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Ninth Greater Sin: Usury
The ninth Greater sin is usury. That it is classified as a Greater Sin is clear in traditions recorded from the Holy Prophet (S), Imam ‘Ali (a.s.), Imam Ja’far as-Sadiq (a.s.), Imam Musa al-Kadhim (a.s.), and Imam Muhammad al-Taqi (a.s.).
According to the glorious Qur’an, taking interest is a sin that incurs severe Divine punishment. The punishment for usury as mentioned in the Qur’an is far more severe than the punishment for other sins. It is announced in Surah Āli- ‘Imran:
“O you who believe! Do not devour usury, making it double and redouble and be careful of (your duty to) Allah, that you may be successful. And guard yourself against the fire that has been prepared for the unbelievers. (Surah Āli- ‘Imran 3:130-131)
It means that the fury of the fire that is prepared for those who take interest will be just as intense as the fire prepared for the unbelievers.
The verse of Surah al-Baqarah says,
“Those who swallow down usury cannot arise except as one whom Shaitan has prostrated by (his) touch does rise. That is because they say, trading is only like usury; and Allah has allowed trading and forbidden usury. To whomsoever then the admonition has come from his Lord, then he desists, he shall have what has already passed, and his affair is in the hands of Allah; and whoever returns (to it) - These are the inmates of the fire; they shall abide in it.” (Surah al-Baqarah 2:275)
The above verse confirms that the usurer will remain in Hell eternally and there is no salvation for him. Allama Muhammad Husain Tabatabai, in his Tafsir, ‘al-Mizan’ says that the punishment ordered by Allah (S.w.T.) for usury is so severe, that such severity is not mentioned even for disobedience to any of the Furu’ ad-Dīn. Another equally serious offence is to nurture friendship with the enemies of Islam. The direct ill-effects of usury are clear and evident. Hoarding of wealth increases the disparity between the rich and the poor. Poverty is a malady that can degrade and humiliate its victims, erode his values and destroy his morals. This in turn leads to corruption, theft and murder. Those directly responsible for destroying the social equilibrium, are the hoarders, who amassed wealth and thus it was unavailable to those who needed it. The total disintegration of the social fabric can precipitate a civil war and further a world war which brings with it only death and destruction. In the world of today with the advances of the nuclear and chemical weapons, war does not only bring death to the humans, but leaves them a caricature, sick and maimed and deformed for generations to come.
The direct ill effects on the Muslim society as a result of friendship with those opposed to Islam, are also clear and evident.
History has recorded that friendship with the enemies of Islam can only be bought at a price. The price in this case is to compromise. Compromise on the tenets, the culture and the spirit of Islam, till a time comes when the country loses its identity as an Islamic society.
Usury is Against Intellect and Shari’a
The verse of Surah al-Baqarah which is quoted above, says that those who take usury (interest on loan) shall be counted among mad people (whom Shaitan has touched). On the Day of Judgement people will recognize them from their madness that they had been taking usury. Their sanity would be destroyed, because in this world they have acted against intellect and Shari’a.
They have been oblivious of humanity and the needs of humanity. They did not deal equitably with others and disobeyed the law of co-operation. Actually these people had been insane in the world, because they have followed the direction of Shaitan and performed such insane acts.
Is Trading and Usury One and the Same?
This argument is obviously foolish. There is nothing comparable between interest and trade. There is equity in business transactions because there is a mutual agreement between the two parties and both stand to gain or lose. In trading, a seller sells an article to the buyer at a price mutually acceptable to both, and the matter ends there.
But taking interest is a clearcut case of exploitation. A person with surplus money, which he does not need, lends it to someone who is in dire need. The needy person agrees to pay interest which he can ill afford; not because it is acceptable to him but because of his compelling situation.
Interest and Inequality of Classes in Society
Undoubtedly, usury is an unjust and oppressive evil. It is against human nature and human dignity. It increases the riches of the wealthy and drives the impoverished to further depravation.
Understandably, the exploited poor begin to hate the rich. The pent-up hatred then finds an outlet in the form of violence and bloody revolutions.
In the book “Islam and World Peace” it is written, “Islam says that earning should be only in return of efforts and work. because capital itself cannot do any work and make any effort. Hence the wealth of the rich man should not be increased by taking usury.”
Increasing wealth by usury is the easiest form of making money but Islam forbids it. Wealth cannot be accumulated by forcing the helpless poor into further destitution; and usury does just that, causing economic imbalance and trampling upon human rights, equity and justice. Maulana Sayyid Abul ‘Ala Maududi of Pakistan has written a comprehensive and interesting book on usury that describes its evil effects and the arguments are supported by statistics.
The needy person ends up returning not only the amount loaned to him but far in excess of it. The excess can even amount to more than the principal amount if the repayment is delayed. Taking interest imposes an excruciating financial burden on one who is already needy and it is nothing short of blackmail. Needy people should be given loans without interest. This promotes a feeling of friendship, co-operation and charity.
Interest for Goodly Loans
To give a loan on interest not only destroys the economic balance in the society, it also inflames the feelings of hatred, enmity and selfishness.
The One Who Indulges in Usury is Deprived of Goodness
There are too many disadvantages of taking interest. The earnings of one who takes interest, loses ‘Barakat’ (abundance and prosperity). Whereas the earnings of hard labour have much ‘Barakat’.
The Holy Prophet (S) says in one of his traditions:
“Worship consists of seventy parts. The most important is lawful earnings.”1
The Prophet (S) also says:
“The truthful trader shall be counted among the prophets on the Day of Judgement. His face would glow like a full moon.”2
The Usurer Does Not Place Trust in Allah (S.w.T.)
Another misfortune of the usurer is that he loses trust in Allah (S.w.T.). He does not pray to Allah (S.w.T.) to give him ‘Barakat’. All his hopes are pinned upon the interest that he collects from his debtors and this is polytheism as discussed in the section on ‘Shirk’.
Another point to be noted is that in normal business there is a possibility of both gain and loss. So the businessman not only puts in sincere efforts but prays to Allah (S.w.T.) for success and profit in his endeavour. An usurer has no fear of loss and feels no intuitive need to pray to Allah (S.w.T.) for his ‘Rizq’. He is thus deprived of an important facet of religion.
The Reward of Giving a Loan is More than that of Sadaqah
One who takes interest is deprived of the rewards that are prescribed for giving a goodly loan. If there are ten merits in giving Sadaqah, the interest-free loan has eighteen merits. An interest-free loan is therefore more rewarding than Sadaqah in the way of Allah (S.w.T.).
A person who gives respite to his debtors and does not take interest is given a reward that is equivalent to charity of the said amount every day for the number of days that he extends. It is evident that the usurer does not qualify for such rewards. In fact he is afflicted with miserliness and greed, which only increase day by day. Surely the result of miserliness and greed is Hell.
The Fate of the Usurer
We have already seen from the verses of the Holy Qur’an, the sayings of our Holy Prophet (S) and of our Imams (a.s.) that the punishment for usury in more severe than that of other sins. We have also discussed the reasons for this. Islam classifies usury as the greatest of the Greater Sins and its punishment is the severest of all punishments. If the usurer does not repent for his acts, his end will be with the disbelievers and those whose eternal abode is Hell. The usurer shall never be released from Hell.
“To whomsoever then the admonition has come from his Lord, than he desists, he shall have what has already passed, and his affair is in the hands of Allah, and whoever returns (to it) these are the inmates of the fire, they shall abide in it.” (Surah al-Baqarah 2:275)
However there are certain ways to compensate for this sin and pray for forgiveness. Certain sinful acts are forgiven by just repenting sincerely. If a Polytheist repents for his sins and becomes a Muslim, a great sin like ‘Shirk’ is forgiven. He does not have to do anything more than that. But there are some sins that require compensation in addition to sincere repentance i.e. like the one who has Qaža prayers and fasts. Along with repentance he must perform all the prayers and observe all the fasts due on him. Similarly in the case of interest, the penitent should give back the amount that he has taken as interest from his debtors.
