Islamic Banking and Government Revenue Collection Pakistan in comparison with United Kingdom.

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Islamic Banking and Government Revenue Collection Pakistan in comparison with United Kingdom

Transcript of Islamic Banking and Government Revenue Collection Pakistan in comparison with United Kingdom.

Page 1: Islamic Banking and Government Revenue Collection Pakistan in comparison with United Kingdom.

Islamic Banking and Government Revenue

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Pakistan in comparison with United Kingdom

Page 2: Islamic Banking and Government Revenue Collection Pakistan in comparison with United Kingdom.

Islamic Banking and Government Revenue

Collection

•What is ‘real’ Islamic Banking?

•The problems of copying the interest based system and its products

•How Islamic financing and an Islamic banking system are the only real hope for developing Muslim Countries

•Why developing Islamic based state financing is the key issue

•An Islamic system for Pakistan

Five key issues

Key issues that must be addressed

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Creating an incentive based economy along Islamic principles

What is and what is not ‘Islamic’ in modern banking and finance•The pressure to create products to compete against interest based banking has compromised Islamic banking

•Credit cards, consumer product loans, mortgages, car loans have all been developed within the Islamic system but they offend the principle of partnership

•The growing financing/loan products also rely on notional financial charges (rent) that differ little from interest calculations

•Financial charges are payable no matter the outcome and therefore cannot be considered Islamic as they impart no risk to the lender

•Lenders in many modern Islamic financing arrangements remain indifferent to the outcome of the loan and expect full payment no matter what

Why interest and pseudo ‘financial charges’ don’t work•Dictated by policy as much as economic returns

•Is too closely tied to the printing of money and not creation of value

•Creates disinterest amongst lenders

•Creates a ‘hedging strategy’ for portfolio investment

•Is a poor benchmark for judging an investment opportunity

•Places the entire burden of repayment on the borrower no matter the outcome

•Creates the conditions that lead to failure e.g. high interest rates burden business, projects and indeed economies

Islamic Banking and Government Revenue

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A method of finance that does not involve the lender in becoming a partner in the funded enterprise is not Islamic

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There are only three truly Islamic financing arrangements that can be permitted:

•Mashareqa

•Mudaraba

•Leasing

Creating an incentive based economy along Islamic principles

Islamic Banking and Government Revenue

Collection

Why?•They create enterprise ownership on the part of the lender

•They create partnership with the borrower

•They create mutual benefit without recourse for failure

Cost of Car

Financial Charge

Based on the principle of rent or utility payable

even if the car does not work, breaks down or is

written offIssues•Repayable by the borrower under all circumstances

•Personal loan made by reference to the borrower not the car (risk is the borrower)

•Car if returned shall be valued at full purchase price (no accommodation of the financial charges paid for utility to date)

•Defaults (non payments) do not harm the bank in any way

A typical Islamic car loan arrangement

There is no risk to the lender !

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There are only three truly Islamic financing arrangements that can be permitted:

•Mashareqa

•Mudaraba

•Leasing

Creating an incentive based economy along Islamic principles

Issues for Islamic Banking Operations v Interest System

•Documentary credits

•Criteria for mark-up and PLS ratios

•Replacing interest functions

•Stock exchange investment

•Spread and risk margins

•Rates of return and comparing opportunities

•Bills of exchange

Islamic Banking and Government Revenue

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Why?•They create enterprise ownership on the part of the lender

•They create partnership with the borrower

•They create mutual benefit without recourse for failure

Page 6: Islamic Banking and Government Revenue Collection Pakistan in comparison with United Kingdom.

