emerging markets. This can lead to increased foreign direct investment, fostering economic growth, and creating a positive perception of Pakistan in the international financial community.
Considering the vast number of assets this land is blessed with, combining ethical finance, risk-sharing mechanisms, and a commitment to financial inclusion – Islamic fiscal and commerce framework can significantly contribute to economic development, sustainable projects, and the overall wellbeing of the population.
Copyright Business Recorder, 2024