No Barakat in Interest
The above Qur’anic Ayat continues:
“Allah does not bless usury, and he causes charitable deeds to prosper, and Allah does not love any ungrateful sinner.” (Surah al-Baqarah 2:276)
Charity spreads peace, promotes beneficence and love in society, whereas usury destroys peace and hardens the hearts of the people.
When usury spreads its roots in society, people have no hesitation in usurping each other’s rights. They are only driven by a feeling of enmity, hatred and a passion of revenge. A society devoid of harmony and co-operation cannot progress, it destroys itself with its own corruption. Charity and Sadaqah on the other hand promote feelings of friendship, love and brotherhood. An atmosphere of peace and prosperity prevails which inspires people to further good deeds.
War With Allah (S.w.T.) and the Holy Prophet (S)
The Noble Qur’an says,
“O You who believe! Be careful of (your duty) to Allah and relinquish what remains (due) from usury, if you are believers. But if you do (it) not, then be appraised of war from Allah and His Apostle...” (Surah al-Baqarah 2:278-279)
The proof of one’s belief is in obedience of Divine orders. The same verse continues,
“...And if you repent, then you shall have your capital, neither shall you make (the debtors) suffer loss, nor shall you be made to suffer loss.” (Surah al-Baqarah 2:279)
One who does not obey this command must be prepared for war with Allah (S.w.T.) and His Prophet (S).
Tafsir Minhaj us-Sādiqīn gives an explanation of this verse. It could mean that the severity of the sin of usury is such that if in this world a usurer were to come face to face with the Holy Prophet (S), the Prophet’s (S) sword would be against him and the Prophet (S) would be prepared to fight him. In the Hereafter the fire of Hell shall keep him in torment by the order of Allah (S.w.T.). The usurer must be fought till he submits to the Divine orders and refrains from taking usury. Traditional reports state that after the revelation of this verse, the Holy Prophet (S) informed the Commissioner of Makkah that if the tribe of Bani Mughaira does not desist from taking usury, they must be fought against.
The Holy Prophet (S) also said inter alia in a sermon at Makkah: “Know that the usury which has been accumulated in the period of ignorance is now condoned completely. First of all I condone the interest (that is upon your neck) of (my uncle) Abbas Ibn Abdul Muttalib.”
Traditions Denouncing Interest
It is reported from Hazrat Imam Ja’far as-Sadiq (a.s.):
“Taking a Dirham as interest is worse in the eyes of Allah than doing illegal intercourse with Mahram women.”3
Imam ‘Ali (a.s.) says:
“The Holy Prophet (S) has cursed one who accepts interest, one who pays interest, one who buys interest, one who sells interest, one who writes the contract of interest and one who is the witness of this transaction.”4
Ibn Baqīr relates that Imam Ja’far as-Sadiq (a.s.) was informed about the person who took interest and considered it as permissible as mother’s milk. Imam (a.s.) said:
“If Allah gives me power over this man, I would strike off his head.”5
It is clear that to consider interest Harām is an article of faith. One who disregards this and says that interest is not Harām becomes an apostate. The Imam (a.s.) can also have him killed.
Interest is Denounced in the Holy Qur’an
Samā says that he asked Imam Ja’far as-Sadiq (a.s.) as to why Allah (S.w.T.) has mentioned the illegality of usury at various places. Imam (a.s.) replied:
“So that people may not forgo acts of charity (like giving interest-free loans).”6
Imam Baqir (a.s.) said:
“The worst transaction is that which involves interest.”7
The Sinner is Deprived of Religious Faith
Zurarah says that I asked Imam Ja’far as-Sadiq (a.s.) concerning the Qur’anic verse:
“Allah does not bless usury, and he causes charitable deeds to prosper...” (Surah al-Baqarah 2:276)
And added:
“But I see that wealth of usurers goes on increasing?”
Imam (a.s.) replied,
“What could be a greater loss? That in return of a Dirham of interest he loses his faith. And if he repents of his deeds in the world all his wrongfully earned wealth comes to an end and he becomes a destitute.”8
The Belly of the Usurer Shall Be Filled With Fire
The Holy Prophet (S) says,
“One who takes interest, his belly shall be filled with an equal quantity of fire by Allah. If he has earned more from the interest money, Allah will not accept any of his deeds. And till even a grain of interest remains with him, Allah and his angels will continue to curse this man.”9
Punishment of Usurers in the Barzakh
The Holy Prophet (S) has also stated:
“On the night of ascension (Miraj) I saw some people trying to stand up but did not succeed because of their huge bellies, I asked, O Jibrīl, who are these people?”
Jibrīl replied, “They are those who have taken usury. Now they can only stand up like those who have been possessed by the Devils.”
The Prophet (S) continues,
“Then I saw them herded upon the path of the followers of Fir’on. Seeing the extreme heat of the fire they exclaimed. O God! Then when will be Qiyāma?” (It is clear that the fire mentioned in the tradition is of the punishment of Barzakh).
Usurers Under the Feet of Fir’on
In another tradition it is said that when these people saw the followers of Fir’on they tried to get up and run away. But due to overlarge bellies they could not rise up and consequently the followers of Fir’on trampled them under their feet and moved on.
It is narrated from the Holy Prophet (S) that he said:
“When adultery and interest becomes common in a town the angels are given permission to destroy its inhabitants.”
Another Prophetic tradition in the same vein says:
“When the people of my Umma start taking interest, tremors and earthquakes will be frequent.”10
Usury is Worse Than Adultery
The Noble Prophet (S) says:
“If a man commits adultery with his mother in the Holy Kāba this act shall be seventy times lighter than the act of usury.”11
Imam Ja’far as-Sadiq (a.s.) says:
“In the eyes of Allah, taking one Dirham of interest is worse than thirty incestuous acts.”12
A previous tradition describes this sin to be seventy times more than adultery. There is one more report where taking a Dirham is equated with twenty such acts.13
Even in today’s world, the scourge of interest has spread to such a magnitude that economies are on the verge of collapse. Some economists say that interest is necessary for development. If this had been true then Islam would not have prohibited it. At the present time there are two schools of economics whose ideology is not based on interest. One is Communism and the other Islam. Whereas the foundation of imperialist economy is based upon interest. Even the Communist and the Islamic schools of economies differ greatly.
Unlike the Communists, Islamic government has never felt the compulsion to accept interest as inevitable, in order to fit the logistics of economy. And yet, Islamic economy is not known to have weakened because it does away with interest.
Yes, it is a necessity for the few selfish and greedy people who wish to add to their already enormous wealth, by increasing the miseries of the poor and the destitute. Their aim is to enslave the deprived people. We are well aware of the logic of these hoarders.
Loan On Interest
A loan on interest is one whereby a person lends something with the precondition that it would be returned with fixed increment at a fixed time. The loan given may be money or any other article, say, one loans five Mounds of rice and expects to get back six Mounds. The increment demanded may be in the form of cash or kind, labour or even a favour.
For example, one may lend money with the condition that the borrower will return the money and also carry out some household chores for him. Or a lender may lend a sum of money for a year and in return stay in the house of the borrower for a year without paying any rent. Or a person may give gold as a loan and expect the borrower to make some jewellery free of cost. Whatever is taken in excess of what was given, irrespective of its form, is interest and is Harām. Also it does not matter whether such conditions for giving loan were stated in the beginning or decided later. It is Harām in any case.
