Banking to Service, National Savings to Thrive

 Investment of Savings must have purpose and transparent methods for socio-economic needs.

by: Yousuf Ibnul Hasan
After graduating from the International Institute of Islamic Banking and Islamic Economics in Turkey and Egypt in 1983, I joined an Islamic financial group in the United Kingdom, Switzerland and Bahrain. Since then, I am serving Islamic banking as a banker, trainer, teacher and consultant for Islamic Banking and Applied Finance. In search of the Islamic Economic and monetary System, I spent almost thirty-eight years finding realities, myths and hidden facts in Islamic Economics for Banking and Finance. My efforts enlightened me with facts, means and modes, clearing the role of Man, Money, Commodity and Service in the production and distribution of resources for the satisfaction of human needs through “Socioeconomics” instead of Economics.

Socioeconomics emphasizes “Social Justice” in human lifestyle against social prejudice in the distribution of resources within a community as it gives birth to insurgency and social crime. In social prejudice, an ordinary citizen is denied the right to live prosperously, which is enjoyed by the privileged citizens. The deprived class is left with no choice but to become outlaws. Consequently, inflation increases and develops Riba, a concept in Islamic Economics similar to Social Crime in economic practices.

The concept of Riba is commonly defined as Interest.  The majority of Muslims are not familiar with its theory, practice, application and the difference between “Riba, Interest and Profit”. I find the actuality of “Profit” with the usefulness of money as a need for human character, that identifies how affairs of life should be conducted. Scholars who interacted with me helped build this opinion and explanations. After examining the Islamic economic system, I have concluded to disagree with the traditional concept and assumption regarding Interest which is still undefined in text form.

According to my understanding, Interest is an act of Riba and polytheism. Riba and Interest are two different concepts: Riba is a social crime, whereas Interest is a price of money, linked with many other Social Crimes, including polytheism. Moreover, Interest and Profit differ in application, mode and method, having contrasting formulas, application and intentions.

For almost twenty-seven years, I associated myself with teaching, training facilitation and financial consultancy for local and international educational organizations. After carefully reviewing the banking system worldwide, National Savings Center (NSC) became the object of my curiosity. I analyzed the methods applied for its financial products, including profitability and its sharing compared to banking, especially Islamic banking.

In the trust of Almighty Allah, in 2009, after satisfying myself I chose “Bahabood Certificates” for my saving. I assessed other products of NSC which are more transparent and workable than the banking products. Its system is more aligned with the Islamic guidelines for wealth management than banking. It was not an act of wrapping off my saving in a day; it took around six months to find it spiritually and commercially beneficial mode of earning. NSC undertakes the mission to financially empower the population which is deprived of the right to meet the basic life needs, enjoyed by a segment of the population in the shape of perks and privileges from the government.

There are reasons to prefer NSC products over banking. Upon examining, genuine questions arise in an ordinary reader’s mind, such as, “What is NSC? How NSC schemes are better than banking? To answer simply, NSC products are vital, profit sharing and clear as crystal for the unemployed, orphaned, widowed, pensioners, disabled and senior citizens having no other means of earning. NSC offers regular income to millions of deprived private-sector employees through its saving schemes in a situation where Government collects funds from the private sector and benefits its employees with pensions, provident funds and gratuity as retirement benefits, while Private employers do not offer such schemes to their employees.

Why does NSC ignore contemporary and effective services like banking? I never received a satisfactory answer from the staff. I feel that the officers and staff are comfortable with the old, robotic way of working and are not interested to know the value, social status and importance of NSC in Pakistan. They assume NSC to be a post office which collects from the public and delivers to the State Bank of Pakistan, where the funds are kept at an Interest only. Whereas SBP provides funds to the government for socio-economic development and in reality, the profit earned is shared between the Government, SBP, NSC and Saver through NSC schemes which are normally higher than the applied interbank rates because NSC is not a bank but a Saving Center that promotes saving conduct and develop saving behaviour through the economic concept of “Opportunity Cost”. According to my research and finding, NS schemes are better, secure and punctual than the banking system in Pakistan.

Islamic banks declare their profits lawful by showing their allegiance to Religious Scholars. Why do these scholars declare the National Saving scheme Haram? If today, NSC appoints a Mufti on its investment board, will the profits of the National Savings be declared Halal? No one has the answer because Halal and Haram are not to be determined by any person, regardless of his authority over Islam. The correct method for using money that keeps money clean from all kinds of Riba and does not make money as a commodity determines whether the outcome from saving and investment are Haram or Halal. The Islamic economic system is linked to Muslim minds. The Holy Quran and Sunnah are the sources wherein Muslims can find the means to justify their lifestyles according to Halal means and methods for their benefit.

