The Objectives of Distribution of Wealth in Islam

The Objectives of Distribution of Wealth in Islam

If we consider the injunctions of the Holy Quran, it would appear that the system for the distribution of wealth laid down by Islam envisages three objects.

  • The Establishment of a Practicable System of Economy

The first object of the distribution of wealth is that it would be the means of establishing in the world a system of economy which is natural and practicable, and which, without using any compulsion of force, allows evert individual to function in a normal way according to his ability, his aptitude, his own choice, and liking, so that his activities may be more fruitful, healthy and useful. And this cannot be secured without a healthy relationship between the employer and the employee, and without the proper utilization of the natural force of supply and demand. That is why Islam does admit these factors. A comprehensive indication of this principle is to be found in the following verse:

“We have allocated among them their livelihood in the worldly life, and have raised some of them over others in ranks, so that some of them may put some others to work” (43:32)

The condition of “proper utilization” has been assumed because It is possible to make improper use of forces, and it has been the case under Capitalism. Islam has struck at the very root of such improper use and has thus eradicated the unbridled exploitation of private property.

Free and Fair Market System in Islam

Islam gives basic freedom to enter into any type of business or transaction provided that the business or transaction is permissible (Halal) and does not violate any of the ordain of Islam. Just as Islam does not restrict anyone from entering into any Halal economic transaction, similarly Islam does not lay any imposition on price determination in an economy and recognizes the market forces of supply and demand in determining the prices and does not restrict any particular level of profit margin to be charged but infect encourages moral ethics to be followed in determining the price.

In General, Islam does not encourage the interference of state or any of the stakeholders in determining the prices in an economy. If some of the players of the market are manipulating some of the market forces, then the state is required to interfere and regularize the market.

During the caliphate of Hazrat Umer Farooq, one trader was selling goods at a price much lower than the market. The Caliph ordered the trader either to raise the price up to the market level or leave the market. The reason for this order was to regularize the market and safeguard the interest of other traders who are following the free-market prices. In the same manner, the state can also interfere in cases where some of the stakeholders are involved in Hoarding and artificially manipulating the market.

  • Enabling Everyone to Get What is Rightfully Due to Them

The second object of the Islamic system of the distribution of wealth is to enable everyone to get what is rightfully theirs. In Islam, the concept and criteria of this right are somewhat different from what it is in other systems of economy. Under materialistic economic systems, there is only one way of acquiring the right to “wealth”, and that is direct participation in the process of production.

In other words, only those factors that have taken a direct part in producing wealth are entitled to share in “wealth”, and no one else. On the contrary, the basic principle of Islam in this respect is that “wealth” is the property of Allah Himself and He alone can lay down the rules as to how it is to be used. So according to the Islamic point of view, not only those who have directly participated in the production wealth but those to whom Allah has made it obligatory upon others to help, are legitimate sharers in wealth.

Hence, the poor, the helpless, the needy, the paupers and the destitute – they too have a right to wealth, for Allah has made it obligatory on all those producers of wealth among whom wealth is in the first place distributed that they should pass on to them some part of their wealth. And the Holy Quran makes it quite explicit that in doing so they would not be obliging the poor and the needy in any way, but only discharging their obligation, for the poor and the needy are entitled to share in wealth as a matter or right. Says the Quran:

“And those in whose riches there is specified right [24] for the one who asks and the one is deprived, [25]” (70:24- 25)

In certain verses, this right has been defined as the right of Allah, which has been mentioned in the following verse:

“And pay its due on the day of harvest.” (6:141)

The words “right” and “due” in these verses makes it clear that participation in the process of production is not the only source of right to “wealth” as its primary owners. Thus Islam proposes to distribute wealth in such a manner that all those who have taken part in the production of wealth should receive the reward for their contribution and then all those too should receive their share whom Allah has given a right to “wealth”.

  • Eradicating the Concentration of Wealth

The third object of the distribution of wealth, which Islam considers to be very important, is that wealth, instead of becoming concentrated in a few hands, should be allowed to circulate in the society as widely as possible, so that the distinction between the rich and the poor should be narrowed down as far as is natural and predictable. The attitude of
Islam in this respect is that it has not permitted any individual or group to have a monopoly over the primary sources of wealth but has given every member of the society an equal right to derive benefit for them.

Mines, forests, un-owned barren lands, hunting and fishing, wild, grass, rivers, seas, spoils of war, etc., all these are primary sources of wealth. With respect to them, every individual is entitled to make use of them according to his abilities and his labor without anyone being allowed to have any kind of monopoly over them.

