beyond riba reconstruction

Beyond Riba: Reconstruction of Just Financial Orde…

The preceding part of this series examined a question ordinarily left outside discussions on riba: who should create money? It argued that commercial-bank money creation is not, by itself, riba, but that the power to create purchasing power through credit is a matter of public importance requiring transparency, restraint and accountability. One possible reform is to separate transaction money, fully backed by sovereign money, from funds deliberately committed for investment. That proposition leads to an even more fundamental question. What exactly is a bank deposit?

The answer appears obvious only because modern banking has merged several economically different relationships into the same institution. A person places salary in a current account because it must be available tomorrow morning. Another person places accumulated savings with a bank hoping to earn a return over five years.

A business maintains money for payroll and suppliers. An investor deliberately commits capital to a project knowing that commercial gain is accompanied by the possibility of loss. Calling all these balances “deposits” conceals distinctions that become crucial in a financial order seeking to eliminate riba.

There is a basic difference between money and investment. Money held for payment performs the functions of medium of exchange and store of nominal value. Its owner expects Rs.100 deposited today to remain Rs.100 tomorrow and to be transferable on demand. Investment capital performs another function. It is consciously placed in productive activity in expectation of gain and consequently bears the possibility of commercial loss.

One cannot logically demand both absolute safety and entrepreneurial return from the same contractual relationship unless somebody else is made to carry the risk.

Islamic jurisprudence recognised these distinctions long before modern banking. Funds entrusted purely for safekeeping can constitute amanah. A trustee does not own them and is not ordinarily liable for loss occurring without negligence or misconduct. Where fungible money is transferred to another person with authority to use it and an obligation to return its equivalent, the relationship acquires the character of qard, or loan.

State Bank of Pakistan’s own glossary reflects precisely this reasoning. It describes an amanah as property held in trust and states that current accounts may initially be regarded as trust deposits.

Once a bank obtains authority to use current-account funds in its business, however, the relationship becomes a loan because the bank must repay the full amount. This point deserves much greater attention.

If a bank accepts Rs.100,000 from a customer, is free to use that money for its own financing operations and remains legally bound to repay Rs.100,000 whenever demanded, the customer is not bearing an investment risk. Whatever terminology appears on the account-opening form, economically the bank has received financing from the customer.

No difficulty necessarily arises if the customer receives nothing beyond repayment of the amount advanced. The difficulty arises when banking system treats this repayable-at-par money simultaneously as the raw material from which additional financing and monetary claims can be generated.

Part II suggested one possible solution: transaction accounts should be treated entirely differently. A current account used for wages, household expenditure, business payments and ordinary transfers should represent protected transaction money. If such balances are fully backed by sovereign money or central-bank reserves, they need not be exposed to the bank’s commercial financing decisions. The account holder would possess money, not an investment claim upon the success of a bank.

The bank would provide custody, payments, transfers, cards, digital access and settlement services. It could legitimately charge transparent fees for those services. What it would not receive is free investment capital merely because citizens require access to a payment system.

The consequences are significant. Fully backed transaction accounts would remain available on demand and at par. They would not earn an investment return because their owners have assumed no investment risk. Nor would their repayment depend upon the quality of the bank’s commercial portfolio.

This is not merely a theological distinction. Modern central banking itself recognises the peculiar character of bank deposits. The Bank of England recently described commercial-bank deposits as liabilities used as money, expected to be redeemable at par on demand and relied upon as a safe store of value. It contrasted them with investment products whose values fluctuate and whose losses are borne by investors.

A riba-free financial system should take that distinction seriously. The second category would consist of genuine investment accounts. Here the relationship is entirely different. A customer does not merely park money awaiting payment instructions. He consciously makes capital available for investment and accepts that lawful profit cannot be separated completely from commercial risk.

Mudarabah provides one classical framework. One party supplies capital and the other enterprise and expertise. Profit is divided according to an agreed ratio; financial loss, in the absence of negligence or breach by the manager, falls upon the provider of capital.

SBP itself explains Islamic investment deposits on this basis: the depositor acts as rabb-ul-maal and the bank as mudarib. Restricted mudarabah allows the investor to specify where the funds may be deployed; unrestricted mudarabah gives the bank wider investment authority.

The principle is straightforward. If the depositor wants profit because capital is being employed commercially, the depositor must understand what capital is doing and what risk attaches to it. This is where present banking practice requires closer examination.

Islamic banks commonly pool deposits, calculate weighted-average yields and distribute profits under elaborate regulatory rules. SBP presently prescribes profit-distribution arrangements for savings depositors, including minimum distribution requirements linked to the weighted-average gross yield of the institution. It also permits additional hiba in specified circumstances.

These measures protect customers against inequitable allocation of profits by banks. Their consumer-protection purpose is understandable. At the same time, an increasingly managed and smoothed return can create in the depositor’s mind an expectation remarkably similar to a conventional savings rate.

The crucial question is not whether the return happens to fluctuate by a few basis points. It is whether the depositor actually bears the economic character of an investor.

An investment account should identify the pool in which funds participate, the assets financed, the mudarib’s share, expected—not guaranteed—returns, expenses attributable to the pool, actual realised profit and the circumstances in which capital can suffer loss.

Losses resulting from negligence, misconduct or breach by the bank should remain the bank’s responsibility. Genuine commercial losses should not automatically be shifted away from investors after profits have been privately distributed to them. Otherwise profit sharing becomes a one-way arrangement: return is private when business succeeds while risk is transferred to the State, deposit-protection scheme or taxpayer when it fails.

Pakistan’s deposit-protection framework illustrates the complexity. Deposit Protection Corporation presently protects eligible deposits up to Rs. one million per depositor per bank. The protection encompasses eligible conventional and Islamic deposits held by the same depositor in a member bank.

Protection of small depositors is an entirely legitimate public-policy objective. It prevents a bank failure from destroying household savings and reduces the danger of destabilising bank runs. It should not, however, cause us to abandon the distinction between money and investment.

A third-party protection mechanism can insure citizens against institutional failure without converting every commercial investment into guaranteed capital. The law must distinguish losses caused by failure of a regulated intermediary from losses arising normally from an investment whose risks the investor knowingly accepted. That distinction presently remains blurred.

Pakistan has little time to leave such issues unresolved. Islamic banking is no longer a specialised corner of the financial sector. At end-March 2026, Islamic Banking Institutions held assets of Rs.14.659 trillion and deposits of Rs.11.299 trillion.

Islamic deposits represented 28.5 percent of all banking deposits. Seven full-fledged Islamic banks and 16 conventional banks were already providing Islamic banking services through a rapidly expanding network.

The State Bank is simultaneously accelerating conversion. Its June 2026 instructions reduced the period for informing customers about branch conversion and shortened the interval between notices through which current accounts may be converted on a deemed-acceptance basis. This makes contractual clarity more important, not less.

A citizen whose conventional current account is converted into an Islamic current account should know what has legally changed. Is his money an amanah, a qard, or something else? Can the bank use it? Is every rupee available on demand? Who bears loss if the bank fails? What consideration does the bank receive for operating the payment account?

The same transparency is necessary for savings customers. They should know whether they are depositors, lenders or investors rather than discovering the answer only after a loss occurs.

An alternative framework could therefore establish two clearly separated banking windows—or preferably two legally ring-fenced balance sheets.

The first would contain payment accounts. Their purpose would be safekeeping, transfer and settlement. Principal would remain fully available, their balances would be backed by sovereign money, and no investment return would accrue merely from maintaining them.

The second would contain investment accounts. Their funds could finance productive enterprises through mudarabah, musharakah, genuine leasing, trade finance and other permissible structures. Different pools could offer different combinations of maturity, sectoral exposure and risk. Returns would arise from the underlying economic activity and not from a guaranteed price placed upon time.

Banks would continue to earn. They would charge for payment services, receive mudarib remuneration or an agreed share of realised investment profits, earn genuine trading margins and lease income where they assume the corresponding ownership responsibilities, and provide professional financial services. Banking would therefore not disappear. Its economic purpose would become clearer.

The separation would also improve market discipline. Institutions would have to persuade investors that they possess the competence to identify productive opportunities rather than relying disproportionately upon guaranteed deposits and sovereign securities. Savers would acquire genuine choices between liquidity, safety and investment return instead of being offered products in which these characteristics are artificially blended.

Such reform cannot be introduced overnight. Pakistan’s existing banking balance sheets contain trillions of rupees of deposits, financing and government securities. Existing contractual rights must be respected. Liquidity arrangements, payment infrastructure, deposit protection and central-bank facilities would have to be redesigned gradually. The conceptual starting point, however, should be unambiguous.

Money kept safe is not capital placed at risk. Safekeeping is not investment. A depositor seeking immediate access to nominally secure money is not the same economic actor as an investor seeking profit from productive enterprise.

Modern banking has merged these relationships for convenience and profitability. A reconstructed financial order should separate them again.