One may ask how the profit of National Saving schemes is Halal. National Savings do not work on a written and guaranteed fixed rate of return on savings and investment schemes. Instead, it announces the profit in amount and pays on an actual day of maturity; this profit is changeable to the higher side instead of reverse to lower volume. This process is different from banking, as, in practice, the profit at National Savings is agreed periodically and not composite. National Savings pay dividends on a fixed date; if the depositor does not collect it on the day, the profit amount is credited to the non-income account until the owner asks for it.

In the Islamic economic system, any activity related to socioeconomic development involving factors of production is encouraged, whereas economic growth is avoided because socioeconomic growth is the sign of a strong nation and vital state. National Saving funds are invested with the government for socioeconomic and infrastructural development. Public savings are channelized for state operations. Every national currency unit is mobilized and goes into the circulation of wealth, which is appropriately documented and declared.

The banks’ profits are on a pre-fixed rate, similar to buying and selling money as a commodity. The rates are guaranteed with an endorsement on investment instruments and facilitated on compounded basis without disbursement of profit on maturity. The bank incorporates the principal investment and the actual profit and then reinvests it as one amount for the next period. Whereas saver funds should be multiplied, then divided, followed by subtraction by saver and whatever is saved from being added and invested as separate from a previous investment. This is what NSC offer to its saver as its savings are invested separately and never compounded.

National Saving does not share the profit on unutilized funds. Saver has to collect his profit on the due date. In banking, funds are purchased and sold from and to the market to keep a large deposit base without having investment output. Resultantly, funds are utilized, and profits are earned. Such earnings compensate those unutilized funds. This is not a justified way of profit sharing.

If we take a closer look at the banking system, we can find errors that point to different forms of Riba. All the banking affairs are “bank secrecy”. Depositor’s savings and investment is a source of equity participation initiative that develops saving conduct and a form of a partnership between bank and saver. However, the bank distances itself from its partner on issues related to banking. Simultaneously, the bank does not use its capital and keeps it safe with the central bank as a statuary requirement by fixing an “Interest Rate”. Bank uses saver’s funds for converting bank’s liabilities into bank’s assets and fixes periodical rates on deposits at the value date of investment and profit to be paid upon the future maturity without disclosing the means and mode of investment, earnings and sharing with the saver and depositor. A banking practice never discloses its actual share of profit on Net Profit and cost or fee from the bank’s Gross Profit to savers, investors or depositors.

Suppose a senior citizen is jobless with no regular income. Such citizens are barred from opening their bank accounts and restricted from availing of banking facilities and schemes to upgrade their living standards. Often, if the client does not have her mother’s maiden name on KYC, the bank refuses to offer banking services to the citizen. However, in National Saving Schemes, if a person has small savings, is unemployed, is a senior citizen, or is handicapped, he is still accommodated honourably.

These facts are genuine that differ from ethical and moral guidance regarding money, saving, banking and investment. The reader is not bound to agree with my explanation and can retain relations with banking if it suits them. I personally feel more confident and find transparency in the National Savings and its Fund Management and Profit Sharing than the prevailing banking system, the bankers’ attitude, and how banking is conducted worldwide by opening an umbrella for its clients in the sunshine, closing it in the rain. Banking is a will of its “gods”, which does not suit my concept of transparent and ethical saving. Almighty is the only one who blesses me with banking or national savings when I have no means of earning. I believe the National Savings offer straightforward means to invest in government schemes; it has two benefits: socioeconomic development for the state, and earning through saving conduct for federal purposes.

NSC supervisors are unable to elaborate on their mission that falls within “Social Justice” which is one of the pillars that make the state qualify as an Islamic State. They do not aware and persuade the citizens about their mission of offering transparent, profitable savings schemes. If NSC trains its staff and makes minor changes in its services, it will have better space among the masses to play role in social development. NSC employees should know that they are serving a needy and deserving population which is deprived of the right of employment but has managed to save and invest with NSC for respectable earnings. These savers, instead of relying on anyone, find a source of income through their savings at NSC. It is commendable that NSC Management is still working on an old system. It deserves motivation through pieces of training and upgradation so that it can adequately serve the nation.

Almighty Allah doesn’t prohibit earning money. Almighty Allah discourages greediness, as wealth accumulated greedily, never satisfies man. Almighty Allah commands us to consider wealth as His blessing, to spend it on family and needy people as an act of “Ibadah” (worship), while not contravening the moral and religious rules for its acquisition. Wealth is a trial for Muslims who should not prioritize wealth over Islamic codes. National Saving Schemes are customized for citizens to benefit from their savings without discrimination, greed and doubts. It is protected by the state for state functions in the best interest of citizens rather than ensuring prosperity to a particular individual or group at the cost of poor and needy savers.

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