“So that this wealth should not become confined only to rich amongst you.” (59:7)

Beyond this, wherever human intervention is needed for the production of wealth and a man produces some kind of wealth by deploying his resources and labor, Islam gives due consideration to the resources and labor thus deployed, recognizes man’s right of property in wealth produced. Everyone shall get his share according to the labor and resources by him.

“We have allocated among their livelihood in the worldly life and have raised some of them over others in ranks, so that some of them may put some others to work.” (43:32)

But, in spite of this difference among social degrees or ranks, certain injunctions have been laid down in order to keep this distinction within such limits are as necessary for the establishment of a practicable system of economy, so that wealth should not become concentrated in a few hands.

Of these three objects of the distribution of wealth, the first distinguishes the Islamic economy from Socialism, the third from Capitalism, and the second from both at the same time.

Written by Dr. Muhammad Imran Usmani

DISCLAIMER: Copyrights are reserved by Usmani and Co.

Factors of Production in Islam

Factors of Production in Islam

To better understand the factors of Production in Islam, we now compare the factors of production in other economic systems including Capitalism and Socialism.

Factors of Production in Islam

The Capitalist View

In order to understand the Islamic point of view fully, it would be better to have a look at the system of the distribution of wealth that is obtained older than the capitalist economy. This theory can be briefly stated like this:

“Wealth should be distributed only among those who have taken part in producing it, and who is described in the terminology of economics as the factors of production.”

According to the Capitalistic economy, these factors are four:

  1. Capital: which has been defined as “the produced means of production” – In other words, a commodity which has already undergone one process of human production, and is again being used as a means of another process of production.
  2. Labor: It is defined as, any exertion on the part of man.
  3. Land: which has been defined as “natural resources” (i.e. those things chic fi are being used as means of production without having previously undergone any process of human production).
  4. Entrepreneur, or Organization: The fourth factor that brings together the other three factors, exploits them and bears the risk of profit and loss in production.

Under The Capitalist economy, the wealth produced by the co-operation of these four factors is distributed over these very four factors as one share is given to Capital in the form of interest, the second share to Labor in the shape of wages, the third share to Land in the shape of rent (or revenue), and the fourth share (or the residue] is reserved for the Entrepreneur in the form of profit.

The Socialist View

On the other hand, under the Socialist economy, capital, and land instead of being private property, are considered to be national or collective property. So, the question of interest or rent (or revenue) does not arise at all under the philosophy of this system. Under the Socialist system, the entrepreneur to is not an individual but the state itself. So profit as well is out of the question here – at least in theory. Now, there remains only one factor namely labor. And labor alone is considered to have a right to wealth under the Socialist system, which it gets in the shape of “Wages”.

Let it be made clear that we are here concerned only with the basic philosophy or theory of socialism, and not with its present practice, for the actual practice in socialist countries is quite different from this theory.

The Islamic View

The Islamic system of the distribution of wealth is different from both the Capitalist and Socialist economic system. From the Islamic point of view, there are two kinds of people who have the right to wealth:

  1. Primary Right to Wealth

The Primary right denotes the right to wealth which is directly in consequence of participation in the process of production. In other words, the primary right is for those factors of production that have contributed in the process of producing some kind of wealth.

  • Secondary Right to Wealth

The Secondary right holders are those who have not directly contributed to the process of production. but it has been made an obligation upon the producers to make them co-sharers in their wealth. e.g. Beneficiaries of Sadaqat-ul-Wajibaat.

The primary right to wealth is enjoyed by the factors of production, but the factors of production as per Islamic theory are not specified or technically defined, nor is their share in wealth determined in exactly the same way as is done under the Capitalist of the economy. In fact, the two ways are quite distinct. From the Islamic point of view, the actual factors of production are Instead of four i.e.

  1. Capital: It is defined as the means of production that cannot be used in the process of production until and unless during this process, it is either wholly consumed or completely altered in form and which, therefore, cannot be let or leased (for example, liquid money or foodstuff, etc). The share of capital is in the form of profit and not interest.
  • Land: That is, those means of production, that are used in process of production in a way that their original and external form remains unaltered, and which can hence be leased (for example, land houses, machines, etc). Its share is in the form of rent.
  • Labor: That is, human exertion, whether of the Bodily organs or mind or heart. This exertion thus includes organization and planning too. ”The share of labor comes in the form of wages. As in the case of Mudarabah (Islamic mode of partnership), the compensation of labor is in the form of profit.

