CS-22072

Name: Muhammad Rohan Khan

Department: Computer and Information System
Engineering
Topic: Islamization And The Pakistani Economy

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 TABLE OF CONTENTS

1- INTRODUCTION --------------------------------------------------- 5
ISLAMIZATION DEFINITION
2- SLOGAN OF ISLAMIZATION ------------------------------------ 7
3- ECONOMIC ISLAMIZATION ------------------------------------ 7
ZAKAT AND USHR
RIBA (INTEREST)
4- HUDOOD ORDINANCE ----------------------------------------- 9
PROHIBITION ORDER
ADULTERY (ZINA) ORDINANCE
5- SHARIA LAW ------------------------------------------------------ 10
QISAS AND DIYAT ORDINANCE
PRAYER TIMING
RAMADAN ORDINANCE
REGULATION FOR WOMEN
6- PAST ACHIEVEMENT AND FAILURE------------------------- 11
SALIENT FEATURE OF PAKISTANS ECONOMY
7- IMPACT OF ISLAMIZATION ON THE FUTURE ------------ 12
8- ECONOMIC CONDITION IN PAKISTAN -------------------- 15
POVERTY
ILLITERACY
UNEMPLOYMENT
HEALTHCARE
CORRUPTION
9- CONCLUSION ---------------------------------------------------- 18

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 PREFACE

Islamization refers to the process of integrating Islamic principles

and values into society and government policies. In the case of
Pakistan, Islamization began in the late 1970s under the military
rule of General Zia-ul-Haq, who introduced a series of measures
aimed at promoting Islamic practices and beliefs in the country. One
of the areas that was significantly affected by Islamization in
Pakistan was the economy. The government implemented a range of
policies aimed at promoting Islamic banking and finance, and
encouraging businesses to operate in accordance with Islamic
principles. These policies have had a significant impact on the
economy of Pakistan, and have led to the growth of Islamic finance
and banking sectors. In this report, we will examine the impact of
Islamization on the Pakistani economy, with a particular focus on
the growth of Islamic finance and banking. We will analyze the key
policies that have been implemented, and assess their effectiveness
in promoting economic growth and development. We will also
consider the challenges that have been faced by the Pakistani
economy as a result of Islamization, and explore the potential future
direction of economic policy in the country.

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ISLAMIZATION AND THE PAKISTANI
ECONOMY

INTRODUCTION:
When Pakistan had not yet came into existence, the Muslims in Indian sub-continent stressed that
Hindu and Muslims are two nations but the Hindu majority refused to face the reality. Muslims and
Hindus had been living together but no political and ideological concordance was ever existed
between the two distinct identities and civilizations. The claim of Indian Muslims for the
establishment of Pakistan was thus based on:

i. The growing convection of the Muslims that they were quite distinct from the Hindus socially,
culturally and spiritually.
ii. Their intense desire to mould their thoughts and behavior on the pattern and traditions of their
own distinctive culture.

These were the precise bases of the Pakistan movement. Pakistan is a homeland for Muslims and
Islam has become the foundation of state legitimacy. The Muslim league stressed the existence of
two Muslim nations within the subcontinent and insisted that there was no solution to the problems
of the two nations other than the creation of a separate homeland for the Muslims. Pakistan was
founded because the Muslims of the subcontinent wanted to build up their lives in accordance with
the teachings and traditions of Islam because they wanted to demonstrate to the world that Islam
provides a panacea of many diseases which have crept into the life of humanity today. The demand
for Pakistan was thus based on ideological and humanitarian grounds.
Pakistan was founded on the basis of securing a sovereign homeland for the Muslims of the
subcontinent to live in self-determination. The first formal step taken to transform Pakistan into an
ideological Islamic state was in March 1949 when the country's first Prime Minister, Liaquat Ali
Khan, introduced the Objectives Resolution in the Constituent Assembly. The Objectives Resolution
declared that sovereignty over the entire universe belongs to God Almighty.
After Pakistan's first ever general elections the 1973 Constitution was created by an elected
Parliament. The Constitution declared Pakistan an Islamic Republic and Islam as the state religion. It
also stated that all laws would have to be brought into accordance with the injunctions of Islam as
laid down in the Quran and Sunnah and that no law contradictory to such injunctions could be pass.
The 1973 Constitution also created certain institutions such as the Federal Shariat Court and the
Council of Islamic Ideology to channel the interpretation and application of Islam.
On 5 July 1977, General Zia-ul-Haq led a overthrow.In the year or two before Zia-ul-Haq's
overthrow, his forerunner, leftist Prime Minister Zulfikar Ali Bhutto, had faced vigorous opposition
which was united under the revivalist banner of Nizam-e-Mustafa ("Rule of the prophet"). According

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to supporters of the movement, establishing an Islamic state based on sharia law would mean a
return to the justice and success of the early days of Islam when the Islamic prophet Muhammad
ruled the Muslims. In an effort to stem the tide of street Islamisation, Bhutto had also called for it
and banned the drinking and selling of wine by Muslims, nightclubs and horse racing.
On coming to power, Zia went much further than Bhutto, committing himself to enforcing
Nizam-e-Mustafa, i.e. sharia law. Most accounts confirm that Zia came from a religious family and
religion played an important part in molding his personality. His father worked as a civilian official
in army headquarters and was known as ''Maulvi'' Akbar Ali due to his religious devotion. Zia joined
the army before partition and occasionally offended his British superiors with his refusal to give up
religious and cultural traditions.
Zia-ul-Haq committed himself to enforcing his interpretation of Nizam-e-Mustafa ("Rule of the
prophet" Muhammad), i.e. to establish an Islamic state and enforce sharia law. Zia established
separate Shariat judicial courts and court benches to judge legal cases using Islamic doctrine. New
criminal offenses (of adultery, fornication, and types of blasphemy), and new punishments (of
whipping, amputation, and stoning to death), were added to Pakistani law. Interest payments for
bank accounts were replaced by "profit and loss" payments. Zakat charitable donations became a
2.5% annual tax. School textbooks and libraries were overhauled to remove un-Islamic material.
Offices, schools, and factories were required to offer praying space.

