Principle Of Good Governance In Islam

Published Date: 23 Mar 2015 Last Modified: 15 May 2017

Both the Quran and Sunnah have given some study the principles in the areas of constitutional affairs that cannot be omitted from any government system. The Quran does not mention the particulars and details and have been left for the Muslim Ummah to formulate according to time and place. In the application of constitutional principles or guidelines of Islamic political system, general rules or fundamental principles which are considered as the highest values have a major impact on the formation of the Islamic concept of the state, its functions and its system of government. The basic principles, concepts and rules are discussed below.

The Concept of Sovereignty in the Islamic System

The sovereignty in Islam belongs to God. The Quran tells us that Allah (SWT) is the creator and Lord of the entire universe, including the human kind and all associated with them. Therefore, Allah (SWT) is the one who has all the powers and attributes of sovereignty and nothing whatever that belongs everywhere. Thus, no one else can share the sovereignty of the entire universe as it only belongs to Allah (SWT). Command is only for Allah. He has commanded that you do not submit to anybody but him. This is the Right Way of life, but most men understand not.

The rule of law in the Islamic System

The principle of the rule of law in the Islamic system is considered as a base or corner stone where Islam was founded on a stake and Shariah, because Islam came to remove injustice and tyranny and struggled to knock down the ultimate power pole. Thus, the basic principles contained in the Qur'an, Sunnah and consensus ('ijma') even in the century struggling with tyranny.

Allah (SWT) says:

O ye who believe! Obey Allah, and obey the Messenger, and those charged with authority among you. If ye differ in anything among yourselves, refer to Allah and His Messenger, if ye do believe in Allah and the last Day: that is best, and most suitable for final determination [1] .

In another verse Allah (SWT) says:

O ye who believe! Obey Allah. And obey the Messenger, and make not vain your deeds! [2] 

Therefore, the Islamic judge must implement the Quran and Sunnah in all disputes brought before him. If he does not perform it, his behavior is not acceptable because he failed to fulfill the duties of a judge according to Sharia.

The Sunnah came to support, emphasise and clarify these Quranic verses.

Prophet Muhammad (SAW) said that:

Obedience of a human being is disallowed, if it is considered disobedience to the creator (Allah) [3] .

Prophet Muhammad (SAW) also said that:

Every act that does not conform to our order is rejected [4] .

In the Islamic system, everyone, from heads of state, government and people, are subject to the law. The Prophet (SAW) himself is subject to, and is the most faithful to the Quran. He was 'Abd Allah wa rasuluh', the servant of God and his messenger. The head of state and the head of government cannot invoke any immunity from impeachment. The principle, 'Be you ever so high, the law is above you' has always been there in Islamic law, to include the Prophet (SAW) himself.

Just before he died, the Prophet (SAW) made the following short speech:

I swear by God that I have made lawful only those things that the Quran made lawful and I have made unlawful only those things that the Quran made unlawful. If I have taken the money of any of you, here is my money, let him come and take it, and if I have lashed the body of any, here is my body, let him take back his right [5] .

In the same way, Abu Bakr, the first successor and caliph of the Muslim state, in his acceptance speech said:

O people! I have been appointed over you, but I am not the best of you. Support me if I did good and remove me if I did badly ... a weak person of you is strong before me as long as I maintain his right for him. And a strong one of you is weak before me until I take back a right from him ... Obey me as long as I obeyed Allah and his Messenger. If I disobeyed them there is no obedience of me upon you [6] .

The past verses supported by the hadith shows that every dispute within the Muslim community between individuals, groups of people, or between people and the government, or among the parts the government and people, must be judged by the basic law we received from Allah (SWT) and His Messenger.

According to this principle, the country must have an institution that judges among the people of the Qur'an and Sunnah, and the institution is a judicial authority.

The Doctrine of the Separation of Powers and Independence of the Judiciary

Separate branches of government have different functions is not an idea that is contrary to the Shariah. There is no detailed prescription about the form of government in the Quran. What is clear is the goal of the state and the principles that should be followed by the government. Hence the idea to promote good governance, organized by the Shariah, is compatible with Islam. In addition, the doctrine of judicial independence is a constitutional principle in Islamic constitution. Judges are independent and subject to no other authority but the law.

In Islam, there are a number of recognized institutions may have in common with democratic forms of government. For example, the emir may be likened to the Prime Minister or President who is the chief government or executive body; assembly, which is recognized in both Islam and democracy as a means to discuss the laws and policies made ​​by the government, which recognized both Islam and democracy, and last but not least, the judiciary. Therefore, in Islam, the principle of check and balance as practiced under the doctrine of separation of powers can be exercised. Furthermore, it has been claimed that the doctrine of separation of powers has been used at the time of the Prophet in the city state.

As-shura

As-shura is one of the most important constitutional principles in the Islamic constitution. The proof of the importance of shura is to be found in the Quran and Sunnah. In one of the two clear verses on it in the Quran, shura is mentioned as mandatory and in the other verse, it is mentioned that those who practice it are praised. The whole system of the Islamic state from its inception to the selection of the head of the state and all those in positions of power as well as its dealings must be conducted by shura, whether it is carried out directly or indirectly through selected or elected representatives.

The Quran states that:

Those who hearken to their Lord, and establish regular Prayer; who (conduct) their affairs by mutual Consultation; who spend out of what We bestow on them for Sustenance. [7] 

Even the Prophet, although he was the recipient of direct guidance from the Supreme Allah, was command-ed. Allah says:

Consult them in affairs (of moment). Then, when thou hast taken a decision put thy trust in Allah. For Allah loves those who put their trust (in Him). [8] 

Following this advice and lead, Caliph Umar admonished that:

There is no khilafah without consultation. [9] 

Thus, the practice of shura is the mechanism followed at all stages in the selection of political leadership by Muhammad and his followers. It was the first Muslim elected four khulafah guidance, although the selection and approval process varies. The important principle is the truth and accountability and public confidence in those elected by the community. Even after that when crawling hereditary rule in violation of this community right, mask allegiance, or acceptance of government still retained.

Justice

Islam has given to the justice position is so well known as the law may have previous system of law, old or new, that had given him. There are many verses of the Qur'an that speak and enjoy justice, universal order encompassing all human affairs.

In one of the verses of the Quran in which enjoying justice has been generally and unqualifiedly ordered, Allah says:

Allah commands justice, the doing of good, and liberality to kith and kin, and He forbids all shameful deeds, and injustice and rebellion: He instructs you, that ye may receive admonition. [10] 

In another verse of the Quran, it is stated that:

Allah doth command you to render back your Trusts to those to whom they are due; And when ye judge between man and man, that ye judge with justice: Verily how excellent is the teaching which He giveth you! For Allah is He Who heareth and seeth all things. [11] 

Justice in the Islamic political system, including social justice, which means that the government should arrange to meet and satisfy the needs and desires of all the people as they have a valid part of the state and the source of bona fide citizens of the country. This includes the provision of job, means of subsistence and economic justice. This in turn suggests that it is the responsibility of the government to provide food, shelter and clothing for all the people in the state. Economic justice aimed at equitable distribution of lifestyle and checks the concentration of wealth in a few hands. That is why the second Caliph Umar refused to divide land among the Muslim soldiers and commanders in areas conquered by Muslims in Iraq, Iran and Syria.

Only justice can create discipline in life of the people. It is also important that the administration of justice, which means that all state officers are also subject to accountability and they do not need to consider and treat the person as a 'slave' or 'personal assistant'. They should not insult the people in any manner. They should be honest and efficiently in administer public affairs. It should be ensured that the concentration of wealth in one class or few hands did not happen. There is absolutely no doubt, that the governing principle of Islam is a set of the most comprehensive scientific and principles of efficient administration.

Freedom

Contemporary scholars of modern constitutional law divide into several branches of freedom: freedom of thought and belief, the right to education and property and personal freedom. There is no question that the Islamic Constitution gives such great consideration and respect for this freedom because it has rarely been given by other political doctrine in the Constitution of the positive. Man has continued to use the right of choice ever since he has been on the earth. On this point that the Quran makes is as follows:

Seest thou not that to Allah bow down in worship all things that are in the heavens and on earth, the sun, the moon, the stars; the hills, the trees, the animals; and a great number among mankind? But a great number are (also) such as are fit for Punishment: and such as Allah shall disgrace -- None can raise to honour: for Allah carries out all that He wills.

Equality

The principle of equality is one of the most important constitutional principles upon which the contemporary system rests. This means that the principle of equality contained in the individual communities are equal in rights, responsibilities and public duties that will be enjoyed by all without discrimination of race, origin, lan-measure or belief. The principle of equality has been initiated by the Qur'an and Sunnah and the expansion of Islam during some as a precedent in Islamic law and its own time and place; precedent is a fundamental revolution in the basic concept of Arab ideas about the source of pride as the notion held by some tribes but not by others. Islamic law based on the Quran and Sunnah is common to all and is equally applicable to the members of the society from the lowest to the highest level, without any distinction or discrimination

The Prophet was asked to declare that:

I have been commanded to maintain justice between you. [12] 

The Prophet admonished that:

The nations before you were destroyed because they would punish the lower class criminals according to the law but would let go those from the higher class.

Then laying further emphasis, He continued by stating that:

I swear by the Authority in whose control is Mohammad's life, if Mohammad's daughter is guilty of stealing, I would cut her hand off.37

Therefore, all the personal, civil, political, social, cultural and economic rights of an individual are guaranteed under Islamic law. Everyone has equal rights and is equally responsible before the law. It is the duty of government to ensure that every member of society, particularly the poor, given its right time.