Whatever “wealth” is produced by the combined action of these three factors would be primarily distributed over these three factors.

Socialism and Islam

As we said, the Islamic System of the distribution of wealth is different from both socialism and capitalism both. The distinction between the Islamic economy and the Socialist economy is quite clear. Since Socialism does tot admit the idea of private property, wealth under the socialist system is distributed only in the form of wages. On the contrary, according to the Islamic principles of the distribution of wealth which we have outlined above, all the things that exist in the universe are in principle the property of Allah Himself. Then, the larger part of these things has been given equally to all men as a common trust. lt includes fire, water, earth, air, light, wild grass, hunting, fishing, mines,  un-owned and uncultivated lands, etc., which are not the property of any individual, but a common trust. Every human being is the beneficiary of this trust and Is equally entitled to its use.

On the other hand, there are certain things where the right to private property must be recognized in order to establish a practicable and natural system of economy. If the Socialist system is adopted and all capital and land are totally surrendered to the state, the ultimate result would only be that, we would be liquidating a large number of smaller capitalists and putting the huge resources of national wealth at the disposal of a single big Capitalist – the state, which can deal with this reservoir of wealth quite arbitrarily, thus would lead to the worst form of the concentration on of wealth. Moreover, it produces another great evil. Since Socialism deprives human labor of its natural right to individual choice and control, compulsion and force become indispensable in order to make use of this labor, which has a detrimental effect on its efficiency as well as on its mental health. All this goes to show that the Socialist system injures two out of the three objects of the Islamic theory of the distributor of Health i.e. the establishment of a natural system of economy, and securing for everyone what rightfully belongs to him.

These being the manifold evils inherent in the unnatural system of the Socialist economy, Islam has not chosen to put an end to private property altogether but has rather recognized the right to private property in those things of the physical universe which are not held as a common trust. Islam has, thus, given a separate status to Capital and to Land and has at the same time made use of the natural law of “supply and demand” too in a healthy form. Hence Islam does not distribute wealth merely in the form of wages, as does Socialism, but in the form of profit and rent as well. But, along with it, Islam has also put an interdiction on the category of “Interest”, and prescribed a long list of the people who have a secondary right to wealth. It has thus eradicated the great evil of the concentration of wealth, which is an essential characteristic inherent in Capitalism, an evil, which Socialism claims to remedy. This is the fundamental distribution of the Islamic view of the distribution of wealth, which sets it apart from Socialism.

Capitalism and Islam

It is equally essential to understand fully the difference that exists between the Islamic view of the distribution of wealth and the Capitalist point of view. This distinction being rather subtle and complicated, we will have to discuss it in greater detail.

By comparing and contrasting the brief outlines of the Islamic and the Capitalist systems of the distribution of wealth, we arrive at the following differences between the two systems:

  1. The entrepreneur, as a regular factor, has been excluded from the list of the factors of production, and only three factors have been recognized, instead of four. But this does not imply that the very existence of the entrepreneur has been denied. It does mean is just that the entrepreneur is not an independent factor, but is included in any one of the three factors.
  2. It is not “interest” but “profit” that has been considered as the “reward” for Capital.
  3. The factors of production have been defined in a different manner in Capitalism and Islam. Capitalism  defines “Capital” as “the produced means of production.” Hence, Capital is supposed to include machinery, etc. as well, besides money and foodstuff. But the definition of “Capital” that we have presented while discussing the Islamic view of the distribution of wealth, includes only those things which cannot be utilized without being wholly consumed, or, in other words, which cannot be let or leased – for example, money. Machinery is to be excluded from “Capital”, according to this definition.
  4. All those things which do not have to be wholly consumed in order to be used have been brought under “Land”. Hence, machinery falls under this category.
  5. The definition of “Labor” has been generalized so as to include mental labor and planning.

Let us now go into the details of this discussion. Under the Capitalist system, the most important characteristic of the entrepreneur (which entitles him to “profit”) is supposed to be that he bears the risk of profit and loss in his business. From the Capitalist point of view, “profit” is a kind of reward for his courage to enter into a commercial venture where he alone will have to bear the burden of a possible loss, while the other three factors of production will remain immune from loss, for Capital would get the stipulated interest, Land the stipulated rent and Labor the stipulated wages.