Islamization Definition:
Islamization or Islamification is the process of a society shift towards Islam, such as found in
Sudan, Pakistan, Iran, Malaysia or Algeria. Islamization for the Ulema and their parties means
primarily the re-introduction of past institutions and practices with no substantive change hence
Islamization has been confined to the implementation of the laws of Sharia in their original
form.When Zia-ul-Haq came into power he introduced broad spectrum of punishments in the name
of Sharia, flogging over the several crimes e.g. rape, theft, murder, drinking, prostitution, adultery
etc. Zia was criticized by his opponents that he raised the issue of Islamization to decrease the
influence of Bhutto and Peoples Party. In his early speeches, he said that Islam would be enforced in
every walk of life, the political, legal and economic reforms would be implemented according to the
values of Quran and Sunnah. Zia-ul-Haq military rule was extended to eleven years and his polices in
the name of Islam increased militancy. The name of Islam was used to win the favour of religious
groups, which is perhaps the first time that a regime is using the name of Islam for legitimacy. He
said that Pakistan is made in the name of Islam. The Sharia courts were established with the
benches of Sharia located in all provinces and in the Supreme Court of Islamabad. Local level courts
were established in 1983 presided by religious judge named Qazi, the Qazi courts rarely announce
verdicts in most of the cases women were punished and men released The Islamization of Zia can be
seen in four areas: Judicial reforms, Introduction of Islamic penal system, Introduction of economic
reforms and the Education policy. The emphasis was on complete implementation of Islamic system
(Nizam-e-Mustafa). Zia-ul-Haq created a new judicial review in Islamic system of justice. Non-Islamic
practices were tried to be eradicated from the country. Hadood ordinance was introduced; the
system of Zakat and Usher was introduced. Zia wanted to establish system of finance not based on
‘interest’ for this purpose recommendation for Islamic financing was collected. The Zakat was
collected from the first day of Ramazan from banks and the Usher was collected from the yield of
agriculture. Pakistan television was made more Islamic and Arabic news was introduced for the first

6
time on Pakistan TV. The Ramzan Ordinance was promulgated and Nizam-e-Salat was introduced by
Zia-ul-Haq

SLOGAN OF ISLAMIZATION:
Zia was perhaps the only leader in Pakistan who considered that the founding fathers of this state
like Iqbal, Sayyid Ahmad and Jinnah want to make this state Islamic. Zia drive this campaign of
Islamic System more deliberative way than the previous leaders of Pakistan attempted. Zia wanted
to move this campaign of Islamization of many reasons firstly, Bhutto has used the slogan of Islamic
Socialism and Zia-ul-Haq wanted to revive the spirit again, secondly, Zia knew that by implementing
and imposing Islamic Economic and Justice system he would gain the favour of religious groups in
Pakistan. So, he supported the movement of Nizam-e-Mustafa. Thirdly, the Socialism of the Ayub
has faced defeat. Zia-ul-Haq considered Islamic System of justice as the way to solve the problems of
inequality, injustice and corruption. The modern Islamic revolution was also the reason behind the
Islamization by Zia. The intervention of USSR in the Afghanistan could be the reason because of
depiction of Islamic Jihad against the Red-Socialists General Zia was asking the help and support of
whole Islamic World, as the Americans were in dire need of the people who could fight and give
them support in the war against USSR. So, by American funded Jihad the strategic goals of America
and Pakistan were achieved. Zia-ul-Haq wants to neutralize the Islamic fundamentalists in Pakistan
by the process of Islamization and as well as he used it for political purpose. The process of
Islamization in different parts of life is seen with different perspectives, some think Islamization is
putting all women in Purdah or separating them from men, following strict code of Islamic Sharia
and some consider it equality of gender, gaining knowledge and living life with the traditional moral
principles. Zia-ul-Haq want to make Pakistan more Islamic and he wants to transform his political
life at the same time. It has been a problem for the Muslim rulers through the ages that how to
conduct the government or how to govern. Zia’s political representation for Islam was not much odd
to be criticized. It is another truth that the people who were not beneficiaries or stakeholders from
this system criticized this system Zia’s opponents say the general’s political manipulations would not
enhance the Islamic state. The critics also argued that the General’s purpose was self-serving not for
the community which has religious cultural values.

