Islamic Banking in Pakistan The Future Path by Muhammad Akram Khan. Lahore: All Pakistan Islamic Education Congress, I994,94 pp.

Abstract

The book under review is a revised edition of Muhammad Akram
Khan's Islamic Banking in Pakistan. In this slender yet eloquent volume
the author, who has many other published works in the field of Islamic
economics and finance to his credit, examines a cornerstone of government
policy during the early 1980s: the Islamization of banking in
Pakistan. He gives a candid and coherent account of this major develop
ment and asserts that it failed because of the lukewarm attitudes of the
administration and political leadership as well as because of the perverted
outlook of the bureaucrats, elites, and bankers. In the final analysis, he
suggests some concrete measures that are designed to help policy makers
and strategists in reconstructing the financial institutions within the framework
of Islamic laws. The subject matter of this book has been divided
into six chapters, which are preceded by Muzaffar Hussain's preface and
followed by concluding remarks, endnotes, an exhaustive bibliography,
and an index.
In chapter one, Akram provides an historical overview of the process
of Islamization of banking, makes some important observations, and
draws logical conclusions. He points out that the Council of Islamic
Ideology, a constitutional body consisting of scholars of all shades and
schools of thought, categorically prohibited interest (riba) in all of its
various forms. However, no sincere effort was ever made by the government
to eliminate interest and to build an interest-free economy. The
process of Islamization, which was initiated in the early 1980s and
slowed down during the latter part of the decade, finally came to a complete
halt in early 1992. The government, instead of invigorating the
Islamization process, filed an appeal in the Supreme Court against the
Shari'ah Court's decision calling for the abolition of all interest-based
activities by June 1992.
In chapter two, the author goes to the roots of the problem and
shows that a lack of political will was the single most important factor
causing the systematic failure of this experiment in Pakistan. He shows
the futility of inconsistent policies and inappropriate strategies pursued
by the State Bank of Pakistan, such as allowing banks to continue
interest-based operations side by side with interest-free activities.
Given freedom of choice, banks and other financial institutions showed
a much higher interest in such interest-based financing techniques as
mark-up and buy-back agreements and little or no interest in such
modes of finance as musharakah, mudarabah, and ijarah, all of which
are based on Islamic principles associated with profit-loss sharing. He
observes that the situation was aggravated further when the government
excluded the management of public finance from the jurisdiction
of the Shari‘ah court and continued its own interest-based activities as
usual ...