On the other hand, the Islamic point of view insists that the ability to take the risk of a loss should, In reality, is inherent within the Capital itself, and that no other factor should be made to bear the burden of this risk. Consequently, the Capitalist, in so far as he takes the risk, is an entrepreneur too, and the man who is an entrepreneur is a Capitalist as well. Now, there are three ways in which Capital (in general) can be invested in a business venture:

Ways of Capital Investment:

  1. Private business: The man who invests Capital may himself run the business without the help of any partners or shareholders. In this case, the return which he gets may be called “profit” from the legal or popular point of view; but, in economic terms, this “reward ” would be made up of
  2. “profit” in as much as capital has been invested, and
  3. “wages”, as earnings of management.
  • Partnership: The second form of investment is that several persons may jointly invest capital while another manages the business and jointly bear the risk of profit and loss. In the terminology of the Fiqh, such a venture is called “Shifrkat-UI-Aqd” or Partnership in contract.

According to the terminology of Islamic economics, in this case, too all the partners will be entitled to “profit” in so far as they have invested capital and also entitled to “wages” in so far as they have taken part in the management of the business. Islam has sanctioned this form of the business organization too. This form was quite common before the time of the Holy Prophet P.B.U.H until he permitted people to retain it, and since then there has been a consensus of opinion on its permissibility.

  • The co-operation of Capital and Organization {Mudarabah)

The third form of investment is that one person may invest Capital while another may manage the business, and each may have a share in the profit. In the terminology of Fiqh, it is called “Mudarabah”. According to the terminology of Islamic economics, In this case, the person who invests his capital (“Rabb-UI-Mai”) will get his share in the form of “profit”, while the person who has actually managed the business will get it in the form of “wages”. But if the person who has been managing the business (“Mudarib”) eventually suffer a loss in the business, his labor will go wasted just as the capital of the investor would go wasted.

This form of the business organization too is permissible in Islam. The Holy Prophet P.B.U.H made such an agreement with Hazrat Khadijah before their marriage. Since then, there has been a complete consensus of opinion on this among the jurists of Islam.

Money Lending Business

The fourth form of investing Capital, which has ever since been practiced in non-Islamic societies is the money-lending business. As per this business, one person lends out capital in the form of debt, and a second person puts in his labor, if there is a loss, it has to be borne by labor but regardless of profit or loss, interest does accrue to Capital in any case. Islam has interdicted this form of investment.

“O you who believe, fear Allah and give up what still remains of riba if you are believers.”(2:278)

The Holy Quran also says:

“But if you do not (give it up), then listen to the declaration of war from Allah and his Messenger. However, if you repent, yours is your principal. Neither wrong nor be wronged.” (2:279)

In these two verses, the phrases “what is still due to you from the interest” and “you shall have the principal” makes it quite explicit that Allah does not condone the least quantity of interest, that “giving up the Interest” implies that the creditor should get only the principal. Thus, one can clearly see that Islam every rate of interest to be totally inadmissible.

In the pre-Islamic period, certain Arab tribes used to carry on with the help of money borrowed on the basis of interest from other tribes. Islam puts an end to such transactions altogether, Ibn Juraij says:

“In the pre-Islamic period, the tribe of Banu Amr bin Auf used to take interest from the tribe of Banu-al-Mughira used to pay this interest. When Islam came, the later owed a considerable amount of money to the former”. And further on: “The Banu-al-Mughira used to pay interest to the Banu Thaqif”

Let it be understood that the position of every Arab tribe was like that at a joint company, carrying on trade with the joint Capital of its individual members. So, when a tribe would borrow collectively from another tribe, it would usually be for the purposes of trade. The Holy Quran has prohibited even this practice.

Thus, under the Islamic system of the economy, if a man wants to lend his money to a businessman to invest in the business,  he will first have to decide clearly whether he wishes to lend this money in order to have a share in the profit or simply to help the businessmen with his money. If he means to earn the right to a share in the profit by lending his money, he will have to adopt the mode of “partnership” (Musharakah) or that of “Co-operation” (Mudarabah) then, where he too will have to bear the responsibility of profit or loss as well. If there is eventually a proof in the enterprise, he shall have a share in the profit; but if there is a loss, he shall have to share the loss too proportionate to his Investment.

On the other hand, if he is lending his money to another person by way of help, then he must necessarily regard this help as no more than helpful and must forgo all demand for a “profit”. He will be entitled to get back only as much money as he has lent out.

Islam considers it is not only unjust but also meaningless that he should fix a rate of “interest” and thus place all the burden of a possible loss on the debtor.

This discussion makes it clear that Islam places the responsibility of “taking the risk of loss” on Capital. The man who invests capital in a risk-bearing business enterprise shall have to take this risk.