ECONOMIC ISLAMIZATION:

Zakat And Ushr:

"Zakat", as well as its agricultural counterpart, "Ushr", were traditionally private obligations for
Muslims in Pakistan. Together they generally represented 2.5 percent of annual household savings
and served as a sort of wealth tax to be redistributed to the Muslim community's poor. One of the
provisions of the 1973 constitution already stipulated that these taxes should be collected by the
government. In 1979, Zia-ul-Haq decided to transform what was considered a personal duty of
solidarity into a legal obligation. The "Zakat and Ushr Ordinance" was issued on 20 June 1980.
Zakat in Islam is considered to be one of the five basic pillars and is important for the welfare of
the society. Its importance is determined such that it comes in importance immediately after prayers.
Literal meanings of Zakat are growth, extension, purification. Zakat is an annual deduction which is

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a responsibility for Muslims to pay 2.5 percent on the value of financial assets specified in Islam when
their annual wealth of a person exceeds than a minimum level (Nisab). It is an obligation for Muslims
It is given by the person who is Sahib-e- Nisab to the needy. The growth of zakat recipient (Mustahiq)
is expected from the zakat assistance. Zakat funds are utilized so as to help eight categories of
individuals specified by the Quran. These include poor, travelers, beggars, debtors, slaves, orphans,
widows and handicapped. Zakat leads to the material welfare of the zakat payers with the hope that
he will be more than compensated hereafter. Zakat is payable at different rates. From the reference
of Quran states:

"Establish prayer, and pay alms-tax. Whatever good you send forth for
yourselves, you will ? certainly ? find ? its reward? with Allah. Surely Allah
is All-Seeing of what you do." (Al–Baqarah: 110 )

Allah has stated in the Holy Quran:

"And whatever you spend in the path of Allah, He will give more in
return. And He is The Best Provider." (As-Saba: 39)

Riba:
Zia-ul-Haq publicly stated his desire to eliminate interest on loans and securities and create an
"Interest-free economy. The Arabic word "riba" can be roughly translated as the concept of exceeding,
or increasing. It is very commonly translated to mean "interest" and refers to unequal exchanges or
charges and fees for borrowing that can result in the payment of interest. At its very core, riba refers
to exploitative gains in wealth and money.
The united opinion of Islamic scholars is that Islamic Sharia law prohibits the receipt or payment of
interest. This includes:
1- Any interest received in a bank account
2- Interest on any form of lending or borrowing
3- Loans taken for property purchases with an interest element
4- Loans taken out for educational courses with an interest element

"O believers, take not doubled and redoubled interest, and fear God
so that you may prosper." (AL Imran: 130)

Receiving or paying interest is deemed to be a major sin in Islam. For anyone who has receives
interest monies into their bank account, they should look to donate the money to a charitable cause.
The charity that you donate to can use the money to relieve hardship and poverty. A Hadith is quoted
as,

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 “When the people will become involved in interest the Sovereign Lord will
cause the price increase to be perpetual.”
It is well known that the Riba that involves largest number of people relate to bank interest and
therefore those who try to argue to the contrary seem to be wrong.

HUDOOD ORDINANCE:

1- Adultery (Zina) Ordinance:

The Zina Ordinance (also referred to as the Zina laws) is part of the Hadood Ordinances,
promulgated in 1979 by General Zia-ul-Haq President of Pakistan as a first step towards Islamization.
Under the Zina Ordinance the provisions relating to adultery were replaced as that the women and
the man guilty will be flogged, each of them, with a hundred stripes, if unmarried. And if they are
married they shall be stoned to death.
Islam considers Zina a major sin. From the perspective of the Quran, the prophetic tradition, and
Islamic law, sex uncoupled with a legally binding marital tie is considered Zina and is equally
punishable for both women and men. The Quran deals with Zina in several places. First is the Quranic
general rule that commands Muslims not to commit Zina:

“Nor come nigh to adultery: for it is a shameful (deed) and an evil,

opening the road (to other evils).” (Al-Isra: 32)

Most of the rules related to Zina, adultery, and false accusations from a husband to his wife or from
members of the community to chaste women, can be found in Surat An-Nur (the Light). The Surah
starts by giving very specific rules about punishment for Zina:

"As for female and male fornicators, give each of them one hundred lashes,
and do not let pity for them make you lenient in ?enforcing? the law of
Allah, if you ?truly? believe in Allah and the Last Day. And let a number of
believers witness their punishment." (An-Nur: 24)

2- Prohibition Order:
"Drinking of wine" (and all other alcoholic drinks) was not a crime under the original Pakistan Penal
Code, but in 1977, the drinking and selling of wine by Muslims was banned in Pakistan, punishable by
imprisonment of six months or a fine of Rs. 5000/-, or both. Under Zia-ul-Haq Prohibition Order, this
punishment was replaced by one of whipping of eighty stripes. Non-Muslims were excepted if they
obtained a license to drink and manufacture alcoholic beverages from the Government.
In the Holy Quran the word “Khamr” has been used for alcoholic drinks. During the days of the Holy
Prophet Muhammad (peace be upon him) the sources of alcoholic beverages were grapes, dates,
wheat, barley and honey. Although alcohol may be prepared nowadays from any other source, it is
still considered to be forbidden as long as it intoxicates people. Islam emphasizes the effects of alcohol

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on people and not the origin or form of alcohol. The prohibition of alcoholic beverages is mentioned
three times in the Holy Quran.

" They ask you about wine and games of chance. Say:“In both these
there is great evil, even though there is some benefit for people, but their
evil is greater than their benefit." (Al Baqarah: 219)

There is a great sin in wine drinking and one of the things that Allah forbade is sins. The last portion
of the verse tells us that there is greater harm in wine and gambling than the benefit. No sane man
will approach or do anything that has a greater harm than benefit for him.

SHARIA LAWS:

1- Qisas and Diyat Ordinance:

In 1990 Criminal Law (Second Amendment) Ordinance on Qisas ("retaliation" or revenge) and Diyat
(financial compensation paid to the inheritor of a victim), was introduced. These laws were introduced
after Zia-ul-Haq died, but by a court Shariat Appellate Bench of the Supreme Court that Zia had
created.
Under the law, the victim (or inheritor of the victim) of a crime had the right to inflict injuries on
the offender identical to the ones sustained by the victim. (Although the ordinance set the "blood
money" compensation for a female victim at half that for a male). The law also allows offenders to
absolve themselves of the crime by paying compensation to the victim or their heirs if, and only if, the
family of the victim is willing to accept it.

2- Prayer timings:
Instructions were issued for regular observance of prayers and arrangements were made for
performing noon prayer (Salat Al Zuhur) in government, government offices and educational
institutions, during office hours, and official functions, and at airports, railway stations and bus stops.

3- Ramadan Ordinance:
An Ehtram-e-Ramazan (reverence for fasting) Ordinance was issued banning eating, smoking, and
drinking in public places in the holy month of Ramadan. According to a clause of this ordinance, those
places including restaurants, canteens, bridges, lanes, and even the confines of private homes. While
in theory the non-Muslim minority of Pakistan is exempt from the law, minorities have been arrested
for eating in public.

4- Regulations for women:

Under Zia-ul-Haq, the order for women to cover their heads while in public was implemented in
public schools, colleges and state television. Women's participation in sports and the performing arts
was severely restricted.

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 The Ansari commission, which from the 1980s onwards advised the President on un-Islamic social
conventions, recommended that women should be prohibited from leaving the country without a
male escort and that unmarried, unaccompanied women should not be allowed to serve overseas in
the diplomatic corps. An Islamic dress code was imposed on women in the public eye such as
newsreaders and air stewardesses.

PAST ACHIEVEMENTS AND FAILURES:

Pakistan was one of the few developing countries. Table I lays down the main economic and
social indicators in 1947 and compare them with 2023. The overall picture that emerges from a
dispassionate examination of these indicators is that of a country having made significant economic
achievements but a disappointing record of social development.

Salient Feature Of Pakistan’s Economy:

The salient features of Pakistan’s economic history are:

1- A Country with 30 million people in 1947 couldn’t feed itself and had to import all its food
requirements from abroad. The farmers of Pakistan were not only able to fulfill the domestic needs
of wheat, rice, sugar, milk of 145 million people at a much higher per capita consumption level, but
also exported wheat and rice to the rest of the world.

2- An average Pakistani earns about $300 in 2022 compared to less than $100 in 1947. In US current
Dollar terms the per capita income has expanded more than five fold and in constant terms three
times.

3- Agriculture production has risen five times with cotton attaining a level of more than 10 million
bales compared to 1 million bales in 1947. Pakistan has emerged as one of the leading world exporter
of textiles.

4- Pakistan hardly had any manufacturing industries in 1947. Five decades later, the manufacturing
production index is 12,000 with the base of 100 in 1947. Steel, cement, automobiles, sugar, fertilizer,
cloth and vegetable, ghee, industrial chemicals, refined petroleum and a variety of other industries
manufacture products not only for the domestic market but in many cases for the world market too.

5- Per capita electricity generation in 2023 is 41,557 MW from 37261 MW compared to 300 in 1947.
Pakistan’s vast irrigation network of large storage reservoirs and dams, barrages, link canals
constructed during the last five decades has enabled the country to double the area under cultivation
22 million hectares. Tubewell irrigation provides almost one third of additional water to supplement
canal irrigation.

6- The road and highway network in Pakistan spans 250,000 km – more than five times the length
inherited in 1947. Modern motorways and super highways and four lane national highways link the
entire country along with secondary and tertiary roads.

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7- Natural gas was discovered in the country in the 1950s and has been augmented over time. As of
now, almost 26 billion cubic meters of natural gas is generated, transmitted and distributed for
industrial, commercial and domestic consumption.

These achievements in income, consumption, agriculture and industrial production are extremely
impressive and have lifted millions of people out of poverty levels. But these do pale into
insignificance when looked against the missed opportunities. The largest setback to the country has
been the neglect of human development. Had adult literacy rate been close to 100 instead of close to
50 today, it is my estimate that the per capita income would have reached at least $1000 instead of
$500. Pakistan’s manufactured exports in the 1960s were higher than those of Malaysia, Thailand,
Philippines and Indonesia. Had investment in educating the population and upgrading the training,
skills and health of the labour force been up to the level of East Asian Countries and a policy of
openness to world market would have been maintained without any break, Pakistan’s exports would
have been at least $100 billion instead of paltry $12 billion. Had the population growth rate been
reduced from 3 percent to 2 percent, the problems of congestion and shortages in the level of
infrastructure and social services would have been avoided, the poor would have obtained better
access to education and health and the incidence of poverty would have been much lower than what
it is today.

IMPACT OF ISLAMIZATION ON THE FUTURE

DIRECTION:
I now turn to the main theme of the report. The basic premise of this report is that there are many
protagonists in Pakistan who are pushing the country towards adopting an Islamic economic system.
Western analysts and observers view such a move with apprehension and feel that this will lead to
Pakistan’s decoupling from the global economic system and its isolation from mainstream economic
thinking. In their minds such behaviour will create greater instability and amplify risks for the rest of
the world.
Unfortunately, most of the assumptions and premises on which the hypotheses about the Islamic
economic system have been constructed are seriously flawed. Pakistan is and will remain a
responsible member of international community and is committed to utilize the vast opportunities
provided by globalization and financial integration of world markets for the benefit of its population.
There is no suggestion whatsoever by any significant group of people or political parties in favour of
isolation or withdrawal from international economic system. Secondly, the pre-conditions for a robust
and well functioning Islamic economic system are missing in Pakistan. The Islamic moral values that
emphasize integrity, honesty, truthfulness and full disclosure and transparency are not yet widely
practiced by Pakistani businesses. Once these pre-conditions are established the adoption of a real
Islamic economic system will lead to superior welfare outcome for the majority of Pakistani
population.
How can the Islamization of the economy affect this future direction of Pakistan economy and
improve the welfare of its people compared to the present system? The extensions that the true
practice and application of Islamic economic model can bring about will, in fact, help in overcoming
the weaknesses inherent in the capitalist model of economy. Before that, let us recapitulate the basic
principles upon which Islamic economic system is built upon.
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 Unlike positive economics the entire edifice of Islamic economy is built upon a set of objectives or
maqasid. In other words, Islamic economics is normative in nature with the objective of the Shariah
being to promote the well being of all mankind which lies in safeguarding their faith, their human
self, their intellect, their posterity and their wealth.
At the micro level, the precepts of profit maximization and utility maximization are retained intact
but are supplemented by a set of interlinked objective functions. Islamic system tries to promote a
balance between market, family, society and the state. It does so by promoting both the material and
the spiritual urges of the human self, foster peace of mind, enhance family and social solidarity. Some
western thinkers and anti-globalization activists decry the western economic model as being
suppressive of collective human rights, community and social well being, disruptive of family values
and too much focused on selfish individual interests. Behavioral economists have also begun to
challenge the assumption of rationality in the choices and preferences an individual makes in day-to-
day life. Thus, the merit of Islamic economic model therefore lies in its extension of western model in
some fundamental and beneficial ways. It introduces into the objective function an additional
argument which keeps self interest within the bounds of social interest by limiting individual
preferences to conform with social priorities and eliminating or minimizing the use of resources for
purposes that frustrate the realization of the social vision. This may help promote harmony between
self-interest and social interest.
This second argument complements the market mechanism by making the allocation and
distribution of resources subject to a double layer of filters. It attacks the problem by first changing
the behaviour and preference scale in keeping with the demands of the normative goals. Claims on
resources are then exposed to the second filter of market prices. In this process, the influence that
initial resource endowments are able to exercise in the allocation and distribution of resources may
be reduced substantially. Faith tries to accomplish this by giving self-interest a longer-term
perspective stretching it beyond the span of the world to the Hereafter. This interest in Hereafter
cannot be served except by fulfilling his or her social obligations. This may induce individuals to
voluntarily hold their claims on resources within the limits of general well being and thus create
harmony between self-interest and social interest even when the two are in conflict.
The promotion of simple living and the reduction of wasteful and conspicuous consumption may
help reduce excessive claims on resources and thereby release a greater volume of resources for need-
fulfillment by others who are not so well off. It may also help promote higher savings and investment
and thereby raise employment and growth.
At the macro level, Islamic economic model in its ideal form tends to combine the positive aspects
of the capitalist economy and socialist economy while minimizing their negative consequences.
Capitalist economy based on private property and market mechanism allocates resources efficiently
but as it takes initial resource endowment as given, equity considerations do not figure in this system.
Socialist system is very much concerned with equity and welfare of its population and ensures benefits
from cradle to grave for its citizens. But as it relies on state ownership and bureaucracy it is poor in
allocating resources thus creating inefficiency, waste and value subtraction. Islamic System
overcomes the deficiencies of both the systems as it is solidly based on private property and market
mechanism but has also explicitly built in equity and distribution through compulsory deduction of
Zakat i.e. transfer payments from the asset holders to the poor segments of the population. The
western economic model is criticized today as it is unable to address the issues of unemployment,
poverty and income inequities in developing countries. Islamic economic model addresses the
distribution issues explicitly after market has allocated the gains. It does so by a compulsory deduction

13
of 2.5 percent of tangible wealth and net asset holdings from the incomes generated by the market
mechanism for transfer among the vulnerable, sick, handicapped, indigenes and poor segments of
the society. Although the deduction is compulsory the transfers are made voluntarily by the well-to-
do to their poor relatives, neighbours and other whom they know to have legitimate needs. Thus the
leakages, waste and corruption that are inherent in a state administered system of welfare payments
are conspicuous by their absence under this system. Only really deserving persons and families or
mustahaqeen receives these payments. In Pakistan, it is estimated that private transfers made
voluntarily to the poor account for 2 percent of GDP annually. These welfare payments are a potent
force in reducing poverty, helping the vulnerable to earn their own livelihoods and lower income
disparities.
At the sectoral level, the introduction of Islamic banking should result in deepening of the financial
sector. There are believers in Islamic Faith who do not use the Conventional banking system because
of their strongly held views that this system is based on riba. They will willingly deposit their savings
into Islamic banks and borrow from these banks for expansion of their businesses or new investment.
Thus a significant segment of population that is currently outside the organized financial sector will
be brought into its fold deepening financial markets.
The primary principle of Islamic Banking is the prohibition of riba (usury), which is believed to be a
means of exploitation of the masses. Trade is the preferred mode of business in Islam. The goal of the
banking is the general economic improvement of the public at large rather than of few groups.
What are the characteristics of the Islamic bank?

• One of the most distinguishing features of Islamic banking is that being part of a faith-based system,
it is obligatory on Islamic banks from pursuing activities that are detrimental to the society and its
moral values. Thus Islamic banks are not allowed to invest in casinos, nightclubs and breweries, etc.
It is pertinent to note that casinos are one of the prime vehicles used for money laundering and
dealing with them could expose the conventional banks to such risk.

• The second distinguishing feature of the Islamic banking is that in addition to the rules and
regulations applicable to the conventional banks, the Islamic banks have to go through another test,
i.e. fulfill exhaustive requirements to be Shariah compliant. This requires that the clients of Islamic
banking must have business that should be socially beneficial for the society creating real wealth and
adding value to the economy rather than making paper transactions. Therefore, a stringent Know
Your Customer (KYC) policy is inherently an inbuilt requirement for an Islamic bank since the Islamic
bank has to know the customer and his business before getting into a socially responsible Shariah
compliant transaction. KYC is the first line of defense against money laundering in any banking system.

• Third, by their very nature, Islamic mode of financing and deposit taking discourages
questionable/undisclosed means of wealth that form the basis of money laundering operations. The
disclosure standards are stringent because the Islamic banks require the customers to divulge the
origins of their funds in order to ensure that they are not derived from un-Islamic means e.g. drug
trade, gambling, extortion, subversive activities or other criminal offences. On the financing side, the
Islamic banks must ensure that funds are directed towards identifiable and acceptable productive
activities. Most Islamic financing modes are asset backed, i.e they are used to finance specific physical
assets like machinery, inventory, equipment, etc.

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• Fourth, the role of the bank is not limited to a passive financier concerned only with timely interest
payments and loan recovery. The bank is a partner in trade and has to concern itself with the nature
of business and profitability position of its clients. In the case of loss in business, the Islamic financier
has to share that loss. To avoid the loss and reputational risk, the Islamic banks have to be extra
vigilant about their clientele.

To sum up, it can be said that banks that judiciously follow Islamic banking principles are less likely
to engage in illegal activities such as money laundering and financing of terrorism than conventional
banks. However, the existence of rogue elements cannot be ruled out in any type of organization. It is
the duty of the state and the regulators to ensure that despite these in-built safeguards, there are
adequate pieces of legislation, regulations, and enforcement mechanisms to take action against the
potential offenders.
Pakistan has taken a policy decision that it will allow both the Conventional and Islamic banking
systems to operate in parallel. The choice will be left to the consumers whether they wish to migrate
from the Conventional to the Islamic system or stay with the Conventional system. The State Bank of
Pakistan has a transparent system of licencing, regulating and supervising the Islamic banks in
Pakistan. There are three ways in which this type of banking can be set up
1- Through a stand-alone exclusive Islamic bank
2- The existing Conventional banks establishing a subsidiary
3- Earn marking some of their branches for Islamic banking.
To sum it up, Islamization, if adopted and practiced in its true form, at any time in the future
will strengthen the economy particularly income distribution and poverty alleviation which have
proved elusive under the present economic model. This will, in fact, eliminate the sources of instability,
violence and propensity towards terrorism arising from a sense of deprivation.

ECONOMIC CONDITION IN PAKISTAN:

Ideological factors through the process of Islamization are considered to be the root causes of
religious terrorism in Pakistan. However, socio-economic problems cannot be ignored since they
create an environment that is favorable insurgencies to succeed. The country is reeling under abject
poverty, unemployment, illiteracy and lack of livelihood opportunities and a worsening law and order
situation further acts as a driver of extremism, pushing disgruntled and frustrated youth towards
militant camps. Thus socioeconomic conditions need to be given equal, if not dominant space in any
national security policy.
In Pakistan, while backwardness is common, it is more endemic in the rural areas. With few
livelihood opportunities, even in this modern age there parts of the country that present a gloomy
picture reminiscent of medieval ages. It ranks 125 out of 169 countries in the Human Development
Index for the year 2010 due to its poor social indicators. In addition, socioeconomic polarization
presents the greatest threat to stability. The urban elite are modernized and privileged while the
poorer classes are marginalized as a dysfunctional public education system serves only students from
the lower classes, thus widening social gaps further.
The prevailing conditions present an environment favorable for extremism. A quick statistical survey
reveals obvious deprivations in this case. The net enrollment rate - the overall school attendance - is
57 per cent and about 40 million of the population lives in poverty; 400,000 infants die annually
because of diarrhea and only 37 per cent of the population is part of the employed labour force. Dr.

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Fehmida Mirza, Speaker National Assembly for instance, notes that that terrorism and extremism are
the biggest threats to peace and stability in the region and poverty, illiteracy and unemployment are
the main causes.

Poverty:
Poverty is the biggest social problem in any society, giving rise to various other social problems,
creating a bond between large segments that share despair, hopelessness, apathy, and timidity. The
distinction between urban and rural poverty is important. Nearly two thirds of the population and 80
per cent of the country’s poor people live in rural areas and most do not have adequate access to basic
needs of life, thus compelling many to turn to illegal channels for financial security. The urban elite
are modernized and privileged while the poorer classes are marginalized as a dysfunctional public
education system serves only students from the lower classes, thus widening social gaps further.
Poverty in Pakistan is on rise. The rise in food prices is particularly worrisome because food price
inflation hits the poor hardest. Inflation has an immediate impact on poverty and has been increasing
which is an alarmingly Rural poverty can further be linked to inadequate infrastructure and lack of
economic opportunities and resources, while urban poverty remains lower than both overall and rural
poverty because of relatively easier access. Pakistan is one of 43 developing countries that have been
seen poverty rising as a result of the recent global financial crisis. About two-thirds of all Pakistanis
live on less than two dollars Thus, 64 million people were living below the poverty line in 2008,
compared to 35.5 million in 2005, a shocking statistic out of line with the Millennium Development
Goals (MDG). About 50 per cent of the rural population - some 65 percent of the total population is
defined as poor. Even urban poverty is significantly higher than that in other regional countries.
According to a former Finance Minister, while Pakistan had a 6-8 percent growth rate in the first seven
years of the last decade, a trickle-down did not actualize as it did nothing to alleviate poverty. People
living in such extreme poverty are thus likely to be frustrated, if not outraged, at the positive effects
of national growth among the richer segments, thus becoming vulnerable to extremist ideologies if
political inclusion does not replace the current system of oligarchic rule. The tribal areas in the country
are a prominent case in point. They have historically suffered from basic development gaps and some
of the poorest social and economic conditions in the country and weakest government institutions are
present there. FATA is the most backward region in Pakistan with 60 percent of the population living
below the poverty line and per capita public expenditure a dismal one-third of the average for
Pakistan. Clearly, this has played a leading role in the growing militancy in the region.

Illiteracy:
If one considers illiteracy and content of education as a driver of conflict and extremism, then the
situation for Pakistan seems bleak. In Pakistan, 45 per cent primary school children drop out of school
and a World Bank report asserts that nearly half the adult population of Pakistan can't read, with net
primary enrollment rates the lowest in South Asia. About 42 percent of the population has no formal
education, only 4 percent has degree level education, while many having degrees without attending
any university. Between the two extremes, 38 percent of the population is below matriculation level,
with 11 percent having education up to matriculation and only 5 per cent up to higher secondary level.
Pakistan spends 2.6 percent of its GDP on education but a lot more needs to be done. About 45
percent children drop out of school without completing their elementary education, while one-fourth
of the elementary school teachers are untrained. Moreover, basic infrastructure in many schools is
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missing 37.7 percent schools up to elementary level are without boundary walls, 33.9 per cent without
drinking water facility, 37 percent without latrines and around 60 percent without electricity.
There are also differences among districts in the provinces. Although in Punjab the average
literacy rate is more than 56 percent, underdeveloped districts like Rajanpur (28 percent),
Muzaffargarh (33 percent), Dera Ghazi Khan (37 percent) and Rahimyar Khan (38 percent) suffer from
low educational standards and high unemployment and illiteracy rates.44 Similarly, in other provinces,
literacy rate is high in urban areas as compared to rural areas.
Education institutions are also characterized by poor-quality of teaching and learning. Decent
education is available to those who can afford it while poor standards in government schools mean
that their students are ill-prepared for the job market.
Unsurprisingly, there are remarkable differences too between the provinces. In Balochistan there
is an overall 62.82 percent illiteracy rate and 90 percent of the rural women are illiterate. According
to official data, in the Federally Administered Tribal Areas (FATA), male literacy is 29.5 percent and
female literacy only 3 percent. This educational divide has created a deeply polarized society and a
result, a vast majority is misguided by radical ideologues, with little understanding of the true
principles of Islam. And this is not a marginal matter. Therefore, Pakistan's poor education system,
which in turn limits economic opportunities, makes young generation targets of militant groups. The
educational system suffers from inadequate government investment, corruption, lack of institutional
capacity, and a poor curriculum that often incites intolerance. Militant groups thus have exploited
this weakness for their own ends, and it is only the State neglecting its social responsibilities that
should be blamed for the abysmal state of affairs.

Unemployment:
Currently, the official rate of unemployment is 7.4 percent but private estimates also rate it as
high as 12 per cent.50 There are many reasons for unemployment, including machinery replacing
manpower and lack of new industrial development, and the impact can be serious and dangerous.
Emigration, both legal and illegal, becomes commonplace and effects of militancy are also undeniable.
The Taliban for instance, give a monthly salary of rupees Rs. 15,000, which is significantly higher than
what many earn – including the tribal levies who earn a monthly salary of Rs. 3,500 per month. Clearly,
the economic attraction of extremism would overpower other considerations for a large number of
dissatisfied, frustrated and marginalized individuals.
While fertility rates in the country have decreased modestly, the current rate of 3.8 births per
female is still alarmingly high and will carry Pakistan’s youth bulge well beyond 2025. Even in 2030,
Pakistan’s population under the age of 24 is projected to be 51.4 per cent of the total. This shows that
while there will be a large labour force, if the government is not able to give proper education and
livelihood opportunities, there will be a new demographic trajectory towards radicalization and allow
non-state actors to gain support for their militant agendas.
The ratio of youth is a significant and ironically troubling demographic feature of Pakistan’s
population. About 63 percent of the population is less than 25 years old and often lacks access to basic
education and employment. Rising militancy and deteriorating socio-economic conditions have
caused frustration, particularly among the youth in conflict-hit areas. Most insurgencies are an
outcome of a deep dissatisfaction and disappointment with political, social and economic realities,
where people citizens feel helpless due to current arrangement. This frustration ultimately changes
into violence a situation we see in Pakistan today.

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Healthcare:
Healthcare facilities in Pakistan are also miserable. About 270,000 out of 53 million babies born
in the country die before they are one month old. Each year an estimated 17,000 mothers die from
pregnancy-related diseases. Ten per cent of these die on their way to a healthcare facility because of
inadequate modes of transportation. Pakistan is one of only four countries, together with India,
Afghanistan and Nigeria, where polio has not been eliminated, and in the FATA, 135 out of every 1,000
children under the age of five die from curable diseases. In addition, water and sanitation related
diseases are responsible for 60 percent of child deaths. There is one doctor for every 1,300, one
specialist for every 15,000, and one nurse for every 30,000 people. There has not been a shortage of
doctors in the country but more than 45 per cent of Pakistani medical graduates have left the country
for better opportunities. Their emigration results in the wastage of millions of dollars spent by the
government on their training, while buttressing the already strong healthcare systems of many
Western countries.

Corruption:
Corruption has been a major problem in Pakistan and remains a primary obstacle to large-scale
economic development. Corruption in government departments is deep-rooted and systematic,
preventing honest people from entering the fold and there is a lack of accountability, due to which
public offices suffer a bad name. The Global Competitiveness Report (2007-2008) shows corruption as
the third major issue preventing companies from doing business in Pakistan, after government
bureaucracy and poor infrastructure. According to a latest report by Transparency International,
Pakistan has been ranked 42 among the most corrupt nations of the World. From clerical staff to
higher offices and bureaucrats, corruption of one kind or the other is widespread.

Conclusion:
Pakistan today is the product of its past policies. Particularly, it is the Islamization policies of Zia-
ul-Haq period that still influence upon the country’s stability. They have in fact exerted an incredibly
negative influence on the stability of the entire region. International donors have utilized their money
to spread a radical Islamic mindset- the Wahhabi teachings for instance, which are behind the current
instability in the country. On the other hand, socioeconomic problems are constantly rising and
essentially the real drivers of most inconsistencies in Pakistan. Poor education standards, lack of
economic opportunities and unequal access to avenues for social and economic mobilization are
usually present in any country that undergoes radicalization among the youth. In Pakistan, they reign
supreme. The inability of the government to deliver basic services, education, justice, and economic
opportunities, even in those areas not directly threatened by an insurgency, fuels frustrations, and
creates apprehensions that violence may soon spread far and wide. The Pakistani society displays
virtually all the symptoms of instability. This is due to faulty internal policies, lack of livelihood
opportunities, employing top-down patterns of development instead of economic empowerment of
the masses through participation, incentives, training and education. There are many regions where
people are living miserable lives. However, most of these regions, such as rural areas in Sindh and
Balochistan, remain peaceful and non militant. Yet it provides an environment that is favorable for
Taliban recruitment, and that is a realistic possible eventuality that needs to be avoided through social,
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political and economic incentives and integration. The need of the hour is to make internal policies
based on tolerance and moderation to counter extremism and drastic reforms need to be initiated.
Economic and educational reforms can bring about positive changes and madrasas need to be under
severe scrutiny so that radical preaching is tackled since it is no more limited to tribal or frontier areas
but has spread to other settled areas as well. The government needs to eliminate madrasas that are
used for training and recruiting militants, but the solution is really in creating alternatives through
public or private schools that deliver better quality education based on both religious and formal basis.
However, positive attributes such as the desire for education and employment among the younger
segment of the population and the largely anti-extremist outlook of mainstream society ought not to
be ignored, and this provides space for effective policies to work. There remains the need to create
livelihood opportunities and for improving socioeconomic indicators – this should indeed be the top
priority of the government. Cottage industry and self-business should be promoted. Agriculture is the
backbone of Pakistan’s economy and needs to be strengthened by providing technology and loans to
farmers while free education should be provided to rural children. Any solutions aimed at stabilizing
Pakistan should focus not just on the internal security but address long-standing economic issues as
well in order to counter non-state actors and their recruitment agendas.
Many attempts to Islamize the judicial system were made in different times. Rulers like Zia-ul-Haq
used the public support which he has got in the name of Islamic system to strengthen his tenure. After
examining the history of attempts which were made to Islamize the judicial system we realize that
there was lack of research and learned jurists, who could explain the Islamic laws according to the
needs of the present scenario. The rulers used this slogan for political purposes and to save their
rule.The attempts which were made against the support of the Government in the present situation
has elements of militancy and seemed a try to enforce Islam with the use of force which in appreciated
by the people and in the world community.
The Islamic ideology was never made to be closed, rigid and politically convenient code for ruling
elite. Islamization was defined by Ulema as political weapon and definitely country was put on a track
with serious results. Unfortunately, both civilian and military rulers have continued to use Islamization
as a political weapon and have continued to ignore the people of Pakistan. An attempt to Islamize
General Zia was considered an important chapter in Pakistan's history. During this era, several
departments were subjected to the influence of Islam, including the education system, jurisdiction,
banking and financial system, etc. However, these attempts have been characterized by controversial
ideologies and lack successful implementation. The main prevailing view is that Islamization has been
used by this military era to achieve strategic goals such as American support and jihadist activities in
Afghanistan and disintegrated Russia. This vision of Islamization has won the favor of the Islamic
world.

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REFERENCES:
https://en.wikipedia.org/wiki/Islamization_in_Pakistan

https://storyofpakistan.com/islamization-under-general-zia-ul-haq/

https://www.iium.edu.my/deed/articles/econ_islam.html

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