Some Important Points
1) A transaction involving interest is Harām. Charging interest is Harām and paying interest is Harām too. So if the borrower takes money on interest and uses it and earns some profit, the actual owner of the profit is the lender. For example, if he borrows some wheat and plants a crop, the crop that grows from this, rightfully belongs to the lender. However, if the lender has agreed that his loan can be utilised in such a manner, then the profit from it is the right of the borrower.
2) If one gives an amount to a trader with the understanding that he can return a lesser amount, it is permitted. For example, he gives a thousand Tumans to a trader in Shiraz and agrees to take nine hundred and ninety Tumans in Tehran, he is allowed to do so. This type of transaction is knows as ‘Sarf al-Barāt’, since there is no involvement of interest.
3) If at the time of disbursement of the loan there had been no mention of interest and the loanee wishes to return the loan amount with an increase out of his own wish, it is not Harām. In fact it is Mustahab. It is also Mustahab to repay the loan, if possible, before its due-date or before the lender demands it. It is also Mustahab for the debtor that when repaying the loan he should add something to it with the intention of giving it as a gift to the creditor. But the intention must be of ‘gift’. It must not even remotely be thought of as interest. Similarly, it is Mustahab for the creditor to accept whatever extra is given to him as a gift, not think of it as an interest, and accept it as a goodwill.
Transaction Involving Interest
If any of the following conditions are present in a transaction, it becomes a transaction of interest, and is Harām:
1) Whatever is taken and whatever is given back are of the same material but the quantities are unequal. Or if the quantities are equal, there is disparity in quality etc.
2) When only one standard of measure and weight is employed, the amount taken and given back is of unequal measure or weight. However, at the time of borrowing if the measure of weight is kilogram but while returning it, it is Sīr or Pound it is allowed. In the same way whatever was taken by the unit of measurement as metre and returned by the units of measurement as foot or yard, is valid too.
In the same way it is Harām for a person to lend one Mound of wheat for a month and in return borrow one mound of wheat for two months from the same person. Even though the quantity is the same, the transaction is Harām because time is also a significant factor.
Three Important Points
1) In the matter of interest, wheat and barley are considered equivalent. Then if one gives a Mound of wheat and takes one and-a-half Mound of barley, it is interest, and thus Harām.
Similarly, whatever constitutes the same basic material is regarded as equivalent. As an analogy one may think of the roots, branches and leaves of a tree as equivalent. For example, milk and curd are equivalent, grape-vinegar and grapes are equivalent, sugar and sugarcane are equivalent too. All these have to be loaned and given back in equal quantity or it will constitute interest and will be Harām.
2) If a person gives one Mound of wheat and a handkerchief and takes back one and-a-half Mound of wheat, it does not constitute interest and is not Harām. In this transaction one Mound of wheat shall be considered in lieu one Mound of wheat that is returned. And the remaining half a mound of wheat shall be in the lieu of the handkerchief. It is also possible that a person may give one Mound of wheat and a handkerchief and take back one Mound of wheat and some other article, for example, soap. In this way too he has not committed usury.
3) If a person first sells one Mound of his wheat for two Tumans and later purchases one and a half Mound of wheat for two Tumans, it is permitted. Since both these transactions are separate. It does not constitute usury.
It may be possible that Zaid sells a Mound of wheat to Khalid, and Khalid gives half a Mound of his wheat to Zaid as a gift. This is also permitted.
When taking interest is permitted
There are Three types of people between whom the taking and giving of interest is allowed:
(1) Father and son: The father and son can enter into a transaction of interest. But a transaction of interest between mother and son is Harām.
(2) Husband and wife: The husband and wife can charge interest from each other. For example one of them gives a hundred rupees and demand one hundred and fifty rupees in return. It is permitted.
(3) The Kafir who is not staying in an Islamic country: A Muslim can take back more but he cannot give him more. As far as the Zimmi Kafir (one who is staying in an Islamic country) is concerned it is Harām to enter into a transaction of interest with him. Taking and giving of interest both are Harām in this case.
The term used to define usury in the Quran is riba. Riba(الربوا) or (الربا) in their infinitive form stand for ‘add’ and ‘increase’ while in their noun form they do become addition or usury.
Usury is the incoming obtained from a loan. The increase, the riba obtained from the loan is usury, due to the fact it is the economic deal it relies on. In a verse revealed in Mecca the Glorified Allah commands:
وما آتيتم من ربا ليربو في أموال الناس فلا يربو عند الله
وما آتيتم من زكاة تري دون وجه الله فأولئك هم المضعفون
“Whatever (debt) you lay out as usury, so that it may increase in the property of men, it will not increase for Allah. Whatever you give as charity, desiring Allah’s pleasure- it is those charity givers who will get manifold.” (Ar-Room/ The Romans, 30/39)
No one besides those who posses more capital than they need can give loans. Loans with usury interest are given “so that it may increase in the property of men…”. For this reason they cannot be given to people who maintain little property.
The person who offers loans with usury in order to be assured that he will get back his money and the usury percentage requires guarantee. Thus he releases himself from the risk of guarding his capital. The reasons that make a loan-taker to overtake the usury difficulty might be his desire to increase his capital or the urgent need for money.
Considered similar to the rent income, usury is defined as the ‘value of money in time’. The rent for a property is the monetary compensation for the benefiting from a property without consuming it. Those who rent a house, sit in it. Those who rent a car, drive it. The property is given back to its owner when the agreement between the two sides ends. No property which cannot be benefited from without consuming it can possibly be rented. For example, money itself cannot possibly meet any necessity. Even if he were the owner of an enormous treasure, a man would die if he wasn’t fed. Money can be neither his food nor even his shelter. In order to profit out of money you have to exchange it with goods or services by consuming it. Thus, such a property cannot be rented and following the non-rentable property does not maintain a ‘value in time’.
Usury loaners maintain that someone who is need today may happen to make money in the future. Someone else might assure money he is not able to use for the moment. If usury is allowed, the loan-giver would help the person in necessity hoping to gain more money. While the loan-taker would generously pay back his loan when obtaining his money. Thus, money would not be absurdly preserved, and both sides would profit out of it.
The clause ‘whatever you lay out as usury, so that it may increase in the property of men, it shall not increase for Allah…’ means that ‘capital and money does not increase
according to the natural order –fitrat- of the market as the loan is no economic deal pursued to increase the incoming. Income is achieved by the investment of the loan by the loan-taker. Loan is no investment. The usury dealer overtakes no responsibility in the investment of the loan, so he possesses no right in the possible income made out of this investment.
Usury is mostly considered similar to trade. If the selling of a good, which costs 10$ in cash at the moment, for 11$ in a month credit is acceptable, then the selling of 10$ for 11$ in a month’s time is acceptable as well. On the contrary, trade is the exchanging of two different goods, as the offering of money to buy bread is. It might be in cash or in trust/ credit. On the other hand, the usury deal is the profiting of income out of a loan. The profiting of income from a loan is totally different from trade. This issue will be analyzed in a different chapter.
Usury is always done with the same method. The Arabs living in the Arabic peninsula before the revelation of Islam are called the Arabs of the Ignorance Period. They gave loans without using their main capital and in order to obtain an income out of the given loan. When the agreed period was over, they asked for their loan and the interest. If the loan-taker could not pay his loan, a new interest was asked for the prolonged period.
If the loan was the result of credit purchase the owing person was asked if he would pay or if he wanted to increase. If he was not able to pay the loan amount was increased for a new future payment timEe The Messenger of Allah in his Farewell Speech emphasizes:
وربا الجاهلية موضو ع. وأول ربا أضعه ربانا ربا عباس
بن عبد المطلب ، فإنه موضوع كل ه.