Written by Dr. Muhammad Imran Usmani

DISCLAIMER: Copyrights are reserved by Usmani and Co.


Globally Practiced Takaful Models

The constitution of the Islamic Republic of Pakistan states, “for the promotion of social and economic wellbeing of the people, the state shall eliminate riba as early as possible.” [Article 38(f)]

Are we Eliminating Riba As Early As Possible?

There are 45 conventional insurance companies and 28 of these have window takaful operations. There are only 5 full-fledged takaful operators in Pakistan.   

The elements of riba(interest) and maysir(gambling) are found in conventional insurance which makes it impermissible. Just as we cannot get involved in theft, robbery, gambling, and earn riba in order to help the poor therefore we cannot help victims of accidents or losses from a riba based fund. The end does not justify the means!  

وَمَا آتَيْتُم مِّن رِّبًا لِّيَرْبُوَ فِي أَمْوَالِ النَّاسِ فَلَا يَرْبُو عِندَ اللَّهِ وَمَا

آتَيْتُم مِّن زَكَاةٍ تُرِيدُونَ وَجْهَ اللَّهِ فَأُولَٰئِكَ هُمُ الْمُضْعِفُونَ

“That which you give as an interest to increase the peoples’ wealth increases not with Allah; but that which you give in charity, seeking the goodwill of Allah, multiples manifold.”

(Surah al-Rum, verse 39)

The element of riba is removed in the takaful business model by investing in halaal activities, not in investments with fixed interest rates. Riba is also removed by converting the conventional insurance sale contract between the participant and the insurance company into a Mudarabah(profit/sharing) contract or Wakalah(agency) contract.

Maysir(gambling) is disallowed in Islam because of excessive risk and uncertainty. The participant takes a risk by contributing a small amount to the fund with the hope of gaining a large sum – one can easily see the resemblance here with respect to gambling. One party’s profit is dependent on the other party’s loss. There is also uncertainty about whether the insured event will take place or not and the participant loses his amount if the event does not occur. There cannot be uncertainty in a sale contract in Islam when one buys something, he should receive it. Thus, by changing the nature of the contract to profit/sharing and agency, we can remove uncertainty from the model.

The element of maysir is further detached in the takaful business model by bringing in the concept of Waqf(donation) and Tabarru(contribution) along with the intention of helping a person who suffers a loss. By incorporating the intention of donation, contribution and mutual cooperation of the participant towards the fund, every time a claim is made from the fund, the participants get the reward of helping someone in need.

Narrated ‘Umar bin Al-Khattab: I heard Allah’s Apostle saying, “The reward of deeds depends upon the intentions and every person will get the reward according to what he has intended. So, whoever emigrated for worldly benefits or for a woman to marry, his emigration was for what he emigrated for.” (Source: Sahih Bukhari, Book #1, Hadith #1)

In the nineteen-eighties, the government of Pakistan initiated a program to establish an interest-free economy, but the program failed due to a lack of well-trained human resources in the field of Islamic finance, and so a parallel conventional financial system prevailed. (Hanif, Iqbal: 2017)

We have come a long way since then and even after 50 years since the first attempt was made to eliminate riba from our society, the struggle is still on and conventional insurance still surpass takaful.

“O you who have believed, fear Allah and give up what remains [due to you] of interest if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger……..”

(Surah al-Baqarah, verse 278-9)

Such strong words have been used by Allah (SWT) with regards to Riba and still, we have failed to remove it from our system despite knowing that alternative shariah-compliant business models are present for us to adopt. Here I would like to summarize the globally accepted takaful business models for reference which are currently being practiced.

Mudharabah Model:

This model is not being practiced currently in its pure form but as a hybrid with other contracts. However, I have mentioned it here for an understanding of the following models.

  • It is a profit-sharing contract between the takaful operator (Mudarib) and the participants (Rab ul Maal).
  • The participants (Rab al Maal) pool into a takaful fund.
  • The takaful operator (Mudaraib) manages the investments of the fund as well as payments of the claims.
  • The investment income and the underwriting surplus is shared between the participants and takaful operator on an agreed basis.
  • All Management and operational cost are borne by the shareholder’s fund and the incidental cost related to the underwriting and investments are borne by the takaful fund.
  • The losses are absorbed by the capital provider (Rab al Maal).

Wakalah Model:

This model is currently followed by Bank al Jazira in Saudi Arabia, Takaful Ikhlas, and PruBSN in Malaysia. This model is based on Hiba or voluntary contributions to the fund. 