Accountability

It is permissible to make the head of state and the head of government responsible for their acts. Statute on the question of the permissibility of calling heads of state to account varies from state to state in the modern system of government. Some state Constitution provides that heads of state are not subject to blame for the actions and behavior even though he violated the law, whereas, according to the Islamic constitution, there is no difference between the heads of state and other individuals in the accountability for violating the law.

Al-amr bil maruf wa nahi an al-munkar

This literally means 'commanding what is right and forbidding what is wrong and encompasses a whole gambit of duties and responsibilities'.

The Quran makes it the mission of its believers:

You are the best of Peoples evolved for humankind, enjoining what is right and forbidding what is wrong and believing in Allah. [13] 

This means that every individual in the society has the right, nay the duty, to tell the truth and to stand for it, to further all that is good and virtuous and do his or her utmost to remove the wrongs and vices wherever he or she finds them.

The Prophet tells us that:

Whoever among you sees a vice (or wrong), he should change it with his hands; if he is not able to do that, then he should check it with his tongue; and if he cannot do that, then he should consider it bad in his heart (and wish for its removal) and this is the sign of weakest in faith. [14] 

A famous hadith states as follows:

The best Jihad is to say what is just (or truth) in the face of a tyrant. [15] 

Yet another hadith states that:

When people see a tyrant and do not hold his hands, it is not far that Allah (SWT) sends a common punishment on them. [16] 

Thus the above hadith categorically emphasised its importance.

Islamic Banking in Brunei

Having moved early to establish Shariah-compliant services, the Sultanate was now in a position to carve a niche for itself as a center for Islamic banking. However, the industry must address a number of challenges, led by the shortage of skilled labor, if it is to fully support the development of the segment.

In mid-October, Standard Chartered Bank Brunei (SCB) said it was mulling plans to introduce Islamic banking products this year to meet increased demand for syariah-compliant banking services in Brunei. The announcement followed the September launch of the Islamic Bank of Brunei, which replaced the International Bank of Brunei as the sole domestically owned bank in the country.

The Tabung Amanah Islam Brunei was launched in 1991 and was the first financial institution to offer savings and financing in accordance with Islamic principles. It was followed two years later by the Islamic Bank of Brunei. They were joined in 2000 by the Islamic Development Bank of Brunei.

Standard Chartered Bank Brunei CEO Lai Pei-Si told the media in October that launching an Islamic bank was a "logical step to take and a logical step to consider because Brunei has an express need for Islamic banking products". He added that the bank would begin modestly by offering Islamic products, with hopes of bringing "much more comprehensive Islamic solutions into the country".

In April, the managing director of Bank Islam Brunei Darussalam, Javed Ahmad, said the market share held by syariah-compliant banking was expected to increase to 60 per cent from its current levels of 40-55 per cent over the next five years.

At a seminar on Islamic finance, Ahmad said Brunei Darussalam's strengths, led by strong economic and political stability, good infrastructure and government support, meant it was well placed to build a reputation as an Islamic financial centre.

"With more aggressive marketing, Brunei Darussalam's journey towards making itself an Islamic financial hub might become a possibility in the next few years," he said.

A report in December by global consultancy Ernst & Young said the worldwide value of Islamic banking would reach US$1.55 trillion in 2012 and US$1.8 trillion this year. Growth in Muslim communities in the Middle East, North Africa and Asia were key drivers in the rising demand for Islamic financial services, it said.

The Sultanate is benefiting from early participation in the Islamic banking segment, having launched its first Islamic bond, the Short Term Government Sukuk Al-Ijarah programme worth $150 million for a three-month certificate in April 2006.

In November, Autoriti Monetari Brunei Darussalam (AMBD, which acts as central bank), announced the successful pricing of its 82nd issuance of sukuk or Islamic bonds, worth $100 million at a rental rate of 0.16 per cent. The move followed a $100-million, 90-day issuance that matures this month.

Although Brunei Darussalam is well positioned to capitalize on growing interest in Islamic finance, observers have emphasized the need for the Sultanate to develop Islamic banking products are new if it is to maintain its position in the market.

"Understanding the theory of Maqasid al-Syariah (the objectives of Islamic law) and the defining characteristics of an Islamic bank could encourage the Islamic banking industry to improve and excel in their product innovation as well as financial inter-mediation that can be linked to economic growth," Abdul Ghafar Ismail, a lecturer at the Research Centre for Islamic Economics and Finance, Universiti Kebangsaan Malaysia, said at a conference last May.

Industry experts believe Brunei addressing these challenges, with an emphasis on staff training after human resources has been identified as a factor that may limit the success.

"Having strengthened its operational base and regulatory framework, Brunei is now taking steps to address a shortage of trained industry professionals in the Islamic financial sector by providing on-the-job training and local universities offering bachelors, masters and doctorate degree programmes related to Islamic finance," said Javed.

Early entry into the Islamic financial services market by the Sultanate had provided it has a solid foundation to develop the industry. Experts suggest the focus should now shift to export expertise and strengthening the global role of the Sharia Islamic banking.

Concept Of Riba

Riba in Malaysia

Riba is a transaction contract between 2 or more parties. Therefore, it is an agreement which is enforceable by law. [17] So, when an agreement is not capable of being enforced, it is said not to considered as a contract. [18] Even though there could be contract between the parites, the law had laid down certain situation where the contract will be invalidated based on circumstances.

Section 24 of the Contracts Act describes a void contract as any agreement or contract, the object or consideration of which is forbidden by law, is such a nature that if permitted by law will defeat the law; is fraudulent; it involves implied injury to the person or property of another; or is regarded as immoral or opposed to public policy by the court. Thus, in all the above circumstances, the courts are requested to declare the agreement as illegal and therefore void; having no effect whatsoever. [19] The Act further provides for instances or grounds where an agreement will be regarded to be void.

The Act provides as follows:

The considerations and objects of an agreement are lawful, unless --

(a) it is forbidden by law;

(b) it is such a nature that, if permitted, it would defeat any law;

(c) it is fraudulent;

(d) it involves or implies injury to the person or property of another; or

(e) the court regards it as immoral, or opposed to public policy.

The above cases show that the consideration or the object of the consideration is said to be unlawful. In situation where the consideration is said to be unlawful, the contract is void

The main part shall be on S24(b) and € of the contract Act. The court had the power to declare any riba transaction to be void it such situation had been brough to the civil court. If the riba based agreement is allowed, this would defeat any law and also the constitution too. This argument falls unequivocally on S.24(b) of the Contract Act. Besides that, a riba based agreement if allowed would defeat A.3 of the Federal constitution as well. The courts can therefore rely on this provision to declare a riba-based transaction or agreement void.

The combination of the two provisions of the law is sufficient for the court to declare that riba based agreement, would defeat A.3 of the Fedeeal Constitution. This interpretation is in line with the principle that the constitution should not be read in isolation but rather it must be interpretaed in a way that it would give life and meaning to other provision of the law.

The second argument that could be raised by the court in invalidating riba based transaction is the ground of public policy. This is coverd by S,24(e) of the Contract Act.

The question now is what is public policy and what is public policy in Malaysia.. It has been viewed in one quarter as the broad framework of ideas and values within which decisions are taken and action, or inaction, is pursued by governments in relation to an issue or problem. [20] It has also been seen as a proposed course of action of a person, group or government within a given environment, providing obstacles and opportunities which the policy was proposed to utilise and overcome in an effort to reach a goal or realise an objective or purpose. [21] Furthermore, it is also a commitment to a course or plan of action agreed to by a group of people with the power to carry it out. [22] 

It is also seen as whatever governments choose to do or not to do. [23] It can also mean an agreement that injures public welfare, morals or health. [24] It also means policy of the law and is applicable to the spirit and letter of the law. [25] It is also seen as principles according to which actions of men and communities need to be regulated to achieve the good of the entire community or public. [26] It has been seen as principles and standards regarded by the Legislature or by the courts as being a fundamental concern to the state and the whole of the society and things that can injure the public at large. [27] It further refers to the art of ruling wisely and to matters which the Legislature or the court regards as fundamental concern to the state and to the whole society. [28] It connotes an overriding public interest that may justify the court's decision to declare a contract void. [29] 

From all the definition of 'Public policy which had been defined above, oine could reasonably concluded that public policy includes the state ideology, the state objectives and plan, the values and fundamental concerns of the state, the legal policy of the state in terms of spirit and letters of the law, the overriding public interest and principles regulating the affairs of the state to achieve good for the community.

Regarding the second question which is regarding public policy in Malaysia, it is to be said that Islam is considered as the public policy in Malaysia. The religion of Islam being the public policy of Malaysia is evident in art 3 of the Constitution which declares Islam as the religion of the federation. It was made so important to the extent of having it stated in art 3 of the Constitution. It is also evident in the careful drafting of art 4(1) to exclude Islam from a law that may be rendered void for being inconsistent with the provision of the Constitution. [30] One can also clearly see the public policy in the nature of oath being taken by the Sultan and Yang di-Pertuan Agong. [31] This can also be seen in the definition of who is Malay. [32] It can also be seen in art 74(2) which gives the state the powers to make laws in Islamic matters. On the other hand, the population of muslim had overridden the number of other religion in Malaysia. In addition to that, Muslims also represent the majority in political positions including that of the states of the Federation.

Having affirmed that Islam remains as the major public policy of Malaysia, it is clear for the court to nullify riba based agreement nor transaction to be contradict with the public policy of Malaysia which is under S.24€ of the Contract Act and A.3 of the Federal Constitution.

There are certain objection that had been raised which is one could be said to have the intention to impose Shariah principle on every citizens in this country including those who are of different religion.. This argument may not hold water because this is nothing but pure interpretation of the existing laws of the country namely the Contracts Act and the Constitution. Secondly, it is natural that a law usually emerges anywhere in the world as a result of the political, social, religious and sometimes even for selfish reasons. It is a product of the cultural norms, social status and public policy of a nation and this perhaps led to the emergence of Islam as the religion of the federation. Even the Central Bank Act of Malaysia enjoins the bank to promote the interest of the country. [33] It is submitted here that allowing a riba-based transaction is even not in the interest of the country, No matter how it is looked at, A.3 of the Federal constitution is already in existence and the best solution for it is to interpreted it in a way that it gives life and meaning to the provision Moroever, invalidating riba based transaction on the grounds of public policy is equivalent to circumstances where the court declares an agreement void due to the reason of it is against morality

Riba in Brunei

Throughout the history there are people who are trying to justify riba. There is a writer saying that: "We can state that there will be no Islamic pre-eminence without achieving economic pre-eminence. Besides that, is it to said that there could not be any pre-eminence without establishing any fininacial institution which dould not function without relying in interest (Riba/ usury)"

The muslim ummah is permited to build up their own economies by way of using the means that Allah had allowed for them.

Economic strength enables the Ummah to perform what Allah had permitted to them and what had been forbidden to them. Whenever a Muslim helps in preserving Allah's command and help each other to preserve the rightenous of Islamic Law, Allah will make bless them. In addition to that, Allah will also help them in archieving their goals and stay safety.

Regarding the statement- "There can be no economic pre-eminence without ¬nancial institutions and no ¬nancial institutions without interest (Riba)", they are utterly false.

This false statement had been contradicted with the Al Quran. The practices of Islamic economic where it was establish at the time of prophet until now where banks had affirmed the falsehood of this statement.

Muslim economy could said to have been the strong during the past few centuries where it does not rely neither on bank nor Riba. Besides that, throughout this time period, many Muslims were able to amass great wealth using the permissible Islamic ¬nancial dealings.

Allah gave victory to early Muslim generations over their enemies, until Muslims and the Islamic State became masters of the world, for many centuries. During these glorious centuries, Muslims used to refer to what Allah has revealed. They did not have any need for banks or usury.

If people making statement stating that banks and usury were and still the main reason many problems and division among muslim and behind the weakness in Muslim, the hatred that spread between them and the shattering of the Islamic unity, one will surely be saying the truth.

This is because usury causes hatred and enmity between people, eradicates Allah's blessings and warrants His punishment, just as Allah said, "Allah will destroy Riba (usury) and will give increase for Sadaqat (deeds of charity, alms, etc.)." (Surahal-Baqarah: 276)

Besides that because of Riba, debts had keep on accumulating and multiplying, which had caused the debted citizens and nations suffers from being unemployed. When such situation arise, people who had money prefer to borrow their money and had a high interest return, rather then making an investment in business projects or others.

On the other hand, the various business transactions that Allah has allowed will surely bene¬t the Muslim Ummah, and mankind on the whole, and will ensure an increase both in wealthand piety for them.

Also, what Allah legislates and allows will certainly provide work for the unemployed and help for the poor, so that they acquire an honorable means of livelihood.

Hence, the entire community will bene¬t from the absence of Riba and from begging others for help and indulging in the impermissible means of amassing wealth.

Allah do allows Muslim to build their own companies, factories, business which would bring benefit to the people. Allah also permits muslim to participate in agriculture production which later on will bring benefit to sthose who are in need.

As compared to all these bene¬cial methods of economic activity that Allah permitted for Muslims, Riba harms and We must speak clearly without any ambiguity, announcing that Islam is in fact Allah's religion and that Allah will accept from us no other, for truly Allah says,"Whoever desires a religion other than Islam, never will it be accepted from him and he will be among the losers in the Hereafter." works against healthy economies and public interest, often causing severe economic disasters as all those who have a sound mind would concur.

One must always keep in mind that as a muslim, replying on usury as legitimate business transaction eradicates Allah's blessing, which later will lead to dictated to by the enemies and brings Allah;s wrath.

The same author has claimed that "A ¬nancial institution to any economy is just like the heart to the human body." Again, this is not a true statement.

Without usury, a financial institution could still function just like the muslim in the past future. The Muslim economy was the purest, largest and strongest without relying on Riba.

On the other hand, Muslims will suffer economically, and Allah's blessings will decrease, as a result of deviating from Allah's Law and abandoning what He ordered and the business transactions He has allowed.

Al-Quran and the Sunnah clearly state that both Riba AlFadhl and Riba An-Nasi-ah are not permissible for Muslims.

It should be added that scholars stated that prohibiting includes prohibiting the methods and means of it. According to Al-Bukhari and Muslim, it was stated that "This is Riba itself! This is Riba itself! Do not do this."

Abu Sa'id Al-Khudri said that, the Prophet, sallallahu 'alayhi wasallam, said, "Do not sell gold for gold unless equivalent in weight, and do not sell less amount for greater amount or vice versa; and do not sell silver for silver unless equivalent in weight, and do not sellless amount for greater amount or vice versa; and do not sell gold or silver that is not present at the moment of exchange for gold or silver that is present."

Riba transaction is not only prohibited due to usury transaction requires the people who is in need to pay the additional payment. It is mainly due to the reason that It causes injustice to the needy who have to pay the extra interest and it should be prohibited due to the types of transaction.

By way of 'force' to make the needy pay the riba which had been accumulated on their debts is totally unfair, especially since the lender is required to be patient with the needy borrower, but not rather increase the debt illegally.

In conjunction to that, RIba would still be disapprove even it brings mutual benefit fot the both lender and the indebted person.Therefor, islam does not accept this mutual benefir which arises from Riba. Rather, Riba is said to be haram no mater any way you look at it.

It had been clearly stated in many of the hadith of the Prophet. If islam agrees that mutual benefit arising from Riba by the lender and the borrower and that Riba should be allowed, this facts would had been inform by Allah in His Glorious Book, or in the words of His Messanger, peace be upon him.

As a conclusion, Malaysia is indeed unique among many countries of the world to have art 3 of the Federation Constitution declaring Islam as the religion of the Federation. This as shown above, is also contained in most of the Ma-laysian states' constitutions. It is therefore submitted that to interpret art 3 of the Constitution in such a way as to merely mean 'ceremonial' or 'official' is to render ineffective the provision of the constitution and the entire structure of the Malaysian Constitution built on Islam. The best principle of constitutional interpretation is the one that gives life and meaning to the provision of the law. The minimum irreducible standard of inter-pretation that is herein suggested is to mean that Islam is the public policy of Malaysia. If this is acceptable, then riba-based transactions must give way for being contrary to the public policy of Malaysia.

As a conclusion, Malaysia is indeed unique among many countries of the world to have art 3 of the Federation Constitution declaring Islam as the religion of the Federation. This as shown above, is also contained in most of the Malaysian states' constitutions. It is therefore submitted that to interpret art 3 of the Constitution in such a way as to merely mean 'ceremonial' or 'official' is to render ineffective the provision of the constitution and the entire structure of the Malaysian Constitution built on Islam. The best principle of constitutional interpretation is the one that gives life and meaning to the provision of the law. The minimum irreducible standard of interpretation that is herein suggested is to mean that Islam is the public policy of Malaysia. If this is acceptable, then riba-based transactions must give way for being contrary to the public policy of Malaysia.

Riba in Iran

The problem of riba has never been an important political issue in Iran of the twentieth century, before as well as after the 1979 revolution. This does not imply that Iranian Shi'I ulama approve of riba or Islamic movement in Itan have not demanded the abolition of riba; it only means tbat unlike Egypt and Pakistan policical and economic debates over Islamization were never focused non the issue of riba. For this reason one finds very little discussion, not to speak of controversy, on riba form a legal, juridical, or constitutional view, and, after the implementation of Islamic Banking, from a technical or economic point og view. It seems that Iranian Islamists and the Islamic government itself. Have been content with mere formalities changes and have left it at that. This situation might be envied by the Egyptian and Pakistani modernist Muslim, but curiously enough. Bas also bee referred to as an ideal case but many Islamic intellectuals who are not well informed about what has happened in Itan, partly due to the uncritical idealization and the historical and sometimes ideologically motivated research on the subject.

The first important modernist interpretation of banking and riba in Iran, distinct from the traditional understanding of it, was introduced in the early twentieth century. It was by Ayatollah Haeri, a prominent mujtahid, who defended the establishment of an Iranian bank in the constitutional and national movement in Iran, against the dominance of the Bristish and Russian banks in Iran. Later, in the 1927-32 period, the Iranian civil code that was a synthesis of western and shi'I law and was written by modernist shi'i, prohibited usury, but in a timid manner recognized the legitimacy of interest (Amin 1986: 36-45).

However, in spite of differences in interpretation, various political tendencies of Shi'I Islam have always rejected riba. Navvab Safavi's interpretation of Islam and banking was political and radical. His political movement had a very rigid, simplistic, and militant orientation. This movement was in reaction to the onslaught of modernization after the second world war that was uprooting traditional Islamic values, and had a categorical position on the abolition of riba from the modern banking sector. According to Bavvab-Safavi, in a truly Islamic state Muslims would automatically and without any coercion accept obligation financial prohibitions. Nevertheless, his group was for the forceful imposition of Islamic values and injunctions before the advent of an ideal Islamic state. For this reason, there was not much persuasive analysis about thr prohibition of riba even within an Islamic intellectual framework (Rahnema and Normani 1990: 73 - 96). Yet, in contract to the simplistic views of Navvab Safavi, one of the first analyses of the possibility of an Islamic economic system and Islamic banking was presented in the 1960s and early 1970s by a Shi'I jurist in Najaf, Iraq, the late Muhammad Baqir Sadr.

Ayatollah Sadr's analysis of an Islamic economic system has been influential among Iranian Islamic movements before and after the Iranian revolution. His major work, Our Economy was translated in Persian and was published in two volumes (sadr 1971,1978). In this book Sadr was not interested in the study of an Islamic banking because in the late 1960s and early 1970s the intellectual prioriy of many islamist scholars was to defend Islam as a viable economic system against what they conceived as communist influence and threat. Howeveer, in a very indirectly way, he mentions that the use of mudaraba for manufacturing contracts is preferable to stock owenership (sard 1971: 591-2). In fact, in Our Economy Sadr does not even study the meaning and implications of riba in Islamic contracts, except for a very short reference to riba. Thus, in Our Economy riba in loans was condemned on distribution grounds and interest-free loan was recommended as the only acceptable loan contract (Sadr 1971:522; Haneef 1995: 116)

Some Sunni as well as some Shi'I scholars have criticized the way Sadr had conceptualized the functioning of an Islamic bank in a parallel banking system. It is claimed that according to the pragmatic approach of Sadr an Islamic bank is only a financial intermediary that does not necessarily participate in productive activities; that Sadr permits the guarantee of mudaraba deposits by the bank, while Islamic law does not absolve depositors' liability to loss; that Sadr, like many Shi'I jurist, allows a banking prize for depositors as a percentage of Islamic time deposits; that Sadr's predetermined rate of profile for mudaraba deposits is compromising Islamic banking (ahmad 1981: 223-4; Kahf 1993; 91-2). In short, according to the critics, Sadrs' approach may fit in with some traditional interpretations in Islamic jurisprudence but it does not fit the Islamic economic theory or practice, since trying to make a workable set up out of one whose long-term structure is based on legal tricks is obviously undesirable.

Like sadr, all the other important personalities of Shi'I tendencies before the Iranian revolution, namely Murteza Mutahhari, Ali Shariati, and Mehdi Bazargan concentrated their effort in one way or another on an Islamic response to the spread of Marxism among Iranian intellectuals. Shariati's objective was to attempt to accommodate, co-opt, and eventually dissolve Marxism-Leninsm in Islam. It is only within this perspective that Shariati is interested in the concept of riba. For him, and other leftist Islamists riba In Iskam reprents the exploitation f once class by another( Rahnema and Normani 1995:69-70). This conceptualization could not be left unanswered by religious scholars like Mutahhari, who had to argue for an Islam that was not only against secularists, but also againsts leftist tendencies within the Islamic movement. Thus, Mutahhari explicity professes that the exploitation explanation of riba is not an Islamic but a socialist view. According to him, riba and exploitation are two different concepts, and the absolute prohibition of riba does not imply that Islam is against capitalism: "riba is unjust, but all injustices are not riba (Mutahhari 1991:89)

In general, Mutahhari's arguments on riba are very similar to opinions of the majority of the Shi'i ulama. These arguments can be summarized in the following manner. Money is only a means of exchange and its transaction must not lead to an increase in the form of interest. However, if money capital in commercial or productive activities leads to an increase called profit, this profit is lawful because in such cases profit return to labor and the "excess" in commercial and productivities activities is not a mere exchange of money. If bills of exchange and discounting are lawful in shi'i Islam, it is because in such acts the lender "does not receive something extra, but less" (Mutahhari 1991:40). According to Mutahhari, that which is forbidden in Islam is to demand something more than what has been given. Besides, sale on credit is not riba and is valid in Shi'I Islam because the substance of the act is the freedom of the seller to increase the price in case of delay in payment.

Muttahari asserts that all kinds of riba, riba al fadl, and riba al-nasia, are prohibited in Islam. Modern loans based on interest are equally forbidden as riba because the lender asked for a predetermined and fixed positive return. Thus, loans for consumption and for productive purposes, based in interest, are illicit. For this reason, according to Mutahhari, the view of those Egyptian Muslim scholars (Mutahhari does not identiry these scholar but most probably he is referring to Sanhuri) who differentiate between consumption and productive leans, "bad" or "good" riba is not admissible. In is view Shi'I jurist do not consider one type of riba to be less unjust that the other type, and, consequently, acceptable.

Mutahhari regards all legal tricks as invalid, even though the majority of Shi'I ulama find them legal. Therefore, for him the only legal way to increase a sum of money is by means of mudaraba contract in which a "lender" shares in profit or loss of the enterprise of a "borrower." He asserts that the payment of interest on saving accounts and government bonds is riba, while the payment of bonuses on saving deposit are lawful if such bonuses are not predetermined. A guaranteed rate of return on a stick od an investment bank I legal since the band is committing itself to a payment without asking the owner of the sticj ti agree to any condition in return; such a commitment is like what takes place in insurance contract, which are in general legal. Finally, like tha majority of Shi'I ulama, he permits the payment of interest to and receiving interest form non-Muskims( Mutahhari 1991:87)

Mutahhari was a follower of Khomeini, and therefore, the latter's legal opinion on the subject of riba was more or less the same. For example, according to Khomeini, paying an extra sum which is not o be determined at the time a savings accounts is opened or a promissory note is made, or giving a prize to depositors are all lawful (Rahnema and Nomani 1990: 149-50). However, the views of some other jurist in Iran, such as Milani, were even more pragmatic in relation to the needs of the modern financial system. Such jurist had come up with many legal tricks that would facilitate the effective payment of interest on loans, much to the dissatisfaction of clerics like Mutahhari. Such acceptable devices were management or service fees, discounting, markups, and hire-purchases, which were approved of even by Khomeini. However, the pragmatic Shi'I ulama came up with legal tricks that turned loans into a sale in a very formalistic manner. For example, according to Milani, instead of stating that I lend you $A and receive in a year $A + $B, one could say I sell this $A + $ B (Mutahhari 1991: 141). Since in Shi'I law the exchanges of unequal quantities of things that are countable, for example money, are permitted, the act would be lawful.

Bazargan represented the Shi'I modernist view on riba. He, as a non-cleric Islamic scholar advocated a tolerant religion compatible with liberalism and political democracy in a market system. He was familiar with the arguments of liberal modernist of Egypt and Pakistan and his position on riba follows their arguments. According to BAzargan, borrowing for consumption purposes by the needy should be free of interest. However, productive loans are simple interest because the interest in a loan is normally less than the profit received form the enterprise. He reiterates that only usurious interest have been forbidden by the quran, ad sales on credit with a rate of retun that are like loans based in interest, are permitted by jurists. Nevertheless, Bazargan finds devices such as mudaraba and cooperative banks useful for modern banking (Mutahhari 1991: 89-94)

In 1979, the Shi'I clergy, under the leadership of Khomeini, came to power in Iran, and the official name of the country was change to Islamic Republic of investment related to these contract. Yet, the decision of the central bank did not give rise to criticism or indignation on the part f Shi'I ualam.

In addition, once in a while there have been open and pragmatic innovations in interpretation of certain aspects of riba. For example, in a series if articles in the daily journal of Salam, Abedeeni raises the important and unresolved question of inflation and rate of interest in Islamic banking an fiqh. He content that the tradtitonal rejection of paying a positive, but variable, rate equal to the inflation rate as riba is itself the practice of riba.

Abedeeni tries to prove that due to lack of economic knowledge, ulama have not understood the difference between the acquired value of currency and demand deposit as modern money in contrast to the clue of gold and silver used in the medieval period. According to Abedeeni, who relies on the legal opinion if Ayatollah Mussavi-e Bujnurdi, Islamic law recognizes compensation in the principle of damin(risk of loss, liability for loss, guarantee) If the Islamic government has created inflation by inappropriate fiscal and monetary policies, In such a situation the government, as the guarantor, is damin (guarantor). In the case of modern loans the value of today's money or its purchasing power, and not a given quantity of currencies, is borrowed. Therefore, according to a realistic interpretation of riba, the lender must at least receive the same value that was lent; otherwise, the debtors accumulate wealth unjustifiable in the aforementioned case. However, if the lender receives more than the purchasing power lent, he or she is engaging in a transaction that is riba. In the opinion of Abedeeni, modern currency is neither this not that because both of these concepts apply to things that have value by themselves, while modern currencies only have an acquired value. Therefore, one could not apply the rules of riba to the case of compensation for a loan's loss of purchasing power.

After more than two decades of state Islamic banking in Iran, The share of ideally preferred Islamic contracts in total outstanding assets of the banking system is very low( 7 percent in 1999). In contrast, the share of certain other contracts, example, installment sale that in the opinion of some radical clergies and Islamist intellectuals are legal tricks, is 57 percent( statistical Center of Iran 1999: T.12.12). And this is in spite of the pragmatic interpretation of mudaraba and musharaka contracts in Iran, Rate of profit on such contracts difer according to the duration of deposits. In the past two decade theses rates have been changed by the Central Bank only 3 times despite the fluctuation in economic activities.

However, rates of profit on mudaraba and musharaka contracts have been less than inflation rate in the last two decades, facilitating the transfer of private saving to the Islamic government and the availability of cheap loans to rent-seeking and bloated nationalized firms, quasi-public Islamic foundations and political cronies. Such practices, as well as the bureaucratic approach to banking and other structural flaws have led to the expansion of unregulated and informal bazaar lending based on mudaraba and/or conventional loans with high risk, and therefore, very high rates

In fact, structural problems in the Iranian banking sector have led to a real pressure for banking reform in line with Malaysia experience based on parallel Islamic- conventional banking. This is not a farfetched proposal because a parallel banking system is permitted by law I the Iranian free zones in the Persian Gulf for foreign banks and Iranian state banks, even though because of economic and political problems the experience has not been very successful.