Once money and investment are distinguished, another question immediately arises. Where should investment capital actually go, and how can an economy finance homes, agriculture, industry, infrastructure, technology and trade without merely reproducing an interest-bearing loan through Islamic terminology?

That will be the subject of Part IV: Financing production without guaranteed returns on money.

[To be continued]

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Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds an LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.

 

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This work did not flagrantly castigate Islam or denounce any other religion; it assaulted something else: the underpinning social and moral frameworks which form the bedrock of society. Little wonder that Daryabadi, still a 16-year-old who had just finished his Matriculation, was disillusioned with the guiding theological foundations he had long cherished ‘when the claims and arguments of the book were in complete accord with libidinal urges’. This episode was the turning point in his life which estranged him from his beliefs and was the nascent emergence of a decade-long journey of doctrinaire atheism. Although his shift to skepticism was driven and cemented by encounters with the works of eminent atheists and philosophers, one thing particularly arrests attention and exposes the academic dishonesty present profusely in Western academia: the spurious claim that the citadel of their scholarship is erected upon objectivity and dispassionate ‘impartiality’. Daryabadi, in his autobiography, elaborates that ‘a poison ran through the lines’ of seemingly ‘objective’ and ‘scientific’ scholarship. In a remarkably furtive and implicit manner, the most profound religious convictions would be scoffed at and trampled underfoot. Two such illustrations are worth noting: a voluminous piece of psychology argued, targeting the blessed Prophet (PBUH), that it was possible for a man suffering from epilepsy to leave behind a great legacy. In another instance, the Prophet was depicted—reprehensibly and coarsely—in an artificially concocted image, which was merely the deplorable translation of West’s bias towards Islam. Daryabadi persisted in his skepticism of religion and would fiercely critique it through his various publications. But despite the outright repudiation, there was a concealed, but potent, bond with Islam, which did not wither away; when Samuel Zwemer, a Christian polemicist who had come to British India for a conference, began his critique of the religion, Daryabadi—by then an atheist—would offer his rejoinders in defense of the faith. The subtle and discreet traces of sacred convictions had survived the materialistic tumult. It was after a decade that Daryabadi would, slowly and gradually, experience a shift in trajectory. His voracious propensity to read, coupled with sheer curiosity, led him to scrutinize the works of semi-atheistic philosophers who had entertained spiritual dimensions and possibilities beyond the cold, materialistic realm. Subsequently, he delved into the study of Buddhism, Hinduism and theosophy. Something profound had changed. Seeds of belief had been sown—once again. Engaging with the spiritual aspects of the traditions led him to deliberate the possibility of the unseen. Taken aback by the profundity of insights and reflecting upon their perennial truths, Daryabadi was intrigued. His quest for the truth eventually led him to Mawlana Jalaluddin Rumi’s Masnavi—the classic fountain of spirituality. The exemplar of Tasavvuf left a lasting imprint on Daryabadi’s rationalist outlook, unfolded before him a new horizon, and imbued him with an acute consciousness of the divine. Rumi’s Masnavi uplifted him from the recesses of oblivion to the light of the sacred. An epiphany reverberated through his austerely skeptical frameworks: the expanse of truth was too wide to be captured by the empiricist. And then came the final ‘nail in the coffin of atheism and apostasy’ when Daryabadi once again ventured to open the divine book, now bestowed with the ability to perceive the truths contained therein. That translation of the holy book was rendered by Muhammad Ali Lahori, a member of the Ahmadiyya movement, and Daryabadi’s enduring gratitude to him was a reminder to the puritanical Muslims who refuse to see the value in the works of those they deem astray. A poignant pilgrimage to the former self followed thereafter, and Daryabadi pledged allegiance to the renowned Sufi master Shaykh Ashraf Ali Thanavi—his father’s prayers had been finally answered. He went on to author a multitude of books, with his magnum opus being the multi-volume exegesis of the Holy Quran, Tafsir-i-Majidi, and was ultimately etched into history as a towering Muslim scholar who contributed immensely to Islamic scholarship.