  • It is an agency contract between the participants and the takaful operator.
  • The ‘principals’ are the participants and the ‘agent’ is the takaful operator.
  • The takaful operator is appointed as an agent for the participants who then manages the takaful funds.
  • The takaful operator receives a predetermined fee upfront which is usually a percentage of the participant’s contributions.

Hybrid of Wakalah and Mudarabah Model:

This model is quite well accepted and is currently being followed by AbuDhabi National Takaful operator. This model is based on Hiba or voluntary contributions to the fund.

  • The Wakalah principle is applied to the underwriting activities, hence the takaful operator is entitled to an agency fee
  • The Mudarabah principle is applied to the investment of takaful funds, hence the takaful operator is also entitled to a share of the profit.
  • All underwriting surpluses are added back to the takaful fund.
  • In order to avoid the agency issues with regards to the underwriting activities, a Jualah or a ‘conditional reward’ can also be attached to it. In case if the surplus exceeds a certain limit, the takaful operator receives a bonus for good underwriting practice.    

Hybrid of Wakalah and Waqf Model:

This model was proposed by Sheikh Muhammad Taqi Usmani and is being followed by Swiss Re Retakaful globally, which is the worlds’ second-largest reinsurance company. This model is based on Waqf – similar to a trust.  

  • The general concept behind this model is to encourage an individual to save regularly with the aim of accumulating a fund which is then left as a donation under the waqf system.
  • The takaful operator is the agent of the waqf fund and therefore receives an agency fee for his services payable from the waqf fund.
  • The takaful operator can also receive jualah(performance fee) when he achieves a target with respect to the investment of the waqf fund.
  • Any claims are paid from the waqf fund as per the waqf deed and underwriting surplus is added back to the same waqf fund.

Securities and Exchange Commission of Pakistan has taken substantial initiatives for the promotion of Islamic finance; including approval of a Pakistani retakaful company, regulatory framework, registration of shariah advisors, capacity building, standardization of accounting, and are continuing to do so.

The environment for insurance companies to convert and prosper as a takaful operator has already been set. With further advisory compliance solutions, the takaful business models can be implemented for all types of takaful products.

Furthermore, according to the Islamic financial services industry stability report 2019, Pakistan’s insurance penetration rate has increased from 0.77% in 2016 to 0.84% in 2017. Even though there has been an increase there is still great potential for growth. Securities and exchange commission of Pakistan in its 2019 annual report have announced that in order to increase penetration of the insurance industry not only compulsory insurance will be implemented but also the microinsurance market will be developed.

Pakistan, being a developing nation, the development of the microinsurance market is a viable strategy to increase the penetration of insurance. However, efforts should be made by takaful windows to introduce micro takaful products instead of microinsurance from their conventional counterpart. This move should not only be supported by the regulators but also the government. Only micro takaful products should be approved in order to support Islamic finance. Hybrid of the Wakalah/Waqf model or Wakalah/Mudarabah model can be implemented in order to make the product cost-efficient.

As micro takaful is aimed towards low-income group individuals, there is a possibility that this target group is not aware of the difference between conventional and Islamic insurance, therefore sales strategies should be formulated to not only make them aware of the difference between the two but also how financial protection can fulfill their need in times of dire circumstances so that they easily adapt it. An example of the Covid-19 situation can be mentioned.      

Only 21% of Pakistan’s population is financially included which means that they have a bank account. Efforts should be made to promote bancatakaful and make it the default way of insurance, with regards to housing or motor loan in order to implement the proposed compulsory insurance strategy by SECP.

Aggressive strategies should be channeled in a way to implement takaful for eliminating riba as early as possible.

وَأَنْ لَيْسَ لِلْإِنْسَانِ إِلَّا مَا سَعَ

And that man shall have nothing but what he strives for.

(Sūrah Najm, verse 39)

About the writer: Sadaf Sawant is a panel member at Usmani & Co. She has a BS and MBA from IBA, Karachi. She also has an MSC in Islamic Finance from INCEIF, Malaysia.

Written by Dr. Muhammad Imran Usmani

DISCLAIMER: Copyrights are reserved by Usmani and Co.


