‘Can an Islamic government, in an age of interdependence, achieve any progress by declaring as totally Haram, all economic, military, and technical assistance or development loans from World Bank on the given rate of interest? How can we then bridge the big gulf of material, industrial, agricultural and scientific advancement that divides the developed West and the underdeveloped Muslim World between the Haves there and the Have-nots here? Can we afford to wind up all our domestic interest-based institutions of banking, insurance, and finance? Is there a way out from the deeply rooted local practices of usury, Paghrī (advance money), goodwill and commission money, brokerage, etc? Can the Muslim countries follow an interest-free lending system in their dealings among themselves?’
An Islamic government has never followed a policy of severing ties with non-Muslim countries, nor can it do so today. But the need for loans does not involve going around with a begging bowl seeking loans, and this is at the lender’s terms. This kind of relationship with ‘donor’ countries has been promoted in today’s world only by those who lack courage and foresight. Whenever an Islamic government is established, its first priority will be the moral rejuvenation and character building of its people prior to their material advancement.
Under a healthy dispensation (between the people and the government), the collection rate of taxes levied will be one hundred percent, and the rate of their proper utilization on people’s welfare and development will also be one hundred percent. If the need then arises for loans, the people will voluntarily contribute, while a major sum may be collected as an interest-free loan and some of it on a profit and loss sharing basis.
I sincerely believe that we Muslims can set the pace in Islamic economics, it may not be long before we emerge as a donor power, instead of remaining dependent on foreign loans. Our ability to experiment successfully with the Islamic principles of banking and finance may soon turn us into a model state for the developing world, offering loans to others rather than being on the receiving end ourselves.
If a situation were to arise in which we are compelled to seek foreign loans for some pressing national needs and for which funds are difficult to generate locally, we may do this as a last resort. Even in such an eventuality, there will be no justification for retaining the system of interest-based loans within the country. Interest can be abolished and the country’s entire financial system can very well function on a Ribā-free basis. The banking system can be effectively run on the principles of profit sharing, instead of interest. Similarly, the insurance system can be so remodeled as to conform to the Islamic concept of Takāful.