  • Imran khan’s health and the state’s respon…

    It’s not about the prisoner’s health only its about Pakistan. When a state holds a political leader in prison, it assumes a responsibility that goes beyond the enforcement of a court sentence. It assumes responsibility for the person’s safety, dignity and health. That principle should be beyond politics. In Pakistan, however, even a prisoner’s eyesight has become part of the country’s bitter political struggle. The continuing controversy over Imran Khan’s health is therefore about much more than one man. It raises a fundamental question about the relationship between the citizen and the state: what happens to individual rights when political conflict becomes so intense that every state decision is viewed through the prism of partisan politics? Imran Khan, Pakistan’s former prime minister and one of its most influential political figures, has been in prison since 2023 in connection with multiple legal cases. His supporters have repeatedly raised concerns about his health and access to appropriate medical care. More recently, particular concern has focused on his eyesight. Reports in early 2026 said that Khan had developed a retinal condition affecting his right eye. His family and political representatives questioned whether he had received adequate specialist treatment, while the authorities maintained that he was being properly cared for. A government-appointed medical board subsequently reported improvement in his eyesight. The conflicting accounts should not be allowed to become another chapter in Pakistan’s political war. There is a remarkably simple way to address the problem: independent medical assessment and complete procedural transparency. If Khan is medically stable, independent specialists should be able to establish that fact. If he needs treatment, it should be provided without delay. If his family disputes the government’s medical assessment, credible specialists should be permitted to review it. There should be no political advantage in either concealing a medical problem or exaggerating one. This should be obvious in any functioning democracy. Yet Pakistan’s political history makes it anything but simple. For decades, political power in Pakistan has been accompanied by institutional confrontation. Governments have used legal and administrative mechanisms against their opponents, only to find themselves out of power and vulnerable to similar treatment later. Political parties that once demanded accountability have subsequently complained of victimisation when they became targets themselves. The result is a vicious cycle in which accountability is increasingly viewed through the language of revenge. Imran Khan’s imprisonment has become one of the most visible manifestations of that crisis. His supporters see him as the victim of an establishment-backed campaign to remove him from politics. His opponents argue that the cases against him are matters of law and accountability and that political popularity cannot place anyone above the law. Both arguments can be debated. Courts can determine questions of guilt and innocence. Voters can judge political performance. Parliament can debate constitutional questions. But none of these arguments should determine the standard of medical care available to a prisoner. That distinction is essential. The state has the authority, within the law, to imprison a person. It does not acquire unlimited authority over that person’s body or dignity. Detention restricts liberty, it does not erase humanity. This principle becomes even more important when the prisoner is a former head of government. The treatment of such a person inevitably becomes a test of institutional maturity. The government may have legitimate reasons for keeping Khan imprisoned, but it should have an equally compelling interest in ensuring that his medical treatment cannot reasonably be portrayed as political punishment. The irony is that transparency would serve everyone. It would protect Khan from inadequate treatment. It would protect his family from uncertainty. It would reassure his supporters. And it would protect the government from accusations that medical care is being manipulated for political purposes. Instead, Pakistan often chooses the opposite path. Official statements are followed by political counterstatements. Medical reports become partisan documents. Families make allegations. Governments issue denials. Social media turns uncertainty into outrage. And a question that should have been answered by doctors becomes another battlefield between political camps. This is not merely a communications failure. It is an institutional failure. A credible democratic state must have mechanisms capable of resolving such disputes without requiring citizens to choose which political side they trust. Pakistan could establish precisely such a mechanism. High-profile prisoners could be examined by independent medical boards selected through transparent professional criteria. Prisoners could have access, where appropriate, to independent specialists. Medical records could be maintained according to professional standards, while necessary information could be shared with families and the courts. Where a serious disagreement arises, an independent medical opinion should be available. Such safeguards should not be created specifically for Imran Khan. They should apply to everyone. The ordinary prisoner matters too. Pakistan’s prisons contain thousands of people whose health concerns rarely receive national attention. They may not have political parties, lawyers appearing on television every evening, influential families or millions of supporters on social media. Yet their right to humane treatment is no less important. Indeed, the treatment of ordinary prisoners may be the more meaningful measure of the state’s commitment to human rights. But Khan’s case provides Pakistan with an unusual opportunity. Because his imprisonment is already under intense national and international scrutiny, the government can demonstrate that the state is capable of separating political disagreement from humanitarian responsibility. That would require political courage. A government does not become weaker by allowing an opponent proper medical treatment. It becomes weaker when it appears afraid of transparency. A government does not demonstrate authority by controlling every narrative. It demonstrates authority by allowing facts to withstand scrutiny. This is particularly significant for Pakistan’s international reputation. Pakistan frequently presents itself as a democratic state committed to constitutionalism, human rights and the rule of law. Yet international credibility is not built through diplomatic declarations alone. It is built through conduct, especially when circumstances are politically uncomfortable. The treatment of political opponents is one of the clearest indicators of democratic health. A democracy cannot be judged only by how it treats

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