There are only three truly Islamic financing arrangements that can be permitted:

•Mashareqa

•Mudaraba

•Leasing

Creating an incentive based economy along Islamic principles

Islamic Banking and Government Revenue

Collection

Why?•They create enterprise ownership on the part of the lender

•They create partnership with the borrower

•They create mutual benefit without recourse for failure

Issues for Inter-bank relations in an Islamic Banking System

•Inter-bank financial markets

•Short-term transfer of funds between Islamic banks

•Inconsistencies between the Islamic Banking Systems in different countries

•Lack of uniform accounting standards for Islamic banking

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There are only three truly Islamic financing arrangements that can be permitted:

•Mashareqa

•Mudaraba

•Leasing

Creating an incentive based economy along Islamic principles

Islamic Banking and Government Revenue

Collection

Why?•They create enterprise ownership on the part of the lender

•They create partnership with the borrower

•They create mutual benefit without recourse for failure

Issues for internal structure and organisation

• Relationship between scholars and bankers

• Lack of religious guidance

• Too many ‘designed’ services and products

• Need for staff training and services and product knowledge

• Staff shortage and quality

• By-Laws

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Creating an incentive based economy along Islamic principles

Islamic Banking and Government Revenue

CollectionThe opportunity for Islamic Banking•There are 1.5 billion faithful in the world

•Most live in the poorer (per capita GDP) countries of the world

•Most live in countries with massive external debts to the World Bank and IMF and the developed nations

•Their governments have the problem of collecting enough money to pay back the interest on the debt

•Other than the oil rich countries with low populations and high per capita GDP balancing budgets, collecting taxes and investing in infrastructure has become difficult or impossible

•How can governments free their countries from the yoke of debt and interest?

The Islamic The Islamic world is rich in world is rich in human human resource, resource, intellect and intellect and energy. It also energy. It also owns 75% of the owns 75% of the world’s energy. world’s energy.

Why can’t the Why can’t the Islamic world Islamic world find an original find an original way out of the way out of the debt trap and debt trap and the spiral of the spiral of economic economic underperformanunderperformance.ce.

Removing taxes Removing taxes and interest and interest should be our should be our prime target prime target because they because they don’t achieve don’t achieve results.results.

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What are the economic issues facing Pakistan and many other Islamic countries?

•Low government revenues

•Low investment (130th in the world @ 15% GDP)

•Low workforce productivity

•Illiteracy at 50%

•Burdensome taxes

•External borrowing with interest

Pakistan's problems are about ‘system failure’

The system of The system of economic economic

realities in realities in PakistanPakistan

Large external interest

based debt re-

payments

No surplus GOP

revenue to spend on

vital infrastructu

re

Tax burdens causes evasion

and create a black

economy

High levels of national

debt (e.g. to finance defense!)

2010 GOPRevenue: $25.33 billion

Expenditure: $36.24 billion

Public Debt 49.9% of GDP (2010)

External Debt $58.39 billion (2010)

PC GDP of $2,400

(PPP) 182th in the worldSource: CIA Fact book 2010

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What are the economic issues facing Pakistan and many other Islamic countries?

The road to national reconstruction is:

•Create surplus government revenues

•Remove the burden of interest on money from public life, finances and the banking system

•Remove direct and indirect taxes as the sole source of government revenue and replace it with a system based on investment and growth

•Do this by placing Islamic principles as the driving force behind economic regeneration

Pakistan's problems are about ‘system failure’

Systems of taxation are better suited to advanced economies with high levels of literacy and concensus based political systems.

Even now taxes and interest on money remain issues dissuading the common man from realizing his aspirations and creating wealth.

Islamic Banking and Government Revenue

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Creating an incentive based economy along Islamic principles

In the 1980’s the visionary political leader Margaret Thatcher realized that it was only by reducing tax burden, lowering interest rates, and providing an incentive based economy that the United Kingdom could be turned around.The MBCS is a system of revenue collection that abandons taxation, removes interest and creates an incentive based economy on Islamic principles

A Mutually Beneficial System

What the MBCS does:

•Reduces sales prices of all end products and services together with reductions in transfer prices (critical in developing countries)

•Uses prepaid national shares to create real reduced prices and huge government revenues

•Abandons restrictive import and other taxes and duties that restrict or limit economic and social growth

•Normalises exchange rate of the relationship between the Pak Rupee and other currencies

•Removes interest from the economy and promotes investment on Islamic lines

CREATING AN INCENTIVE BASED ISLAMIC ECONOMY

Taxes

Islamic Banking and Government Revenue

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Shares

Shareholder Price

60% below controlled

prices

Current controlled prices

with profits to the GOP

Current price

situation in

Pakistan

The MBCS shareholder pricing system

Comparing the cost of buying goods and services in Pakistan

SAVINGS

•Electricity

•Petrol

•Diesel

•Kerosene

•Gas

•Telecoms

•Consumer goods

•Air travel duties

•Road tolls

•Property tax

•Government service fees

•Etc…

GOP extensive price controls

Non shareholder

penaltyFuture non-

shareholder price

30% more than GOP

controlled price

MBCS Incentive

Share Scheme

Rupees

Creating an incentive based economy along Islamic principles

Islamic Banking and Government Revenue

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Comparing the cost of buying goods and services in Pakistan

Creating an incentive based economy along Islamic principles

MBCS Incentive

Share Scheme

How does the incentive work?

•Buy unit shares for cash early each year for needs (Q1)

•Exchange them for lower MBCS prices

•Large volume share buyers get greater cash discounts

•Industries and individuals with very high volumes receive free import incentives

HOW and WHY?

The MBCS will:•Mobilize the hidden cash in the Pak economy

•Increase contributors to government revenue creation (and reduce direct tax payers to zero)

•Make ‘black’ economy non viable

•Create at least 750 billion Rupees in share sale receipts in Q1 every year

•Make the GOP solvent and allow large scale investment (reverse the cycle of decline)

Islamic Banking and Government Revenue

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What are the economic issues facing Pakistan and many other Islamic countries?Creating an incentive based economy along Islamic principles

Q1

Q2 Q3 Q4

Financial Year

MBCS Revenues

GOP Spend

Revenue flow from taxes

Massive sales of MBCS Shares in Q1 will transform Government Finances

•Improve liquidity from normal tax collection drag

•No short term cash deficit borrowing

•Facilitate budget surplus

•Remove rolling budget deficits

•Repay external debts

Revenue

Surplus Rolling

Deficit

Borrow or print

!

Islamic Banking and Government Revenue

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10 FAQ’s

1. Am I really saving?

2. How do I know what I actually pay?

3. Where/how do I buy shares?

4. How much will I pay for them?

5. How do I get the incentives?

6. How do the poor manage under this system?

7. Will shares be accepted everywhere?

8. Can private enterprise enter the scheme?

9. Can I buy shares after Q1?

10. Will shares be tradable between people, groups and businesses?

GOP revenue position improves

Starts with MBCS share

purchases

GOP and PMF fund investmen

t

GOP annual budget

surpluses

The cycle of national

recovery in Pakistan under the

MBCS

Available country wide

through a wide network of distributors

Cash receipts go through sellers via national banking system to PMF

GOP will retire international debt and fund infrastructure development

PMF will attract private

investment funding

proposals using ‘partnership’

principlesCreating an incentive based economy along Islamic principles

Islamic Banking and Government Revenue

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0.000

0.050

0.100

0.150

0.200

0.250

0.300

0.350

0.400

0.450

0.500

Rs. Per Coupon

29,999 99,999 199,999 299,999 449,999 599,999 799,999

Maximum number of MBCS coupons purchased

The reducing unit cost of shares

(incentive arrangement)

THE MORE YOU BUY THE MORE YOU SAVE

Creating an incentive based economy along Islamic principles

How does industry and commerce benefit?•They can enjoy reduced prices through the MBCS

•They can buy large quantities of shares and get better savings

•Importers can buy relief from duty via the share scheme

•Therefore ‘input’ and ‘transfer’ costs can be reduced in the value added process

•Private sector goods and services can be traded in the share system as the shares have redeemable value to the recipient

•Competitive advantage will come to those in the share system

•Consumers will get better prices

Shareholders

•Individuals

•Families

•Groups

•Village co-operatives

•Farmers

•Businesses

•Schools

•Hospitals

•Charities

•Pak expatriates

•Tourists

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The MBCS’ Islamic credentials 1

Dealing with realities•Pakistan’s direct tax paying middle class of 1.5-1.7 million carry a population of 170 million

•Taxes are not working in Pakistan

•Taxpayers can’t hope in the foreseeable future to elect a government sympathetic to their plight and burden

•Most of the direct tax receipts pay for the interest burden on the external national debt

•Our indebtedness holds us back from following Islamic principles in our national life

1. Earn GOP revenues of Rs. 3000 billion in the first two months of each and every year from shares sales

2. And much more by the end of the year.3. Earn significantly greater amounts as

the black economy joins the MBCS or is bypassed by it

4. Hold at its disposal an accumulating foreign exchange reserve growing at a rate of US$10 billion a year

It will relieve Pakistan of the burden of external debt and the obligation to pay interest on it as the system will:

Creating an incentive based economy along Islamic principles

Islamic Banking and Government Revenue

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The MBCS’ Islamic credentials 2

Dealing with realities•Pakistan’s direct tax paying middle class of 1.5-1.7 million carry a population of 170 million

•Taxes are not working in Pakistan

•Taxpayers can’t hope in the foreseeable future to elect a government sympathetic to their plight and burden

•Most of the direct tax receipts pay for the interest burden on the external national debt

•Our indebtedness holds us back from following Islamic principles in our national life

1. Retire all GOP debt based on interest2. Direct surplus cash funds into the

reconstruction of the economy via the Islamic financing and banking system

3. Fund infrastructure and manufacturing/commercial developments in the public and private domain

4. Eradicate interest based lending throughout the entire economy based not on edict but by preference

5. Strengthen the Islamic financing system by investing in its development

It will allow the GOP to:

Creating an incentive based economy along Islamic principles

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Creating an incentive based economy along Islamic principles

Pakistan Banking System

Banks and the MBCS

•Customers can open MBCS share accounts for deposit

•Customers can buy MBCS shares from the banks

•Banks will deposit MBCS shares with the central bank

•Banks can buy/lend/trade MBCS shares

•MBCS cash receipts will flow through the banks to GOP escrow account

GOP

PMF Central Bank

MBCSshareissuer

Operating funds

& agents deposits

MBCS agency network

Share sales

Cash from sales

GOP Escrow

A/c

Supreme Sharia

Committee

MBCSshare

deposits

Foreign reserves

and bullion

Rupeecash

deposits

Bank A Bank CBank B Bank D Bank E

Capital Assets ProductsServices

Customer and bank MBCSshare

deposits

Islamic financing instrumentsusing MBCS

funds

Islamic Banking and Government Revenue

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Key benefits of the working relationship between the Banks and MBCS

•Employment of 5 million + agents country wide

•Money remittances at banks increases as cash comes out in the open and into the system

•Banks can sell/trade in shares

•Support for Islamic financing/banking and funding from PMF/Central Bank surplus MBCS funds

The reason Pakistan has failed to register its economic promise as a country is that the massive black economy is not recorded and further that black money invests only in the short term and in non added value activities. It does this to remain out of reach of the authorities.

THE MOST IMPORTANT EVENT IN THE MODERN HISTORY OF PAKISTAN WILL BE THE REALISATION THAT THROUGH PRIVATE AND PUBLIC SURPLUS THE PROCESS OF INVESTMENT CAN BEGIN ON AN UNPRECEDENTED SCALE.

Invest

Save

Creating an incentive based economy along Islamic principles

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FocusPorts and airports

Roads, canals and rail

Electricity

Oil and gas

Water and irrigation

MBCS free zones

Technology zones

Schools and colleges

Hospitals and clinics

Housing and Urban

Development

To support the growth of added value trade and industry

The key to real development will be the human productivity factor and the ability of

Pakistan to innovate. A healthy well educated population will support this and will move the

country towards improved law and order.

Create guaranteed supply of power to industry and domestic users with minimal transmission

losses

To maximise the recovery, refining and use of hydrocarbons through improved energy

infrastructure e.g. pipelines, refineries and production facilities.

To provide to the entire population of Pakistan a guaranteed safe water supply for personal use and in support of agriculture

To support the growth of added value trade and industry

Criteria for GOP national investment programme

Facilitate greater import export trade with minimal demurrage

Create logistics network in Pakistan to effectively manage flow of goods to and from

manufacturing/ export/ import centres

Objective

Through a financial partnership based on Islamic principles between GOP, businesses, entrepreneurs, private utility companies, communities, co-operatives and the people the infrastructure of Pakistan can be rebuilt by plan and programme using MBCS funds.

It must focus however on priorities.

1. Applicants to state business case in business plan

2. Bank guarantee

3. Proofed by two teams (business and banking)

4. Applicant puts up 20% funds

5. Central bank decides how much and mode of Islamic financing

6. No cash paid direct to project

7. Withdrawal rights reserved/agreed

MBCS investment process

Creating an incentive based economy along Islamic principles

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Creating an incentive based economy along Islamic principles

Is the MBCS Islamic?

1. Shares are priced in favor of the large volume buyer (i.e. the rich)? No.

2. Best consumer prices will only be enjoyed by the rich? No.

3. Will open market trading lead to abuse? No.

4. Buyers may hoard shares and inflate prices? No.

5. Will banks charge interest on share accounts? No.

6. If share trading values go up what increase in underlying value are they tied to? (GDP)

7. The MBCS cannot cure inflation? (Wrong)

8. The MBCS does not encourage saving and investment only consumerism. (Wrong)

Islamic Banking and Government Revenue

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The MBCS test for support to Islamic banking and investment•Invested funds must be earned properly (Halal)

•Profits should be reasonable for the risk and business

•No penalty for loans retuned before maturity

•Defaults to be handled fairly and with proper notice and remedy periods

•Only profit and loss and leasing loans permitted

•Borrower puts up 20%

•No insuring of risk

•Funds from profits to act as failure insurance

•Bankruptcy law not to apply

•No litigation between parties

The strategy for moving Pakistan towards Islamic banking and financing

•It is impractical to prohibit all interest based transactions

•The most prudent strategy is to demonstrate the benefits of MBCS Islamic funding over interest arrangements

•The tests in the first column provide a superior and fairer investment vehicle for rebuilding Pakistan

•Investors will prefer these arrangements to interest and banks will follow their lead

•GOP will disburse funds from MBCS on the basis of Islamic funding only

Creating an incentive based economy along Islamic principles

Islamic Banking and Government Revenue

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Creating an incentive based economy along Islamic principles

Each and every financial service within the new MBCS funded banking system will be provided on Mashareqa, Mudaraba or on Lease basis

GOP

Pakistan Finance and Banking Sector

Private Investment BasePublic Investment Base

PMF and Central Bank

Investment assessment and funding vehicle

Mashareqa

Mudaraba

Leased

MBCS Escrow Account

The Pakistan economy = quality private investment + prudent GOP infrastructure development

and the MBCS Share Scheme

The MBCS creates a value added feedback loop into the GOP’s primary source of investment funds

Investment opportunities will be assessed against their returns and other contributory factors set by policy and Islamic principles

How the system works

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Creating an incentive based economy along Islamic principles

Why the MBCS will move Pakistan to a

pure Islamic financing system

• Massive Government MBCS revenues and liquidity will place GOP as a net lender (see slides 14 and 15)

• The terms of the loans will be advantageous and Islamic (see first column)

• GOP will be significant shareholder by choice in many new and existing enterprises through banks and other finance institutions sourcing loans through GOP.

• Land reforms will create huge amount of revenue that GOP will share (invest) with private sector managing arable and grazing lands.

• The alternative economies will disappear as hidden money emerges to compete for investment and buy MBCS shares.

The MBCS test for support to Islamic Banking•Invested funds must be earned properly (Halal)

•Profits should be reasonable for the risk and business

•No penalty for loans retuned before maturity

•Defaults to be handled fairly and with proper notice and remedy periods

•Only profit and loss and leasing loans permitted

•Borrower puts up 20%

•No insuring of risk

•Funds from profits to act as failure insurance

•Bankruptcy law not to apply

•No litigation between parties

Islamic Banking and Government Revenue

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Creating an incentive based economy along Islamic principles

The MBCS test for support to Islamic Banking•Invested funds must be earned properly (Halal)

•Profits should be reasonable for the risk and business

•No penalty for loans retuned before maturity

•Defaults to be handled fairly and with proper notice and remedy periods

•Only profit and loss and leasing loans permitted

•Borrower puts up 20%

•No insuring of risk

•Funds from profits to act as failure insurance

•Bankruptcy law not to apply

•No litigation between parties

How GOP can assist the process of entrenching Islamic banking in Pakistan by addressing the following:

• Imposing interest based laws on all banks is restrictive

• A lender of last resort is missing i.e. What will an Islamic state Govt. do for the Islamic banking system?

• Interest as a tax deductible expense for businesses and home owners (unfair competition). Acknowledgement that tax and interest are enmeshed and unfair.

• Banking tribunals (mediation in a civilised society)

• Promote PLS financing for industrial investment (and legal support for PLS)

• Clearer demarcation between private and public investment interest in projects

• Invest in the Islamic banking sector development to spread the use of ‘partnership based’ investment arrangements.

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Creating an incentive based economy along Islamic principles

The MBCS test for support to Islamic Banking•Invested funds must be earned properly (Halal)

•Profits should be reasonable for the risk and business

•No penalty for loans retuned before maturity

•Defaults to be handled fairly and with proper notice and remedy periods

•Only profit and loss and leasing loans permitted

•Borrower puts up 20%

•No insuring of risk

•Funds from profits to act as failure insurance

•Bankruptcy law not to apply

•No litigation between parties

The key factor for success is the relationship of the Islamic bank with the depositor

•Islamic banking doesn’t invest enough in image building

•It must shed the image of being esoteric, restricted, high risk and slow to develop

•Developing low, medium and high risk investment products through portfolio vehicles is attractive

•A credit card is essential in the competition with other banking systems

•Acceptable short and medium term cash flow financing management facilities for businesses and individuals is also critical

•Banks must become a credible and respected go-between linking investment with opportunity

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Creating an incentive based economy along Islamic principles

Stage 1 – Move all ‘investment’ via MBCS to investment or leasing

Stage 2 – Reduce the dependence of the banking system on interest

Stage 3 – Remove GOP interest arrangements for state financing

Stage 4 – Move private investment to non interest methods

Stage 5 – Invest in the development of Islamic banking products

Using the investment principles outlined in previous slides the process should be very rapid

The banking system needs to invest in developing consumer products that provide real Islamic alternatives. Growing MBCS projects can attract banks and private investors as well.

Retirement of international debt is critical. Domestic borrowing should only be to fund Islamic projects as investors or leasors.

The growth in the Islamic investment base in projects will allow diversification of investor base and balance risk

This applies to the infrastructure and availability of the banking system as well.

JapanOne of the great manufacturing countries of the world with high GDP and high HDI levels proved that it is not interest rates that create wealth but hard work, patience and wise investment.

In fact they understood more than any that high interest is a hindrance. When money is seen as a community asset its only value is the opportunity it gives to invest and share. How it is invested is a balance between paper returns and utility for greater purposes.

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Creating an incentive based economy along Islamic principles

Japan 2However the Japanese still cling to the idea of distancing savers from investments.

In Japan’s post office savings accounts there is nearly 7 times the Indian Budget held in very, very low interest accounts.

It must be asked if an Islamic based society would allow this dispossession to continue. Is it fair for an opportunity to link saver to investment to be missed?

Some thoughts on the challenges of Islamic banking and finance:

•We are trying to establish a sense of responsible investment country wide

•We are asking people to be prudent and realistic in their expectations

•We are asking people to be aware of their responsibility to the wider community in their investment decisions

•We are trying to relieve the burdens on the poor and those supporting them

•We are trying to achieve a paradigm shift in one of the most powerful and conservative business institutions ‘the banks’

•Banks do not own their depositors money they manage it. It is only the lack of depositors interest in change that holds back Islamic banking.

Islamic Banking and Government Revenue

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An Islamic solution to the economic issues facing

Pakistan

Creating an incentive based economy along Islamic principles

The MBCS is applicable to developed countries

For nearly forty years after 1945 successive British Governments sought the solution to Britain's ailing economy

•Key issues were:

•Underinvestment (1945-1977)

•Poor competitiveness (1945-1979)

•Poor labour productivity (1945-1982)

•Aging infrastructure (1945-1980)

•Balance of Payments deficits (1945-1975)

•Devaluation of the Pound Sterling (1966)

•High taxation of income and goods (1945-1982)

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An Islamic solution to the economic issues facing

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Creating an incentive based economy along Islamic principles

“….the primary economic virtue of Thatcherism was in

lowering the structural costs of doing business.

Labour and financial markets were

deregulated, and privatisation of

utilities - oil and gas, power, water and so on - resulted in what economists call lower

input costs.”Madsen Pirie,

President of the Adam Smith

Institute 2001What happened in the UK when taxes

were lowered?

Underlying wealth

Investment participation

Value of earnings

Effort pays off

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An Islamic solution to the economic issues facing

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Creating an incentive based economy along Islamic principles

The top rate of income tax in 1979 was 83%—and with a surcharge on top of that for investment income. In her Government’s first budget, the top rate was cut to 60% and the basic rate from 33% to 30% . By the late 1980’s Income tax for many people was down to 25% and the top rate set at 40%.

Has the Thatcher economic model solved Britain’s problems?

1. Still high inequality in earnings

2. Poverty in inner cities

3. Law and order are still issues

4. Stealth taxes are hitting the middle classes

5. Britain’s industrial/manufacturing output is at an all time low

6. Personal debt is also very high‘Using the Poverty and Social Exclusion Survey approach to the measurement of poverty, it is estimated that 25 per cent of the adult population of Britain is poor.’ © Joseph Rowntree Foundation 2005 The Chancellor, Gordon Brown, is about to raise Britain’s taxes to their highest-ever level, collecting nearly £1m a minute, according to an Ernst & Young analysis. Calculations by Patrick Minford, of Cardiff Business School, show that, including VAT, excise duties, National Insurance and income tax, a basic rate taxpayer pays £48.50 in tax on every £100 earned. Among higher rate taxpayers the figure is £57.10.

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An Islamic solution to the economic issues facing

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Creating an incentive based economy along Islamic principles

The ITEM report warns that while UK business investment was originally believed to have grown at 5.5% in 2004, this has since been revised down to just 3.4%. Export figures have also been revised down, from 2.8% in the 12 months to the end of the first quarter to only 2%.

The Ernst & Young ITEM Club

What are the key issues facing Britain in the Post Thatcherism era?

•High tax is making a comeback

•Energy is not so abundant (North Sea Oil Era is nearly over)

•Social costs are rising

•The health service is expanding to meet greater healthcare expectations without investment and income

•The population is aging rapidly

•There are no incentives to create wealth and create stability?

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An Islamic solution to the economic issues facing

Pakistan

Creating an incentive based economy along Islamic principles

Source: UK Office for National Statistics

Notes:People in employment, unemployed and economically inactive make up the total household population aged 16 and over, measured through the Labour Force Survey on a consistent basis since 1971.Working age is defined as 16-64 for men and 16-59 for women.

The real worry for society in Britain as it is in Pakistan is the effect of joblessness. High unemployment is economically, politically and socially dysfunctional and is the true nightmare of all forms of government. People don’t normally take to the streets when their employed, housed and fed.

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An Islamic solution to the economic issues facing

Pakistan

Creating an incentive based economy along Islamic principles

How can the MBCS Work for the UK?

It can work as well in a developed economy as in a developing economy:

•It will remove the disincentive of (high) taxes

•Coupons and revenues can be issued and collected securely through a high tech banking network

•It will attract the unemployed as agents

•Lower input costs will revolutionize British manufacturing

•The burden of providing a health service and a state pension scheme can be funded from improved GDP growth

•Government investment can be used to ensure future cash flows beyond the Coupon Scheme

•Removing VAT is a key issue in helping the less well off

Balancing the budgets of the world’s fifth largest economy will prove easier under the MBCS and will guarantee surpluses based on real value growth in an economy that still has many dysfunctional aspects. Sooner rather than later the UK will have to face up to the question of how it creates wealth and whether there is enough of it to meet social and economic aspirations

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What is our purpose?

•To stop punishing those who put their talents to good use by demanding taxes, duties and levies

•To remove the burden of interest from those who have to borrow to create value

•To place personal, business and state finances on a sound footing by balancing needs and opportunities with prudence and responsibility.

Islamic Banking and Government Revenue

Collection