“The usury of ignorance (period) has been removed. The first interest I removed was our interest, Abbas b. Abdulmuttalib’s interest. It has been entirely removed. ”
The Ignorance Period usury is the same as the usury today; the income is provided by the loan. The listeners of the speech being witnesses of the Ignorance Period needed no explanation for the expression ‘ignorance usury’.
According to the following verse usury is the offering of a conditioned loan, which is paid back with interest.
“…If you repent, then you keep your capital. Neither will you make (others) suffer injustice, nor will you be made to suffer injustice. (Al-Baqara/The Cow 2/279)
Capital is the term used to define the object or amount given in loan. Trade is the exchange of two different things so it cannot be defined as capital. If something is offered to be paid back with interest, the interest is usury. The following verse clarifies that usury is produced as a result of the loan as an economic deal.
“If the debtor is difficulty, then let there be postponement until he is in ease. And it is better for you that you remit (it) as gifts. Only if you knew.” (Al-Baqara/The Cow 2/280).
According to the account the Messenger of Allah claimed as following. Ibn Abbas said that Usame bin Zeyd let him know that the Messenger of Allah claimed.
(إنما الربا في الدي ن)
“Usury is produced only from the loan.”
(لا ربا فيما كان يدا بي د)
“There is no usury in instant (cash) payments.”
(إنما الربا في النسيئ ة.)
Credited payments do include usuy.
Another word of the Messenger of Allah has been reported to be as following:
(لا ربا إلا في النسيئة)
Usury is only when the loan has been credited.
The verses and hadiths clearly demonstrate that usury is the incoming assured through loan.
Riba (Arabic: ربا ,الربا ، الربٰوة‎‎ ribā or al-ribā, IPA: ) can be roughly translated as "Usury", or unjust, exploitative gains made in trade or business under Islamic law. Riba is mentioned and condemned in several different verses in the Qur'an (3:130, 4:161, 30:39 and perhaps most commonly in 2:275-280). It is also mentioned in many hadith.
While Muslims agree that riba is prohibited, there is disagreement over what it is. It is often used as an Islamic term for interest charged on loans, and this belief – that there is a consensus among Muslims that interest is riba – is the basis of a $2 trillion Islamic banking industry. However not all scholars equated riba with all forms of interest, and among those who do there is also disagreement over whether it is a major sin and against sharia (Islamic law), or simply discouraged (makruh).
Riba is also applied to a variety of commercial transactions. Most Islamic jurists describe two kinds of riba:
Riba an-nasiya: an excess (riba) charged for a loan in cash or kind.
Riba al-fadl: the simultaneous exchange of unequal quantities or qualities of a given commodity.
Etymology and definitions
The word was used by the Arabs prior to Islam to refer to an increase. In classical Islamic jurisprudence the definition of riba was "surplus value without counterpart."
Definitions of riba include:
unjustified increment in borrowing or lending money, paid in kind or in money above the amount of loan, as a condition imposed by the lender or voluntarily by the borrower. Riba defined in this way is called in fiqh riba al-duyun (debt usury).
an increase in a particular item. The word is derived from a root meaning increase or growth.
non-equality in an exchange. This can be different results from the exchange of nonequivalent quantities (Riba al-fadl) or from the presence of a risk in which the other contractual party does not share.
interest or usurious interest. Historically Islamic legal scholars have interpreted the Quran as "prohibiting any loan contract that specifies a fixed return to the lender" on the grounds that it provides "unearned profit to the lender" and imposes "an unfair obligation on the borrower." In the modern era most Muslim countries allow moderate interest rates (some banning compound interest), while Islamists and revivalists" preach that all interest is socially unjust and should be banned;
all forms of interest charged on loans
Banned in Islam but evaded by legal subterfuges (known as hila, pl. hiyal) where, for example, a money lender buys something and later sell it back for a greater amount. In contrast Islamic banks charge fees or make the account holder share in the profits and losses of the bank;
"all interest, regardless of form, context, or magnitude"
"Any excess on the principal sum of loan irrespective of the amount, purpose and duration of the loan."
interest - profit from the loan of money or goods, which is prohibited in any degree but hardly observed in any Islamic country, where instead it is either disregarded (considered permissible provided it is not excessive (Egypt)), or "referred to by some such euphemism as `commission`"
Only exploitative interest charges
not any bank interest, but interest charged where the economically strong/rich exploit the economically poor and/or vulnerable.
"exorbitant interest charges"
Most Islamic jurists (Fuqaha) describe different kinds of riba:
Riba an-nasiya: Riba on Credit Transaction, when two items of same kinds are exchanged but one or both parties delays delivery or payment and pays interest, (i.e. excess monetary compensation in the form of a predetermined percentage amount or percentage).
Riba al-fadl: the simultaneous exchange of unequal quantities or qualities of a given commodity.
Riba an-jahiliya: usury practiced in pre-Islamic Arabia referred to in Quran 3:130 where a debt was "doubled and redoubled" each year if the borrower could not pay what was owed.
John Esposito describes riba as a pre-Islamic practice in Arabia "that doubled a debt if the borrower defaulted and redoubled it if the borrower defaulted again". It was held responsible for enslaving some destitute Arab borrowers.
According to a conservative source (Youssouf Fofanaa), "some jurists saw riba forbidden early in Mecca, some in the year 2 AH and some after the opening of Mecca, but the majority agreed on its prohibition". Other sources, such as the Encyclopedia of Islam and the Muslim World, state that early Muslims disagreed on whether all or only exorbitant rates of interest could be considered riba, and thus declared forbidden, but the broader definition won out with a consensus of Muslim jurists holding that any loan that involved an increase in repayments was forbidden. One particular jurist (al-Jassas, d.981, who is criticized by Modernists) is credited with establishing the orthodox definition of riba -- "stipulat excess in a loan or debt", (i.e. interest on debt).
Some (scholar Timur Kuran) attribute the basis of religious condemnation of interest on loans to the widespread practice in the ancient world of selling loan defaulters into slavery and often shipping them to foreign lands. Among other monotheist Abrahamic religions, the Jewish Torah prohibited lending at interest to fellow Jews but allows lending at interest to non-Jews (i.e. Gentiles) (Deut. 23:20). The prohibition against interest in early Christianity made no exceptions, and centuries before Islam, Christian theologians condemned interest as an "instrument of avarice". Since Jews were barred from many professions in Christian territories and charging interest to non-Jews (Gentiles) is permissible in Judaism unlike Christianity in which lending on interest is illegal to Christians and non-Christians alike, many Jews were driven to money lending with interest as their profession.
Historically, while the Islamic states followed classical jurisprudence in prohibiting an increase in repayments on loans (interest), the giving and taking of interest continued in Muslim society "at times through the use of legal ruses (Ḥiyal), often more or less openly." In Ottoman Empire, the business of money lending was completely in the hands of Jewish Sarrafs and the Europeans who visited Ottoman Empire stated that Ottoman economy would not function without these Sarrafs. Many of these Sarrafs were accused of cheating by cutting the corners of coins or cheating in their weights. In Persia also, money lending was dominated by Jewish Sarrafs. In nineteenth century Shiraz, almost all Jews were active in lending money on interest. According to Timur Kuran, "in the sixteenth century, an Ottoman sultan limited the annual rate of interest to 11.5% throughout the empire", though this was allowed "only on transactions that satisfied the letter of the ban through stratagems; this order was duly ratified by a legal opinion (fetva)." One common "stratagem" to circumvent of the ban on interest in the Ottoman era was known as istiglal and involved the borrower selling his house to a lender and immediately leasing it back. The proceeds of the sale served as the loan, the rent of the lease served as interest payment. (According to another source—International Business Publications—the "common view of riba among classical jurists" of Islamic law and economics during the "Islamic Golden Age" was that interest charges on loans of gold and silver currencies were unlawful, but applying "interest to fiat money -- currencies made up of other materials such as paper or base metals -- to an extent" was not riba. Thus, when "currencies of base metal were first introduced in the Islamic world", Islamic jurists did not forbid interest charges on them as riba.)
This prohibition was reconsidered by Islamic Modernists starting in the late 19th century in reaction to the rise of European power and influence during the Ages of "Enlightenment", "Discovery" and colonialism. According to author Gilles Kepel, for many years in the 20th century, the fact that interest rates and insurance were among the "preconditions for productive investment" in a functioning modern economy led many Islamic jurists to "rack their brains" to "find ways of" justifying the use of interest "without appearing to bend the rules laid down by the Koran".
In the late 20th century (mid-1970s) however, Islamic revivalists/Islamists/activists have worked to define interest as riba, to enjoin Muslims to lend and borrow at "Islamic Banks" that avoided fixed rates, and to mobilize to pressure governments to ban the charging of interest. In 1976, King Abdulaziz University in Jeddah organized the First International Conference on Islamic Economics in Makkah. At the conference, "several hundred Muslim intellectuals, Shari'ah scholars and economists unequivocally declared ... that all forms of interest riba". By 2009, over 300 banks and 250 mutual funds around the world complied with this definition of riba and disavowed interest on loans or deposits, and by 2014 around $2 trillion in assets were "sharia-compliant".
Scripture on riba
Quran and prohibition
The Qur'an deals with riba in 12 verses, the word appearing eight times in total, three times in 2:275, and once in 2:276, 2:278, 3:130, 4:161 and 30:39.
The Mekkan verse in Surah Ar-Rum was the first to be revealed on the topic:
And whatever riba you give so that it may increase in the wealth of the people, it does not increase with God (Quran 30:39)
The other Medinan verses:
And because of their charging riba while they were prohibited from it (Quran 4:161)
Those who believe do not eat up riba doubled and redoubled (Quran 3:129-130)
يَا أَيُّهَا الَّذِينَ آمَنُواْ لاَ تَأْكُلُواْ الرِّبَا أَضْعَافًا مُّضَاعَفَةً وَاتَّقُواْ اللّهَ لَعَلَّكُمْ تُفْلِحُونَ
Culminating with the verses in Surah Baqarah:
Those who benefit from interest shall be raised like those who have been driven to madness by the touch of the Devil; this is because they say: "Trade is like interest" while God has permitted trade and forbidden interest…God deprives interest of all blessings but blesses charity.... O believers, fear God, and give up the interest that remains outstanding if you are believers. If you do not do so, then be sure of being at war with God and His messenger. But, if you repent, you can have your principal.... (Quran 2:275-280)
ذَٰلِكَ بِأَنَّهُمْ قَالُوا إِنَّمَا الْبَيْعُ مِثْلُ الرِّبَا ۗ وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا
According to Youssouf Fofana, jurists do not consider the first two verses as clear prohibitive verses on the matter, whereas the latter two have been understood to prohibit Muslims from riba.
Muhammad ibn Jarir al-Tabari quotes a number of Tabi'een (Muslims who were born after Muhammad died but who were old enough to be contemporaries of the Sahaba "Companions"), who state the verse from Surah al-RumQuran 30:39 refers to a gift, whereas al-Jawzi quotes Hasan al-Basri as stating it refers to riba. Thus, there is insufficient indication from this verse that riba is prohibited.
The second verse (4:161) refers to the Jews and their taking of riba, which leaves it unclear if such a prohibition applies to the Muslims.
The next verse (3:129-130) is seen by many as prohibiting riba, including Ibn Hajar al-Asqalani (a medieval Shafiite Sunni scholar of Islam). However it appears that recourse to some traditions relating to Amr ibn Aqyash are required for the prohibition as the verse itself could be interpreted as expressing a preference against interest.
Conservative scholar Mohammad Nejatullah Siddiqi, interprets Quranic verses (2:275-2:80) to mean that riba is not only "categorically prohibited" and "unjust" (zulm), but is defined as any payment "over and above the principal" of a loan. Other conservatives also see the verse as categorically forbidding riba. The background of these verses was the dispute between two clans, Banu Thaqif and Banu Amr ibn al-Mughirah, over riba due on loans between them. As such, the jurists historically agreed on the prohibition of riba from these verses and termed it riba al-nasia, distinguishing it from the interest in exchanging like goods in different quantities at the same time, mentioned in a number of narrations, riba al-fadl.
Modernist Mohammad Omar Farooq argues that the Quran condemns riba but does not define it. Raquib Zaman notes that the only figures or only definition for riba given in the Quran are "doubling and quadrupling (the sum lent)" in Quran 3:129-130.
Hadith and prohibition
Riba is mentioned in a number of hadith (the body of reports of the teachings, deeds and sayings of the Islamic prophet Muhammad that often explain verses in the Quran). According to Mohammad Omar Farooq, "it is commonly argued that riba is defined by hadith."
In Muhammad's farewell sermon he is reported to have said:
"God has forbidden you to take riba, therefore all riba obligation shall henceforth be waived. Your capital, however, is yours to keep. You will neither inflict nor suffer inequity. God has judged that there shall be no riba and that all the riba due to `Abbas ibn `Abd al Muttalib shall henceforth be waived."
Several narrators including Jabir, Abdul Rahman ibn Abdullah ibn Masoud, Abdullah, say that
Muhammad cursed the accepter of usury and its payer, and one who records it, and the two witnesses, saying: They are all equal. (Abdullah, however, could not swear to the cursing of the 'And the writer and the two witnesses)
Examples of hadith denouncing what jurists call Riba al-Fadl include:
Narrated Abu: We used to be given mixed dates (from the booty) and used to sell (barter) two Sas (of those dates) for one Sa (of good dates). The Prophet said (to us), "No (bartering of) two Sas for one Sa nor two Dirhams for one Dirham is permissible", (as that is a kind of usury). (See Hadith No. 405).
Narrated 'Umar bin Al-Khattab: God's Apostle said, "The bartering of gold for silver is riba, (usury), except if it is from hand to hand and equal in amount, and wheat grain for wheat grain is usury except if it is from hand to hand and equal in amount, and dates for dates is usury except if it is from hand to hand and equal in amount, and barley for barley is usury except if it is from hand to hand and equal in amount.".
Narrated Ibn 'Umar: Muhammad said, "The selling of wheat for wheat is riba (usury) except if it is handed from hand to hand and equal in amount. Similarly the selling of barley for barley, is Riba except if it is from hand to hand and equal in amount, and dates for dates is usury except if it is from hand to hand and equal in amount.
Narrated AbuHurayrah: Muhammad said: If anyone makes two transactions combined in one bargain, he should have the lesser of the two or it will involve usury.
Raqiub Zaman notes that when riba is described in hadith literature, it is "in the context of sales", with "no mention of loan (qard) or debt (dayan)" (i.e. the bartering of dates, wheat, gold, etc. is riba al-fadl not riba an-nasiya). According to the mufti of Egypt, Dr. Muhammad Sayyid Tantawy, there is nothing in the Quran or Hadith that prohibits the pre-fixing of the rate of return, as long as it occurs with the mutual consent of the parties.
The gravity of committing riba is reported to have been described by Abu Huraira:
Narrated Abu Huraira: The Prophet said, "Avoid the seven great destructive sins." The people inquire, "O God's Apostle! What are they? "He said, " To associate others in worship along with God, to practice sorcery, to kill the life which God has forbidden except for a just cause, (according to Islamic law), to eat up Riba (usury), to eat up an orphan's wealth, to give back to the enemy to flee from the battlefield at the time of fighting, and to accuse chaste women who never even think of anything touching chastity and are good believers."
أخرج البخاري ومسلم وأبو داود والنسائي عن أبي هريرة رضي الله عنه أن رسول الله صلى الله عليه وسلم قال اجتنبوا السبع الموبقات , قيل يا رسول الله وما هن ؟ قال الشرك بالله , والسحر , وقتل النفس التي حرم الله إلا بالحق , وأكل مال اليتيم , وأكل الربا , والتولي يوم الزحف , وقذف المحصنات الغافلات المؤمنات
According to Sunan Ibn Majah, the Islamic prophet Muhammad declared the practice of riba worse than "a man committing zina (fornication) with his own mother".
Sharia and riba
Whether riba is a violation of sharia (Islamic law) to be punished or simply a sin for God to judge is disputed by Muslims. Scholar Muhammad Akran Khan has noted that on the basis of
the Farewell Sermon (where the Prophet abolished all claims of riba on loans),
God has decreed that there will be no usury, and the usury of ‘Abbās b. ‘Abd al-Muṭṭalib is abolished, all of it.
and the fact that the Banu Thaqif clan was threatened with war (for abrogation of their treaty with the early Muslims if they tried to collect interest on loans from Muslims),
... contemporary orthodox scholars have argued that interest is a violation of sharia law. However, Khan argues,
"the Prophet could easily have announced the broad features of such a law. The fact is that neither the Prophet nor the Qur'an has announced any law relating to interest, as in the case of theft, adultery or murder. The attempts to convert these injunctions into a public law are quite recent. ... Neither the Prophet nor the first four caliphs nor any subsequent Islamic government ever enacted any law against riba."
An example of a more traditional attitude toward riba, or at least the charging of interest on loans, is found in Ayatollah Ruhollah Khomeini's book of fatawa Tawzih al-masa'il, written before 1962, and before the growth of Islamic banking. In the chapter on selling and buying (Kharid o forush) he does not call the charging of interest a crime (or even forbid it), but states that lending without charging interest, "is among the good works that are particularly recommended in the verses of the Quran and in the Hadiths."
Interest and riba an-nasiya
Forbidding interest as riba an-nasiya
A prohibition of interest on loans in the name of prohibiting riba, has been called "the most salient objective of Islamic economics." Islamic thinking that equates interest with riba has been called "by far the most influential" and its literature "voluminous and overwhelming".
Its importance among revivalist Muslims was reflected in a 2004 uproar in the Pakistan parliament after an MP quoted an Egyptian Islamic scholar decreeing that bank interest was not un-Islamic. An Islamist MP responded later saying that since the Pakistan state Council of Islamic Ideology had decreed that interest in all its forms was haram in an Islamic society, no member of parliament had the right to negate this "settled issue". Among some (such as Imran Nazar Hosein) interest on loans constitutes not only a sin but the "grand design of hostile forces who have already made considerable progress, through riba, in gaining control over mankind. Their aim is to gain total control and to use that power to destroy faith in Allah."
However government policy on charging of interest in Muslim majority states is complicated even in states that have supported Islamic (i.e. interest-free) Banking.
In Kuwait, Article 547 of the Civil Code states "loans shall be without interest. Any condition to the contrary shall be void without prejudice to the loan agreement itself". But that country's Commercial Code states "The creditor has the right to interest in a commercial loan unless the contrary is agreed."
In Saudi Arabia, chapter 2 of the charter of the Saudi Arabian Monetary Agency states: "the Saudi Arabian Monetary Agency shall not pay or receive interest but shall only charge certain fees on services rendered to the public and to the Government in order to cover the Agency's expenses." However reports the Saudi Arabian Monetary Agency has a "benchmark interest rate" (2 percent as of April 2015).
Commercial banks in Saudi Arabia, except for the Al-Rajhi Bank, "conduct their business on the basis on interest", and the Saudi Banking Control Law promulgated by Royal Decree no.M/5 of 22 Safar 1386AH is "totally silent" on the issue of interest.
Rationale for forbidding
A number of Islamist/revivalist preachers, writers and economists have attempted to provide arguments for why the Quran and traditions of Muhammad (in their view) prohibit of interest on loans. Ismail Ozsoy defines interest as riba and as "an unearned or unequally distributed income." In arguing that no matter what the rate of interest, the knowledge and the consent of the two parties, both the paying and the receiving of interest are sinful and unjust because the interest rate is "fixed at the very beginning, but it is impossible to predict the outcome of the business at which the loan is used, profit or loss, or how much either would be." Ozsoy states that his argument is supported by Quran 2:275-280 and particularly the phrase, "deal not unjustly and ye shall not be dealt with unjustly".
Mohammad Nejatullah Siddiqi argues that prohibition of interest is prohibition of a type of exploitation. In matters of "consumption loans" (personal loans to buy something), those who have wealth should assist those without. In productive loans (i.e. commercial/industrial loans), a guaranteed return on capital is an unjustice and sharing of profits between entrepreneur and financier is just.
Taji al-Din argues that charging interest on loans restricts the circulation of wealth to those who already have it, since lenders do not provide loans to those who are unable to repay them. This is forbidden by the Quran and results in an increase the divide between the rich and poor.
Islamist leader Abul A'la Maududi believes the charging interest on loans causes an imbalance between production and consumption, by the transferring of purchasing power from those with a propensity to consume to those with a propensity to invest. This transfer of income increases production and decreases consumption which (somehow) increases prices of consumer goods, reinforcing this process and (Maududi believes) results in economic evils such as stagnation, depression, monopoly and ultimately imperialism. Eliminating return on capital with interest-free loans along with zakat, and profit-share would restore this balance. The focus shifts to the entrepreneur whose activity becomes the only source of income along with wages, giving him the upper hand in society. Siddiqi and Ganameh cite the hadith of "income devolved on liability" in this context.
Ibn Rushd argued the rationale for prohibition relates to the possibilities of cheating that exists in riba, which is clearly visible in riba fadl. Other arguments that some writers try to extract from indications on the divine texts include the rationale being corruption, unjust acquisition of property rights, destruction, and a detrimental personality.
Hameedullah believes interest is unjust because the borrower bears risk and the lender does not. The Islamic principle is for a reward, there must be some liability incurred; otherwise, a return is prohibited.
"Islamic socialist" Ghulam Ahmed Pervez, otherwise not known for his orthodoxy, argued the Quran banned interest
Benefits of forbidding
Islamists writers, have asserted that contrary to what non-Islamist economists maintain, banning interest would not mean a collapse of savings but greater stability, efficiency, development etc.
Muhammad Siddiqi states that replacing fixed rates with profit-sharing would make the financial system more stable, more entrepreneurial, and that savings would not collapse without interest because savings are a function of income and desire for interest is minor. Mannan argues that replacing interest with profit and loss sharing would stimulate job creation and economic vitality and would be in line with the cooperative norm of the Quran. Mawdudi states that interest payment holds back production that is socially useful but generates a small return.
Another alleged deficiency of interest on loans is that it "lends itself to speculation" as lenders seek higher interest rates (allegedly) borrowing at low interest rates to lend at higher ones. This (allegedly) disrupts "trade cycles" and interferes with economic planning and would be remedied by banning interest charges.
Permitting "bank interest"
Most Muslims and most "non-Muslim observers of the Islamic world" believe that interest on loans is forbidden by Islam. But while this is this has been called the “majority accepted view” among Islamic jurists, others dispute that there is a consensus (ijma), citing contemporary dissenters (such as Fathi Osman, Nawab Haider Naqvi, Salim Rashid, Imad al-Din Ahmed, Omar Afzal, Raquibuzzaman, Abdulaziz Sachedina, Abdullah Saeed, Mahmud El-Gamal and Mohammad Fadel).
Explanations for why some Islamic scholars judge bank interest permissible include the tendency for rulers to get the fatwas they want on "key policy issues" from "official" ulama "whose task it is to legitimize" rulers' policies. Egyptian President Anwar Sadat obtained a fatwa from the Sheikh of al-Azhar ruled that interest-bearing treasury bonds were consistent with Islamic law. More recently the mufti of Egypt, Dr. Muhammad Sayyid Tantawy issued several fatawa permitting bank interest in 1991. In 1997 Shaykh Nasr Farid Wasil (Grand Mufti of Dar al-Ifta al-Misriyyah at the time) also declared bank interest permissible provided the money was invested in halal avenues: "there is no such thing as an Islamic or non-Islamic bank. So let us stop this controversy about bank interest." Dr Abd-al-Munim Al-Nimr, an ex-minister of 'Awqaf in Egypt, publicly stated that banking interest cannot be considered riba.
(Historians note the practice is not new and that jurists legitimized interest for awqaf (religious endowments) during the late period of the Ottoman rule (as mentioned above).)
But not all jurists opposing the formulation interest=riba are tied to governments. Doubters of the connection between contemporary "bank interest" and riba include 20th century Modernist jurists, such as Muhammad Abduh, Rashid Rida, Mahmud Shaltut, Syed Ahmad Khan, Fazl al-Rahman, Muhammad Sayyid Tantawy and Yusuf al-Qaradawi. Modernists interpreters of riba on the India-Pakistan subcontinent include: Ja'afar Shah Phulwarai (1959), Tamanna Imadi (1965), Rafiullah Shihab (1966), Yaqub Shah (1967), Abdul Ghafur Muslim (1974), Syed Ahmad (1977), Aqdas Ali Kazmi (1992), and Abdullah Saeed (1995, 1996).
Modernist definition
Islamic Modernists defined riba as the money lending practices of the Makkan society (Riba an-jahiliya) where the Quran was revealed, according to Muhammad Akram Khan. Modernists believe these practices were much different from and more problematic than, contemporary bank lending. Makkan lending involved high interest rates charged by rich money lenders to poor customers who borrowed for purposes of consumption and led to the accumulation of large debts and often financial slavery. In contrast, most money loaned In contemporary society is for commercial purposes and investment, transacted between sophisticated parties, offering/paying interest rates set and kept low by a competitive and regulated market.
Another source (The Encyclopedia of Islam and the Muslim World) gives a similar description, stating that critics of Islamic economics, including Islamic Modernists, believe riba is distinguished from ordinary interest, that competitive financial markets "limit interest charges" and contemporary bankruptcy laws "protect borrowers against the horrors once produced by riba." Furthermore, "the goal of eradicating interest is both misguided and unfeasible," because interest is "indispensable to any complex economy".
Other arguments
Scholar, economists, jurists embracing and expanding on one or more of these arguments include Mohammad Omar Farooq, who argues that the Quran does not define riba and that contrary to traditionalists and activists claims, hadith commonly cited to define riba as interest are not unambiguous. Mohammad Omar Farooq notes that a number of early jurists questioned whether riba was interest. Imam Ahmad ibn Hanbal (780–855 CE), believed only Riba an-jahiliya (where the amount owed "doubled and redoubled" each year if not paid off) was unlawful "without doubt from the Islamic viewpoint". According to Nabil A. Saleh, several companions (Sahabah) of Muhammad (Usama ibn Zayd, Abdullah ibn Masud, 'Urwah ibn Zubayr, Zayd ibn Arqam), including Ibn Abbas, one of the major companions of the Prophet and earliest of the Islamic jurists, also "considered that the only unlawful riba is riba al-jahiliyyah”.
(One author—Imad-ad-Dean Ahmad—argues "ribâ as it is used in the Qur'an and sunnah" is not the same as interest, but that the "now common practice of issuing unbacked paper currency", is a "form of ribâ" and should be replaced by the gold standard.)
Raqiub Zaman argues against the translation of riba as
"an excess or addition -- i.e. an addition over and above the principal sum that is lent." If Muslim jurists are referring to interest as usury on the basis of this literal meaning of riba, than naturally one wonders why God Almighty used the terms `doubling` and `quadrupling` (the sum lent) as usury in 3:130 ... and why there was no further clarification of this verse in the Quran or by the Prophet.
Fazlur Rahman defined riba as "exorbitant increment whereby the capital sum is doubled several-fold, against a fixed extension of the term of payment of the debt."
Turkish-American economist and Islamic Studies scholar Timur Kuran questions whether an economy without interest has ever existed: "As far as is known, no Muslim polity has had a genuinely interest-free economy."
Harm to borrower
Islamic Modernist scholar such as Fazlur Rahman Malik, Muhammad Asad, Sa'id al-Najjar, Sayyid Tantawi, differ from traditionalists in arguing that riba must involve exploitation of the needy. They differentiate between various forms of interest charges advocating the lawfulness of some and rejecting others.
Abd-al-Munim Al-Nimr, also argues that riba must involve harm to the debtor. In his fatawa permitting bank interest and declaring it non-riba, Muhammad Sayyid Tantawy argued it makes little sense to suggest that modest saving account holders are exploiting sophisticated multibillion-dollar banks that pay them the interest on their accounts. Fixed return or "determination of the profit in advance is done for the sake of the owner of the capital (that is the depositor) and is done to prevent a dispute between him and the bank," rather than to exploit.
Economist Maha-Hanaan Balala questions how creditors would ever extend interest-free loans considering "the opportunity cost, erosion of value through inflation, risk of default by debtors", In answer to the complaint that it is unjust to have an income fixed (by an interest rate) for the lender while the profits of the borrower can never know with complete certainly, capital markets give greater returns (on average) for greater risk, and the lower risk of a fixed income return is compensated with lower returns (on average) than returns from shared profits.
Writers such as Fazl al-Rahman argue that an interest rate serves as a price for financing, regulating demand for it by borrowers. If this finance cost (interest rate) is taken to zero, finance markets will be faced with limited supply and infinite demand. How would credit be allocated? (This problem would apply to interest-free loans but not profit-share, cost-plus basis, or leasing of financing.)
They also advanced rational economic arguments that market rate interest is not riba because it serves the public interest (Maslaha) by allowing for efficient allocation of resources, economic development. Most of these arguments have been criticized by Islamic revivalist writers, including Siddiqi, Zarqa, Khan & Mirakhor and Chapra, a good case in point being the published Supreme Court of Pakistan Judgement on the matter.
One critic of the campaign against "the curse of interest" in Pakistan, lawyer and Islamic scholar Kemal A. Faruki, complained that much time and energy were spent on "learned discussions on riba" and "doubtful distinctions between `interest` and `guaranteed profits,`" in the Western-style banking system, while a far more serious problem affecting the poor was ignored:
usury perpetrated on the illiterate and the poor by soodkhuris (lit. `devourers of usury`). These officially registered moneylenders under the Moneylenders Act are permitted to lend at not more than 1% below the State Bank rate. In fact they are Mafia-like individuals who charge interest as high as 60% per annum collected ruthlessly in monthly installments and refuse to accept repayment of the principal sum indefinitely. Their tactics include intimidation and force.
While the majority of Muslims and Islamic jurists consider interest riba, Mohammad Omar Farooq argues this doctrine may eventually follow other such "long-standing orthodox" but no longer accepted views, such as hadd capital punishment for apostasy from Islam, or that "triple talaq" (i.e. divorcing your wife simply by declaiming "talaq" three times) is "valid and enforceable".
Further information: Islamic banking
To deal with the problem of zero interest creating unlimited demand for investment that is limited in supply, activists such as Siddiqi suggest a two-tier mudarabah model as the basis of a riba-free banking system. This involves the bank acting as the capital partner in a back-to-back mudarabah contract with the depositor on one side and the entrepreneur on the other side. This model can be supplemented by a number of fixed-return models (like Ijara, Istisna, Murabaha etc.). In practice the murabaha model is the bank's favourite, as it bears results most similar to the interest-based finance models.
However, it has been criticised as not following the possession by bank/seller requirements and risks taken by the financier are non-existent (being insured or guarantees provided by the customer). Additionally, Khattab has criticised the whole two-tier mudarabah system as having no basis in Islamic law, as there are no instances where the mudharib passed funds onto another mudharib, and as such is questionable.
Banks have demand deposits in the nature of loans to the bank and investment deposits. Some offer guaranteed savings accounts with permission to use the funds and a discretionary reward to the depositor as in the case of the Bank Islam Malaysia Berhad. Initially, demand deposit accounts were more common, but over time, most accounts are now investment accounts, which reflects the confidence of depositors in the ability of banks to generate a return. Islamic banking operations are successfully operating in many Muslim countries, including Pakistan, Bangladesh, Malaysia, Iran, Sudan, Turkey and Bahrain.
Insurance operations, starting in Sudan in 1977, have now been successfully implemented in a number of countries from Malaysia to Jordan. The takaful mudarabah model is used, compensating premium-paying subscribers in case they incur losses or damages without any interest-based activities.
In its campaign against Riba in the 1980s the regime of General Muhammad Zia ul-Haq replacing interest-bearing savings accounts with PLS (profit-loss sharing) instruments in Pakistan's state banks. The government also introduced and encouraged such banks to adopt financing schemes based upon the principles of mudaraba and or musharaka.
Murabaha is a practice in which the "lender" (usually a bank) purchases, in its own name, goods that the borrower (usually an importer or trader) wants, and then sells the goods to him at an agreed mark-up. This mark-up is interest by a different name, and serves as a semantic work-around. The technique is used for financing trade, but because the bank takes title to the goods, and is therefore engaged in buying and selling, its profit derives from a real service and entails a degree, albeit minimal, of risk.
Musharaka is a practice in which the "lender" (usually a bank) enters into a partnership with the borrower/client in which both share the equity capital—and perhaps even management—of a project or deal, and both share in the profits or losses according to their equity shareholding.
Critics claim that Islamic banks have "found it impractical to obey their own charters" and that they have "disguised interest under a variety of charges".
International finance
One area where complaints about interest charges has gone beyond revealed truth as interpreted by Islamic scholars concerns the external debt of developing countries, where in some cases the borrowers have already paid the sum they borrowed "several times, but the debt grows faster than they can repay it". Some heavily indebted countries include Afghanistan, Comoros, Guinea, Malawi, São Tomé and Príncipe. The movement for debt forgiveness (Jubilee 2000) does not argue that interest itself is sinful but that both interest and principle of large external loans should be forgiven because: debt repayment would be better spent on poverty reduction, lenders should have known that the borrowing countries poor inhabitants are not responsible for the debt because it was lent to dictators or oppressive regimes, with much of the money was lost to corruption and wasteful projects.
Accounting concept of interest
Some writers argue for an accounting concept of interest to evaluate projects and investments. As a tool for comparing projects with countries where the interest rate is operated, however, it is argued that it is hard to see why a profit rate cannot be used.
Others argue the need of a bank rate for monetary policy. Siddiqi suggests two variables that can alternatively be used: mark-up in sales with deferred payment and ratios used in sharing modes of finance. These ratios can be used to manipulate the rates of profit. They can be determined through market forces or set by governments in public interest, as is legislated in Sudan and Pakistan.
Substitute for riba
Economic modeling in an Islamic context looks to find alternative variables and parameters. For instance, many of the key models in modern economic theory have interest (riba) as a key element. According to one author, Tobin's q could replace Interest (I).
Riba al-fadl
While riba an-nasiya=interest is a major issue among Islamist/revivalist preachers, writers and economists, and forms the basis of Islamic Banking, the other type of riba -- riba al-fadl ("surplus riba") -- is also forbidden by orthodox jurists. One of the ahadith (for others see above) used to forbid riba al-fadl comes from Sahih Bukhari:
Narrated Ibn Umar: "The Prophet said, `The selling of wheat for wheat is Riba except if it is handed from hand to hand and equal in amount. Similarly the selling of barley for barley, is riba except if it is from hand to hand and equal in amount; and dates for dates is usury except if it is from hand to hand and equal in amounts."
Forbidding riba al-fadl
Islamic jurists have traditionally interpreted this admonition to mean that if one amount of commodity is traded for the same kind of commodity (for example gold for gold) then the two items exchanged must be of the same quantity, ignoring the quality of the commodity or the labor added to it. (Although there is come question of why anyone would ever exchange equal quantities of the same quality commodity ("like for like") that the hadith seems to call for -- for example 100 kilograms of wheat for 100 kg of wheat,) If, for example, a jeweler is paid in gold bullion for a gold ornament or piece of jewelry, and charges any money for their labor, they are guilty of riba al-fadl. If someone has a 100 grams of 24 karat gold and needs 18 karat gold, they must trade their pure gold for no more than 100 grams of the (less pure) 18 karat gold, or commit riba al-fadl.
All the schools of Islamic jurisprudence (fiqh) accept this prohibition. In more recent times, the International Institute of Islamic Economics 1999 Blueprint of Islamic financial system including strategy for elimination of riba, insists that under Islamic law riba al-fadl is forbidden, and define it as exchange transactions of the `same general kind` where there are `qualitative differences`. The Concise Dictionary of Islamic Terms (1979) also states that riba al-fadl is one of two kinds of riba which are "strictly forbidden by the laws of Islam".
While all the schools of fiqh agree with the prohibition they do not agree over its rationale or whether it is restricted to the six commodities mentioned in ahadith -- gold, silver, wheat, barley, date, salt -- as the ahadith do not say "whether or not other commodities will assume the same status". Imam Abu Hanifa, of the Sunni Hanafi school of fiqh believed that the six commodities shared the common feature of being able to be weighed or measured, so that other commodities sold by weighing or measuring were subject to the same rule. Imam Al-Shafi‘i, of the Shafi'i school of fiqh, was of the opinion that their salient feature was that they were either eatables or were used as a universal legal tender. Thus all eatables and universal legal tenders were subject to riba al-fadl according to Al-Shafi‘i. For Imam Malik ibn Anas of the Maliki school the common feature of the six was that they were either food items or could be stored. In his school food items or storable items are included in this category.
Critics of this interpretation include activist Khalid Zaheer and author Muhammad Akran Khan. Zaheer believes that "the literature on Islamic Finance and Economics is presenting very strange applications of the concept of riba al-fadl, which are ... being applied in areas of business and finance where their application was never intended." He notes that some scholars "openly" admit they do not understand the logic of the ban on Riba al-Fadl. Khan asks why anyone would ever exchange equal quantities of the same quality commodity ("like for like") -- for example 100 kilograms of wheat for 100 kg of wheat -- in a riba-free transaction called for by quoted ahadith. Or how "divine law" could prescribe that a jeweller "who has spent his time and effort to convert gold into jewelery" not be compensated? He also notes that the authors of the IIIE blueprint have no objection to traders selling higher purity/quality commodity for cash and using the proceeds to buying more less purity/quality commodity, and wonders what would be accomplished by such "an ineffective and roundabout method of handling a simple exchange transaction!"
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