Meezan Bank Reaches Rs. 1 Trillion In Deposits Amidst Global Pandemic

Meezan Bank has displayed exceptional financial performance as they cross the benchmark of 1 trillion Rupees in total assets. Meezan bank has also shown a profit after tax of an outstanding 7 billion Rupees which shows a growth of 70% from last year. This growth is immense and signifies the fortification of financial infrastructure in Pakistan. This is a huge milestone for any bank to achieve and Meezan bank has outdone itself. To achieve something as significant as this is a huge achievement in itself but to attain this in the pandemic that we are going through right now where businesses and financial institutions around the world are seeing a major decline and bankruptcy is just extraordinary.

The bank has maintained a smooth payout record, ever since its listing on the Stock Exchange in the year 2000. The banks financing portfolio closed at 484 billion Rupees with an ADR of 57%. The NPL ratio and NPL coverage ratio stood at 1.60% and 130% and The deposits of the bank grew by 7% to reach 842 billion Rupees.

The total operating income of the bank was increased by 55%, primarily due to continuous focus on maintaining the higher volume of earning assets holdings and a rise in the asset shows an agreeable increase in target rate.

The bank’s return on deposits also recorded a double rise. This growth is primarily due to the increase in volumetric growth depositors’ profit rates and. Fees and commission income of the bank grew by 26% fundamentally due to an increase in the trade business amount handled by the bank and other branch’s banking-related income.

The operating expenses and other charges increased by 26%. This is due to the fact that the devaluation of Pakistani Rupee and an increase in costs associated with new branches. The rise in expenses was adequately absorbed by the growth in the bank’s income, resulting in an improvement in the income efficiency ratio by 11%. The bank added 18 new branches to its network during the half-year, which brought the total number of branches from 660 to 678 all across the country.

Usmani and Co would love to extend their warmest congratulation to Meezan bank and their fascinating and adamant financial decisions that have formed them into the financial giant that they are today. The grit and sheer determination to follow principal and advisory fused with their incredible and unrivaled services are one of the main reasons for their success and we hope to see an even bigger increase in their assets and profits in the long run. These are the financial institutions that bring a positive light to our country and show the world that we are evolving and growing into a great and prosperous nation. 

Press Release: Islamic Finance and Food Security: Connecting Russia and Muslim Countries

Press Release: Islamic Finance and Food Security: Connecting Russia and Muslim Countries

Usmani & Co (UCO) is proud to be part of this project as Shariah advisors for the betterment of the greater good.

On 3 November 2019, the HSE-Skolkovo Institute for Law and Development will hold the special session and present the Agrofinmost project at the 14th international AAOIFI-World Bank conference on Islamic banking.   

The aim of the special event is to look at food security governance in Middle Eastern countries; to highlight those elements of international trade in commodities, which are in conflict with Shari’ah principles; and to offer a practical solution in the form of sustainable models in compliance with Shari’ah. 

The session will bring together experts from Russia, which is the world’s largest wheat exporter (in 2018/2019), Shari’ah scholars, and international community to discuss how Islamic finance instruments can be used to change the situation in the international food commodity markets for the better, how to reach sustainability and transparency and to avoid the influence of the speculative financial capital on food trade.

The event will be chaired by the member of the Agrofinmost project board Mufti Muhammad Taqi Usmani, the most authoritative scholar of our time in the field of Islamic economics and finance, as well as in other areas of Islamic erudition. He leads the Sharia councils of a number of major Islamic banks and ranks first in “The Muslim 500”.

The session will also feature the following speakers and commentators:

Sheikh Nizam Yaqouby, member, AAOIFI Shari’ah board

Dr. Ikbal Daredia, Advisor to CEO, Islamic Corporation for the Development of the Private Sector (ICD), IDB

Mr. Erlan Baidaulet, Director General, Islamic Organization for the Food Security

Dr. Imran Ashraf Usmani, Member, Board of Jamia Darul Uloom University, Karachi, Pakistan

Mr. Ijlal Alvi, CEO IIFM

Mr. Andrey Bezrukov, President of the Association for Technology Sovereignty

Mr. Ivan Starikov, Lead Research Fellow of Russian Academy of Science

Mr. Haydar Kamaletdinov, Vice-President, International Association of Islamic Business

Mr. Rudik Iskuzhin, Expert in Middle East affairs, ex-Member of the Federation Council of the Federal Assembly of the Russian Federation

Dr. Alexander Kudelya, Head of Grain Export and Port Elevator Projects of the Afanasy Nikitin Association

Prof. Alexey Ivanov, Director, HSE-Skolkovo Institute for Law and Development; Associate Professor of Law; Academic Supervisor of the Agrofinmost Project, Higher School of Economics University, Russia

