This case illustrates a classic case of the conflict between Islamic law and modern business. In 1991, the Federal Shariah Court of Pakistan declared the payment of interest (riba) by banks on loans and deposits to be contrary to Islamic law. During the 1990s, Pakistani banks adopted many banking techniques to avoid the payment of interest, such as equity investments, profit sharing, and service charges. The government, together with several banks, brought this appeal to the Supreme Court of Pakistan. The court's entire opinion was 1,100 pages long. Below are excerpts from the individual opinion of Maulana Justice Taqi Usmani, an Islamic scholar trained in strict Sharia law. As you read, consider the political overtones of the opinion and the economic analysis of interest that would be considered contrary to Western, capitalist economic theory.
1. What is riba? Why is riba not permitted pursuant to the Sharia law?
2. What would the effect be on Pakistan if the decision were implemented in Islamic banks?