Dr. Madina Kalimullina, senior researcher, HSE-Skolkovo Institute for Law and Development, Higher School of Economics University, Russia

Mr. Mikhail (Shamil) Orlov, Chairman of the Russian – Egyptian Business Council, Board Member of the Agrofinmost project

Dr. Kirill Molodyko, associate professor, senior researcher, HSE-Skolkovo Institute for Law and Development, Higher School of Economics University, Russia

“The Agrofinmost project will set up an organizational and legal platform to attract Islamic investment in the Russian agri-food sector in accordance with Islamic law (fiqh) structures. The key feature of such a financing model, which distinguishes it from the usual speculative models, is its focus on building long-term partnership in implementing socially beneficial projects, rather than seeking short-term interest gains,” says Alexey Ivanov, Director of the HSE-Skolkovo Institute for Law and Development. “Not only did we devise mechanisms for long-term partnership in the supply of Russian agricultural produce to Middle East countries, which are based on principles that make sense even to the most conservative of Islamic investors, but also took into account the growing needs of these countries in ensuring food security of the region. 

Dr. Imran Ashraf Usmani, “Usmani & Co (UCO) is a leading global Shariah advisory firm Chaired by Justice Sheikh Mufti Muhammad Taqi Usmani who is a leading scholar of our time and regarded as an expert in the fields of Hadith, Islamic jurisprudence and Islamic economics & finance. UCO is headed by his son and renowned Shariah scholar Mufti Muhammad Imran Ashraf Usmani with a vision to establish a shariah compliant economy which offers freedom to humanity from the shackles of interest based debt financing system. Agrofinmost is an innovative project which aligns with the Islamic principle of fairness, transparency, food security and availability for the mankind. It’s a thoughtful initiative which connects Russia and Middle East through agricultural trade using Islamic finance and investments. We at UCO are proud to be part of this project as Shariah advisors for the betterment of the greater good.”

Mr Omar Mustafa Ansari, Secretary General of AAOIFI, “The 14th AAOIFI – World Bank Conference is pleased to host the special event in coordination with HSE-Skolkovo Institute for Law and Development in the Kingdom of Bahrain. The project is based on the underlying Islamic principles of just and fair system in terms of agricultural output and food security. The event is set to attract key stakeholders from around the world and AAOIFI looks forward to welcome everyone.” (


Global commodity trade remains one of the last havens of pure financial capitalism with its sole focus on higher returns on investments and total negligence of the human condition and sustainability concerns. The Agrofinmost project offers practical solutions to establish fair market prices for agricultural products, which as a result could provide food security in Middle Eastern countries, on the one hand, and fair international trade without speculations based on Islamic legal principles, on the other. The project aims to attract Islamic investments into the Russian agricultural sector using Shari’ah-compliant financial instruments and make a meaningful contribution to food security of importing countries by setting up a stable and reliable channel for Russian agricultural supplies.

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The HSE-Skolkovo Institute for Law and Development is a research unit of the HSE that arose in 2014 as a result of the intellectual and resource cooperation of the HSE and the Skolkovo Foundation. Among the latest research projects commissioned by state authorities and international organizations there are proposals for adapting the institution of intellectual property to the needs of the new economy, antitrust reform for the digital economy, development of the legal aspects of the implementation of distributed registry technologies and artificial intelligence technologies, the legal concerns for the regulation of biotechnology, food security, and other pressing issues at the intersection of law, economics, and technology.


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Usmani & Co is a globally well-reputed Shariah advisory Firm, committed to offering comprehensive advisory services by leveraging on its global presence, integrated structure, and internationally recognized award-winning Scholars. Usmani & Co. is unique to have proven expertise to offer customised solutions, with multi-disciplinary, multi-linguistic and globally present strategic partners.”

AAOIFI, established in 1991 and based in Bahrain, is the leading international not-for-profit organization primarily responsible for development and issuance of standards for the global Islamic finance industry. It has a total of 110 standards and technical pronouncements in issue in the areas of Shari’ah, accounting, auditing, ethics and governance for international Islamic finance. It is supported by over 200 institutional members, including central banks and regulatory authorities, financial institutions, accounting and auditing firms, and legal firms, from over 45 countries. Its standards and technical pronouncements are currently followed by all the leading Islamic financial institutions across the world and have introduced a progressive degree of harmonization of international Islamic finance practices. 

For more information on AAOIFI its activities, please contact: 

Mr. Rizwan Malik, Senior Manager, Standards Development and Strategic Developments, AAOIFI, Office: +973 – 17375418; e-mail: