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மர்ஹும். மௌலானா ஹலீல் அஹமது ரஹ்மதுல்லஹி அலைஹி
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AL - ISLAM GROUP
அல்லாஹ் வட்டியை அழிக்கிறான்
Hazrat Habeeb Muhammad Nadwi
வட்டி பணமும்,ஹலால் பணமும்
Halal Money & Interest Money
மௌலவி ஃபக்ருத்தீன் ஃபாஜில் பாகவி ஹழ்ரத்
மஸ்ஜித் லஜ்னதுல் முஹ்ஸினீன் மண்ணடி
மஸ்ஜித் லஜ்னதுல் முஹ்ஸினீன் மண்ணடி
Why Interest (Riba) is forbidden
(Haram) in Islam
By Maulana Tariq Jameel In Urdu
AL - ISLAM GROUP
What Islam say about Interest
Usury Riba Sood
By Mufti Menk
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வட்டியில் சம்பாதித்த பணத்தை கொண்டு அல்லாஹ்வால் அனுமதிக்கப்பட
Hazrat Habeeb Muhammad Nadwi
AL ISLAM GROUP
INTEREST & KETAMINE BUSINESS
CAN DO MUSLIM
BY HAZRAT O M ABDUL KHADER BAQAVI
AL ISLAM GROUP
RIBA INTEREST Usury Sood
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While Muslims agree that riba is prohibited, not all agree on what precisely it is,[1][2] or whether its use should be punished by humans rather than Allah.[3][4] It is often used as an Islamic term for interest charged on loans,[Note 1] and the belief this is based on — that there is a consensus among Muslims that all loan/bank interest is riba — forms the basis of a $2 trillion Islamic banking industry.[7] However not all scholars equated riba with all forms of interest, or agree whether its use is a major sin and against sharia (Islamic law), or simply discouraged (makruh).[3][4]
In addition to the unjust gains made from repayment of a loan where some kind of interest is charged — the full name of which is riba an-nasiya — most Islamic jurists believe there is another type of riba[8] — namely riba al-fadl — which is the simultaneous exchange of unequal quantities or qualities of a given commodity.[9][10]
Contents
Etymology and definitions
The word riba 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."[11]The difficulty of explaining what exactly riba means in Islam has been has been noted by early Islamic jurists such as Ibn Majah[12][13] and Ibn Kathir,[14][15][16][17] who quotes the second "Rashidun Caliph" Umar bin al-Khattab,
“There are three things, If God’s Messenger had explained them clearly, it would have been dearer to me than the world and what it contains: (These are) kalalah, riba, and khilafah.”[13][Note 2]Disagreeing is Muhammad Taqi Usmani — "one of the leading" modern day "religious experts on Islamic finance"[19] — who argues that scripture concerning riba cannot be ambiguous (or mutashabihat) because God would not condemn a practice but leave its "correct nature" unknown to Muslims.[20]
- Definitions
- 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). (Abdel-Rahman Yousri Ahmad)[21]
- An increase in a particular item. The word is derived from a root meaning increase or growth. (Saalih al-Munajjid, IslamQA website)[22]
- Non-equality in an exchange. Besides increase in repaying a loan, 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. (Olivier Roy)[23]
- All forms of interest, "any excess on the principal sum of loan", i.e. any and all interest, irrespective of how much is lent, whether the borrower is rich or poor, using the loan for productive investment or consumption. (Some translations of verses of the Quran substitute the word "interest" for riba or "usury".)[24] (The "orthodox"[25] or "conservative"[26] view of classical jurists and revivalists — such as Abul A'la Maududi[27] — as described by Encyclopedia of Islam and the Muslim World and other sources.)[28][25]
- 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 Islamists and revivalists" preach that all interest is socially unjust and should be banned;(John Esposito)[29]
- The above definition has been observed in few Muslim-majority countries, which instead define riba as excessive interest,[Note 3] compound interest (John Esposito),[Note 4] or exclude from the category of riba interest-like charges with euphemisms such as `commission` (Cyril Glasse),[30] and/or charges using legal subterfuges (known as ḥiyal) where (for example), a money lender buys something and later sell it back for a greater amount (Ludwig Adamec).[31]
- a contract of loan or debt for any additional amount over the principal.[32]
- An exchange of money "of the same denomination where the quantity" exchanged is not equal, whether it is in a spot transaction or with deferred payment.[32]
- "A barter exchange between two weighable or measurable commodities of the same kind, where either the quantity" exchanged is not equal, or delivery of one side is deferred. (riba al-fadl)[32]
- "A barter exchange between two different weighable or measurable commodities where the delivery of one side is deferred".[32][33]
- Interest on some loans — "exploitive" loans — but not others. Possible meanings of exploitive riba include:[Note 5]
- interest on loans for consumption not investment,[35][36] since investment loans were allegedly not practiced in Meccan society and usually earn borrowers a return they can use to pay the interest charged[37] (this idea was proposed in the 1930s by Syrian scholar Marouf al-Daoualibi);[38]
- interest on loans charging compound rather than simple interest,[35] (an interpretation proposed in the 1940s by Egyptian jurist al-Sanhuri);[38]
- charging "exorbitant" interest rates;[35][28]
- interest on loans to the poor and needy;[35]
- interest on loans made by the economically strong/rich to the economically poor and/or vulnerable[39] (as opposed to interest paid by large banks to individual account holders);
- interest on loans motivated by a desire to make risk-free return of principal along with some interest or additional return, and where no concern is given to whether the funds are invested to enhance the earning ability of the lender (Muhammad Akram Khan).[40]
- Varieties
- Riba an-jahiliya: usury practiced in pre-Islamic Arabia referred to in Quran 3:130. Scholars differ on its definition. According to Raqiub Zaman and M.O.Farooq, a riba an-jahiliya debt was "doubled and redoubled" each year if the borrower could not pay what was owed.[44][45] Another similar definition (desribed by Taqi Usmani), is that riba an-jahiliya was a kind of loan where the borrower was not charged any additional amount above the principal unless they could not repay when the loan was due, in which case they were charged an additional amount but not necessarily double or triple the principal.[Note 6] Usmani believes both of these definitions are incorrect, and that in reality a number of transactions where "an increased amount was charged on the principal amount of a debt" were in vogue at this time and can be considered riba an-jahiliya.[47] Other orthodox scholars agree and state riba an-jahiliya, riba an-nasiya, riba al-duyun, riba al-Quran, riba al-qardh[48][49] are all names for one of the two types of riba. (The second type being riba al-fadl.)[50]
- Riba an-nasiya: the excess accruing from a loan transaction.[51] Riba an-nasiya is riba on a credit transaction, when two quantities of items 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).[9] (Taqi Usmani quotes Fakhruddin Al-Raazi as saying "riba an-nasiah, it was a transaction well-known and recognized in the days of Jahiliyya".)[52]
- Riba al-fadl, also riba al-sunna:[53] excess accruing in a sale or barter transaction,[51] i.e. riba involving the simultaneous exchange (not involving any deferred/delayed payment) of unequal quantities or qualities of a given commodity.[9] Riba al-fadl and prohibition of it — according to Usmani — was developed by Muhammad (hence the name riba al-sunna), and so was not part of pre-Islamic jahiliya.[52]
| Types of riba | Description | Sub-type of riba | Description |
|---|---|---|---|
| Riba Duyun | Unjustified increment in money lent whether in kind or cash over and above the principal amount. |
Riba Qard | Increase (interest) on the principal sum of the loan is agreed upon at the point of contract |
| Riba Jahiliyyah | Increase levied on the borrower for late repayment or failure to repay the financial loan | ||
| Riba Buyu` | Occurs in trading and exchange transactions, in which unequal exchange of certain commodities (gold, silver, dates, etc.) of same kind and same basis. |
Riba Fadl | Due to unequal amount/quantity |
| Riba Nasi`ah | Due to extension of time of delivery[54] |
History
- Riba an-jahiliya
Abdullah Saeed quotes the son of Zayd b. Aslam (d.136/754) on what the Quran 3:129-130 means by riba being "doubled and redoubled":
“Riba in the pre-Islamic period consisted of the doubling and redoubling [of money or commodities], and in the age [of the cattle]. At maturity, the creditor would say to the debtor, ‘Will you pay me, or increase [the debt]’? If the debtor had anything, he would pay. Otherwise, the age of the cattle [to be repaid] would be increased ... If the debt was money or a commodity, the debt would be doubled to be paid in one year, and even then, if the debtor could not pay, it would be doubled again; one hundred in one year would become two hundred. If that was not paid, the debt would increase to four hundred. Each year the debt would be doubled.”[56][57]Orthodox Islamic scholar and Islamic banking advocate Taqi Usmani disagrees. In describing "riba in the days of Jahiliyya", he makes no mention of debts being doubled, but states that riba "had different forms" and that "the common feature of all these transactions is that an increased amount was charged on the principal amount of a debt."[47]
- Riba
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.[28][Note 7] One particular jurist (al-Jassas, d.981, who is criticized by Modernists)[44][60][61] is credited with establishing the orthodox definition of riba — stipulating that it was excess payment "in a loan or debt", (i.e. interest on debt).[62] M. A. Khan argues that attempts to ban interest resulted in either the development of black markets and higher prices for "interest-bearing credit", which "defeat[ed] the very purpose for which interest was banned"; or in various "subterfuges to camouflage interest so as to bypass the legal sanctions".[63]
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 shipping them to foreign lands. Feisal Khan argues that "all pre-modern, and not just Muslim societies" banned interest on loans, using a ban as "a simple and effective risk-mitigation mechanism for small borrowers that cannot afford the down-side risk inherent in financial transactions". Among other monotheist Abrahamic religions,[64] Christian theologians condemned interest as an "instrument of avarice",[65][66] the Jewish Torah prohibited lending at interest to fellow Jews but allowed it to non-Jews (i.e. Gentiles) (Deut. 23:20).[67] (Historically many Jews were led to money lending with interest as a profession because of this exemption and because they were barred from many professions in Christian territories.)[68] With modernity and economic development, higher incomes and more complex mechanisms such as insurance eliminated the need for the ban. This, rather than religious backsliding, explains the lack of interest in the ban among the contemporary Christian and Jewish counterparts of the Islamic ulema (according to Feisal Khan).[69]
(According to two other sources — International Business Publications[Note 8] and Egyptian Grand Mufti Ali Gomaa[Note 9] — riba is restricted to exchanges involving currencies of gold and silver, and so does not apply to loans of paper currency. Thus, when "currencies of base metal were first introduced in the Islamic world", Islamic jurists did not forbid interest charges on them as riba.)[70]
Historically, while the Islamic states followed classical jurisprudence in prohibiting an increase in repayments on loans (interest) in theory, in practice the giving and taking of interest continued in Muslim society "at times through the use of legal ruses (hiyal), often more or less openly."[28] One common Ottoman era stratagem to circumvent of the ban on interest, according to Timur Kuran, 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 sum loaned, the lease/rent/mortgage payment served as principle and interest repayment of the loan.[72] According to Kuran, only transactions "that satisfied the letter of the ban" on interest "through stratagems" (hiyal) were allowed. In addition, in the sixteenth century, an Ottoman sultan "limited the annual rate of interest to 11.5%" "throughout the empire" on these loans. This order "was duly ratified by a legal opinion (fetva)."[73] Another source (Feisal Khan) quotes several sources indicating the Ottoman empire forbid as riba only interest rates above a certain level (about 10-20%).[74]
According to Minna Rozen the business of money lending was completely in the hands of Jewish Sarrafs in the Ottoman Empire.[75] Europeans who visited Ottoman Empire stated that Ottoman economy would not function without these Sarrafs, though they sometimes were accused of cheating.[75] In Persia, money lending was also dominated by Jewish Sarrafs. In nineteenth century Shiraz, for example, almost all Jews were active in lending money on interest.[76][77]
Taqi Usmani maintains that outside of Dar al-Islam, riba (interest on loans) allowed the Rothschild family to "acquired financial mastery over the whole of Europe and the Rockfeller [sic] over the whole of America".[78]
- Modernism
- Revivalism
Scripture on riba
Both the Quran and the Hadith of Muhammad mention riba. Orthodox scholars such as Mohammad Najatuallah Siddiqui and Taqi Usmani believe Quranic verses (2:275-280) define riba to mean any payment "over and above the principal" of a loan.[85] Others disagree with this definition (such as non-orthodox economists Mohammad Omar Farooq and Muhammad Ahram Khan, and scholar Fazlur Rahman Malik),[25][86] and/or emphasize the importance of ahadith (Farhad Nomani, Fazlur Rahman Malik and Abdulkader, with Farooq stating "it is broadly agreed that the Qur’an does not define riba").[87]Quran and prohibition
Twelve verses in the Quran deal with riba[88] (although not all of them mention the word). The word (usually translated as usury) appearing eight times in total — three times in 2:275, and once each in verses 2:276, 2:278, 3:130, 4:161 and 30:39.[89]The Mekkan verse in Surah Ar-Rum was the first to be revealed on the topic:
And what you give in usury (riba), that it may increase upon the people's wealth, increases not with God; (Quran 30:39)[90]Other Medinan verses are:
... for their taking usury (riba), that they were prohibited, ... (Surah An-Nisaa Quran 4:161)[91]Culminating with the verses in Surah Baqarah:
O believers, devour not usury (riba), doubled and redoubled, and fear you God; haply so you will prosper. (Surah Al-i-'Imran Quran 3:129-130)[92][Note 11]
Those who devour usury (riba) shall not rise again except as he rises, whom Satan of the touch prostrates; that is because they say, 'Trafficking (trade) is like usury (riba).' God has permitted trafficking, and forbidden usury (riba). Whosoever receives an admonition from his Lord and gives over, he shall have his past gains, and his affair is committed to God; but whosoever reverts — those are the inhabitants of the Fire, therein dwelling forever.
God blots out usury, but freewill offerings He augments with interest. God loves not any guilty ingrate.
Those who believe and do deeds of righteousness, and perform the prayer, and pay the alms - their wage awaits them with their Lord, and no fear shall be on them, neither shall they sorrow.
O believers, fear you God; and give up the usury (riba) that is outstanding, if you are believers.
But if you do not, then take notice that God shall war with you, and His Messenger; yet if you repent, you shall have your principal, unwronging and unwronged.
And if any man should be in difficulties, let him have respite till things are easier; but that you should give freewill offerings is better for you, did you but know. (Quran 2:275-280)[93][Note 12]
- Interpretations
- verse 30:39 provides "insufficient indication" to prohibit riba, according to Fofana, because sources disagree on what it refers to. 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 that (Quran 30:39) refers to a gift, whereas al-Jawzi quotes Hasan al-Basri as stating it refers to riba.[95]
- Verse 4:161 refers to the Jews and their taking of riba, but it is unclear if the prohibition applies to the Muslims (according to Usmani and Fofana).[58][96]
- However 3:129-130 is seen by many — including Taqi Usmani[97] and Ibn Hajar al-Asqalani (a medieval Shafiite Sunni scholar of Islam)[58] — as prohibiting riba. Fofana however, thinks "the verse itself could be interpreted as expressing a preference against interest", so interpreting the verse as prohibiting riba may require support from some ahadith "relating to Amr ibn Aqyash".[58]
- Mohammad Nejatullah Siddiqi, interprets Quranic verses (2:275-2:280, known as ayat al-riba)[98] 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.[85] Youssouf Fofana and Taqi Usmani and other orthodox sources agree.[99][Note 13]
- Questions and replies
Umar, also declared that Muhammad died before he could explain the verse of riba (among 2:275-280) fully — it being the last revealed verse of the Qur'an according to a hadith reported by Ibn Majah. (However, according to Taqi Usmani, this hadith is not as authentic as that of another where one of the narrators in the change of transmission was more reliable.[106] This hadith indicates that the last verse was actually 2:281 — one not mentioning riba.)[107]
Raqiub Zaman argues against the orthodox translation of riba as any
"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.[44]Taqi Usmani argues that the words "doubled" and "tripled" in the verse are not "restrictive" of the prohibition of riba, and like some other words in the Quran are not to be taken literally but are used "for emphasis or for explaining".[108]
The background of these verses was the dispute between two clans, Banu Thaqif and Banu Amr ibn al-Mughirah. The verse is addressed to the Banu Thaqifa who insisted that they be able to collect riba from the Banu Amr ibn al-Mughirah for a loan made to them, despite having signed a peace treaty forgoing claims of riba.
According to Fofana, historically (most) jurists agreed on the prohibition of riba from these verses.[58] Disagreeing with the orthodoxy is author/economist Muhammad Akram Khan who writes that since the verse ("O believers, fear you God; and give up the usury (riba) that is outstanding, if you are believers") is addressed to the Banu Thaqifa it is (according to Khan) a "specific reference" addressing a "historical situation" and does "not institute a law that could make dealings in riba a state crime."[109]
Quran and credit sales and late payment
While orthodox scholars believe the Quran declares interest (or any increased repayment of a loan) to be forbidden riba, orthodox scholars (including Taqi Usmani, and Monzer Kahf)[Note 14] believe it specifically allows in some circumstance giving credit in a sale and increasing the price for this deferred payment (for example charging RS21000 for 90 days credit for an appliance that would costs Rs20000 in cash on the spot). According Taqi Usmani, in Quran aya 2:275,[111]"... they say, 'Trafficking (trade) is like usury,' [but] God has permitted trafficking, and forbidden usury .."the reference to permitting "trade" or "trafficking" refers to credit sales such as murabaha, the "forbidden usury" refers to late fees (charging extra when the repayment is late), and the "they" refers to non-Muslims who didn't understand why if one was allowed both were not.[112] Usmani writes:
the objection of the infidels ... was that when they increase the price at the initial stage of sale, it has not been held as prohibited but when the purchaser fails to pay on the due date, and they claim an additional amount for giving him more time, it is termed as "riba" and haram. The Holy Qur'an answered this objection by saying: "Allah has allowed sale and forbidden riba."[113]Usmani interprets the verse to mean that it is a "misconception" to believe that "whenever price is increased, taking the time of payment into consideration, the transaction comes within the definition of interest" and thus riba.[114] Charging extra for deferred payment in a credit sale such as murâbaḥah is not riba, but late charges are.[115]
Regarding hadith, M.O.Farooq states "it is well-known and supported by many hadiths that the Prophet had entered into credit-purchase transactions (nasi'ah) and also that he paid more than the original amount."[116][Note 15][Note 16]
(While Usmani envisioned murâbaḥah being a limited part of the Islamic Banking industry, it has come to dominate it, often as a hiyal to lend cash.[119][120][121] There is also general agreement in Islamic finance that finding a solution to delinquent murâbaḥah accounts continues to be a challenge.)[122][123]
Hadith and prohibition
Scholars such as Farhad Nomani, Abdulkader Thomas,[Note 17] and M.O. Farooq argue that classical scholars believed that hadith (the body of reports of the teachings, deeds and sayings of the Islamic prophet Muhammad that often explain verses in the Quran) was needed to define riba.M.O. Farooq states that "it is commonly argued" that riba is "defined by hadith".[45] Thus the argument goes, textual proof for the position that all forms of interest are riba and hence prohibited by Islamic law is based on hadith.[45][125]
Some ahadith offered by Usmani as prohibiting any increase in the amount "charged on the principal amount of a debt"[47] include:
- "Every loan which derives a benefit is a kind of riba."[126]
- "If one of you has advanced a loan and the debtor offer the creditor a bowl (of food), he should not accept it, or if the debtor offers him a ride of his animal (cattle) the debtor must not take the ride ...".[127]
Different sources report different types and numbers of riba-related ahadith. According to Farhad Nomani, there are "three principal types" of ahadith[105][Note 19] that deal with riba.[130]
- The "most accepted or reliable sayings" , found in most compilations of ahadith, that state that riba exists when "six articles of the same kind are either bartered unequally or not delivered immediately".[105] (see Riba al-Fadl)
- Another set cite Ibn `Abbas, and report that there is "no riba except in deferment ... in delivery and/or payment".[105]
- A third set quote Muhammad's "sermon on the occasion of the last pilgrimage,"[105] where 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."[Note 20]
Several narrators including Jabir,[134] Abdul Rahman ibn Abdullah ibn Masoud,[135] 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.[134][136]
- Questions
According to Farhad Nomani, "it is known that Ibn `Abas", a companion of Muhammad, "was of the opinion that the only forbidden riba was the pre-Islamic riba."[98] Nomani state that classical jurists "all agreed" that the meaning of riba was not "free of speculative content", because there was a difference between
- the "linguistic and customary meaning" of riba in the pre-Islamic period on the one hand, and
- "on the other hand", the "specification by the Tradition (the hadith) and the ambiguity of the opinions of the close companions of the Prophet on the problem" of the meaning of riba.[98]
none of the authentic hadith attributed to the Prophet in relation to riba appears to mention the terms, ‘loan’ (qard) or ‘debt’ (dayn). This absence of any reference to loans or debts in riba-related hadith led a minority of jurists to contend that what is actually prohibited as riba is certain forms of sales, which are referred to in the hadith literature.[137][138]According to another scholar, 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.[139]
- Arguments on scriptural support for prohibition
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”.[141][142]
Classical jurists and most Muslims believe riba to be "a general term" with a broad definition of all interest,[15] while
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."[143]
Farooq also questions traditionalist and activist orthodoxy, insisting the ahadith commonly cited as defining riba as interest are not unambiguous,[144] as they must be when used as the basis for laws with impact on "people’s life, honour and property" such as a ban on all interest does.[145]
Farooq gives examples quoting a couple of ahadith stating there is no riba "in hand-to-hand [spot] transactions”,[146] or "except in nasi'ah [waiting]”[147][148] — that seem to contradict the orthdox position that there is also riba in riba al-fadl, i.e. the "hand-to-hand" exchange of unequal amounts of the same commodity.[Note 22] (Farooq notes a hadith where two Sahabah (companions of Muhammad) argue, one -- 'Ubadah b. al-Samit -- stating Muhammad forbade riba al-fadl, while another Sahabah — Mu'awiyah — contradicts him, saying he never heard Muhammad forbid such trade, "though we saw him (the Prophet) and lived in his company?”[153])
The "except in nasi'ah" hadith also seems to contradict the many ahadith describing Muhammad buying on credit and paying more (after "waiting") than the original amount.[154][118] The distinction sometimes made that it is not riba to make voluntary, gift extra payments that are not stipulated in the sale agreement — such as Muhammad gave to Jabir bin 'Abdullah by when he paid back a loan,[118] or when he repaid the loan of a camel giving two back,[155] or another time giving a better quality camel than the original.[156][157][158] But these ahadith are contradicted by the hadith stating “every loan that attracts a benefit/advantage is riba.”[Note 23][Note 24] as well as by hadith specifically forbidding accepting a gift when extending a loan.[164][165][166] And all these ahadith addressing and warning the lender but saying nothing about or to the borrower, would appear to be at odds with the many ahadith who include comments such as "The receiver and the giver" of extra payment "are equally guilty.”[167]
- Importance of the ban
Orthodox point to a number of ahadith indicating the gravity of the sin of committing riba. Abu Huraira is reported to have narrated:
- 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." [Note 25]
Sharia/fiqh and riba
How Muslims should deal with riba is disputed. Some believe riba is a violation of sharia (Islamic law) to be prohibited by the state and violators punished.[3] Others believe it is simply a sin to be left to God to judge and punish.[3][Note 26] Orthodox jurists tend to be less strict on its prohibition for Muslims in non-Muslims lands,[170] and strictness tends to vary throughout the Muslim world with Sudan being the most severe and Malaysia the least.[171]At least one scholar (Abdulkader Thomas) has stated that not only is interest in violation of sharia, but is such a menace that failure to "combat" it indicates unbelief in Islam, (potentially punishable by death). According to Thomas, “Riba is part of a broader problem of belief and behavior. Refusing to combat riba is akin to disbelief. Conceding the argument that money has an intrinsic value is potentially a greater act of disbelief”.[172][43]
Author/economist Muhammad Akran Khan has noted that contemporary orthodox scholars have argued that interest is a violation of sharia law primarily on the basis of two sources:[3]
- the Farewell Sermon (mentioned above where the Prophet abolished all claims of riba on loans),[3]
- God has decreed that there will be no usury, and the usury of ‘Abbās b. ‘Abd al-Muṭṭalib is abolished, all of it.[173]
- and the fact that the Banu Thaqif clan was threatened with war by Muhammad for abrogation of their treaty with the early Muslims if they tried to collect interest on loans from Muslims. (Banu Thaqif are the ones who are warned against "being at war with God and His messenger" in Quran 2:275-280.)
The "authentic books of Islamic jurisprudence (fiqh) produced throughout Islamic history" had "sections dealing with riba", discussing "its nature and what makes a transaction lawful or unlawful", but according to M.A. Khan, until recently none contained "any public law for enforcement through state machinery."[174] The treasure of Islamic jurisprudence which has covered all facets of life, including imaginary situations, does not mention any punishment for one who indulges in riba."[174] In 1999 a work did. The Blueprint of Islamic financial system including strategy for elimination of Riba by the International Institute of Islamic Economics, called for riba-based transactions to be punishable by law.[175][174]
Another (non-Muslim) scholar (Olivier Roy) points out Ayatollah Ruhollah Khomeini's book of fatawa Tawzih al-masa'il, written before 1962,[Note 27] as an example of a more traditionalist attitude toward riba, or at least the charging of interest on loans. Rather than calling for a ban on interest, Khomeini states that lending without charging interest, "is among the good works" (Mustahabb) that are "particularly recommended in the verses of the Quran and in the Hadiths."[4][178]
Scriptural proof and fiqh
According to Farhad Nomani while classical jurists had "a consensus of opinion about the prohibition of riba", they disagreed on the "interpretation of the primary Islamic sources and, consequently, over the details of the ruling on riba". They believed that the "objects of riba occur in sale, and, only by analogy they related riba to loan ..."[179]Madhhab (schools of fiqh), differ somewhat in their interpretation of riba. The Shafi'i hold that injunctions for riba apply to gold and silver currency but not fils (non-precious metal currency). "Thus, one hundred fils [coins made of neither silver or gold] could be exchanged for two hundred either on the spot or on a deferred delivery basis." By extension this would apply to contemporary fiat [i.e. paper] money, according to Abdullah Saeed.[180]
(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 the failure to back currency with precious metals. This is not because riba can only involve loans using gold and silver currency, but because instead of interest riba is actually the "now common practice of issuing unbacked paper currency". To end this sin, Muslim states must return to the gold standard.)[181]
Critic of the all-interest-is-riba formulation, M.O.Farooq, makes a number of criticisms of logic employed using ahadith to establish the connection.
- When it comes to "people's life, honor and property" special care should be taken formulating "laws, codes or dogmas" (such as forbidding interest on loans) in terms of scriptural backing. For example, even high quality sahih ahadith provide "probablistic" and not "certain knowledge" of what it was that Muhammad taught. (Only a very few ahadith provide "certain" knowledge, and none of them address riba.)[182] [Note 28]
- In defining riba, the "underlying reason" for why it is forbidden should be given first consideration, but in fact this reason — justice — has been given short shrift in orthodox scholarship.[184] Taqi Usmani dismisses "justice" as an element of sharia on the ground that "Zulm (injustice) is a relative and rather ambiguous term the exact definition of which is very difficult to ascertain. Every person may have his own view about what is or what is not Zulm."[185] Two orthodox writers (Abu Umar Faruq Ahmad and M. Kabir Hassan), admit that the idea that the rationale for prohibition of riba as formulated in al-Qur’an was injustice and hardship finds some support in Quranic verse 2:279 and in the works of some early scholars like Imam Razi[186] and Ibn Qayyim[187] for whom "it appears that what is prohibited is the exploitation of the needy, rather than the interest itself".[34][Note 29]
A similar argument in favor of the objectives rather than means is made by Mahmud El-Gamal. In favor of making analysis of istislah (public interest)[190] rather than qiyas, (i.e. using analogy to apply injunctions to new circumstances) "the final arbiter in the area of financial transactions", Gamal quotes the twentieth-century Azhari jurist and legal theorist Abdul-Wahhab Khallaf:
“Benefit analysis and other legal proofs may lead to similar or different rulings. ... In this regard, maximizing net benefit is the objective of the law for which rulings were established. Other legal proofs are means to attaining that legal end [of maximizing net benefits], and objectives should always have priority over means.”[191][192]El-Gamal quotes 14th century Maliki scholar Al-Shatibi stating that the legal ends of Islamic law "are the benefits intended by the law. Thus, one who keeps legal form while squandering its substance does not follow the law."[193][194]
El-Gamal also finds it curious that classical jurists consider 'urf (or adherence to convention or customary practice) an important "legal consideration"[195][196] [Note 30] (for example Hanafi jurist Al-Sarakhsi writes “establishment [of rights, etc.] by customary practice is akin to establishment by canonical texts”),[Note 31] and one that is not fixed but changes as customary practice changes. But when it come to banking, contemporary orthodox scholars do not consider "customary practices" to constitute a "legal consideration".[197]
- Future
Interest and riba an-nasiya
Issues in forbidding interest as riba an-nasiya
Most Muslims and most "non-Muslim observers of the Islamic world" believe that interest on loans is forbidden by Islam.[199] This "orthodox" poisition is also "by far the most influential"[200] fortified by "voluminous and overwhelming" scholarly literature.[201] Among the Islamic bodies that have declared all interest to be riba include the First International Conference on Islamic Economics (1976),[79][82] the Fiqh Academy of the Organisation of Islamic Cooperation (1986), the Research Council of al-Azhar University (1965), the Federal Shariah Court of Pakistan in a 1991 judgement.[82] Scholars and authors that have declaring that there is a consensus (ijma) on the subject include Abu al-‘Ala Mawdudi (1903–79), Yusuf al-Qardawi, Wahba Zuhayli, Tariq Talib al-Anjari, Thanvir Ahmed, Mabid al-Jarhi, M.N. Siddiqi, M.U. Chapra, Munawar Iqbal and Imran Ahsan Khan Nyazee.[201] In Islamic economics, a prohibition of interest on loans in the name of prohibiting riba, has been called that field's "most salient objective".[202]Its importance among Islamists/revivalist Muslims was reflected in the uproar created in the Pakistan parliament in 2004 after a Member of Parliament (MP) quoted an Egyptian Islamic scholar decreeing that bank interest was not un-Islamic. In response an Islamist MP stated that no member of parliament had the right to negate this "settled issue" since the Pakistan state Council of Islamic Ideology had decreed that interest in all its forms was haram in an Islamic society.[Note 32]
Among some (such as Imran Nazar Hosein) interest on loans constitutes not just a sin or crime 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."[204]However, not all Muslims agree with the formulation interest=riba.[205] 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,[206] and contemporary scholars 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).[207]
One non-orthodox economist argues there cannot have been a true consensus (ijma) because it would require the agreement of not just Islamic scholars but the Muslim community whose failure to use Islamic banking for most of their assets shows they do not agree.[208] [Note 33]
Rationale
A number of arguments have been advanced by orthodox/Islamist/revivalist scholars, preachers, writers and economists for the hikmat (underlying wisdom or philosophy of the law) prohibiting interest on loans. They include that interest (in their view) is a form of exploitation by the lender of the borrower and/or by the rich of the poor, leads to less prosperity and more injustice in the form of increased inequality and less human sympathy, is unIslamic because it allows gain from financial activity without risk of potential loss,[218] should not exist because money is unproductive and charging a price for it is unfair. And that contrary to what conventional, non-Islamist economists argue, (according to the orthodox view) banning interest would not hamstring crucial savings and investment but greater stability, efficiency, development etc.Whatever the reasons advanced for banning interest orthodox scholar Taqi Usmani emphasizes the importance of obedience over reason, since "there are areas in which human reason cannot give proper guidance".[219] "The Holy Qur'an has itself decided what is injustice in a transaction of loan, and it is not necessary that everybody finds out all the elements of injustice in a riba",[220] [thus] it is the firm belief of every Muslim that the commands given by the divine revelations ... are to be followed in letter and spirit and cannot be violated or ignored on the basis of one's rational arguments ..."[219]
Ismail Ozsoy argues that no matter how knowledgeable and eager the borrower and lender, or how low the rate of interest paid, both the payer and the receiver 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."[221]
Yusuf al-Qaradawi argues that those who earn income from interest will not have to work, leading to the interest drawers' contempt for work and depriving others of the benefits of the interest drawers' industry and efforts.[222]
Mohammad Nejatullah Siddiqi argues that charging interest on loans is a type of forbidden exploitation. If a loan is for "consumption" (to buy consumer goods), those who have wealth should assist those without and not charge any increment above principal. In "productive loans" (i.e. for a business to invest in plant or equipment), a guaranteed return on capital is unjust because there is no sharing of profits between entrepreneur and financier,[223] the borrower is "obliged to pay to the bank an extra amount," i.e. interest [224] Hameedullah also argues that interest is unjust because the borrower bears risk but (he believes) the lender does not,[225] which violates the Islamic principle that (he believes) reward should require being liable/taking risks.
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 (he believes) is forbidden by the Quran and results in an increase the divide between the rich and poor.[226] "Islamic socialist" Ghulam Ahmed Pervez, (not otherwise known for his orthodoxy), also argued the Quran banned interest as exploitive.[Note 34] al-Qaradawi states since "the lender is very likely to be wealthier and the borrower poorer ... If interest is allowed, the rich will exploit the poor".[222] In contrast, Taqi Usmani is concerned about "rich industrialists" who borrow "huge" amounts for "their huge profitable projects" and exploit lenders by only paying interest and not sharing their huge profits.[229] On the other hand, he states elsewhere that "the intrinsic nature" of interest and not the "financial position of the parties" make loans charging interest invalid, (so that not-so-rich industrialists with smaller, marginally profitable projects are just as forbidden).[230]
Interest is also alleged to cause macroeconomic instability. Mirakhor and Krichene[231] argue that interest charges on debts lead to the creation of a secondary market for debt. This leads to debt changes hands, multiple layers of it being created, and the generation of credit bubbles whose inevitable bursting destabilizes the economy.[231][232] Umer Chapra also argues that "the erratic behaviour of interest rates" has caused "three decades" of "turbulence in the financial markets", citing Nobel Laureate in economics Milton Friedman.[233]
According to Taqi Usmani, interest-based financing may "fuel inflation" since it "does not necessarily" finance the creation of real assets", and may increase the supply of money without increasing products to match it.[234]
Islamist leader Abul A'la Maududi states that 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 which (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.[235]
Ibn Rushd argued the rationale for prohibition relates to the possibilities of cheating that exists in riba, which is clearly visible in riba fadl.[236][page needed] M. N. Siddiqi also states interest "corrupts" society and "demeans and diminishes human personality".[237]
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.[238]
On a more conceptual level, Taqi Usmani and others insist that money is different from other things of value—it has no intrinsic utility, does not have "different qualities", is interchangeable with other money of the same value—and so unlike commodities and products must not be "rented" (i.e. lent out for a period of time in exchange for payment).[239]
- Alleged benefits of forbidding
Muhammad Siddiqi states that replacing fixed rates with profit-and-lose-sharing would make the financial system more stable and more entrepreneurial.[240] 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.[241]
- Arguments against rationale
Ifit is unjust to take fixed payment rather than a share of profits and losses, why are fixed rent and fixed wages not unjust as well? (While some Islamist thinkers have promoted the idea that 'labor owned firms would express the spirit of Islam better'[Note 36] there is no movement to restrict businesses to profit-sharing payment for employees or even "extensive debate on the subject".[247]) To the claim that collecting interest on a business loan when the business has gone insolvent is unjust, Khan replies that in the overwhelming majority of cases both banks and lenders benefit from loans and it's not sensible to let the small fraction of bankruptcies dictate how finance is structured.[248]
Mohammad Omar Farooq asks why Siddiqi does not even attempt to provide evidence for the social and personal corruption of charging interest, noting monitors of corruption such as Transparency International do not consider it a source of corruption.[249] Farooq replies to Qaradawi's statement that interest leads to sloth by stating that matching the savings of savers/depositors with the capital needs of borrowers is an economically useful and competitive function, and that many savers are retired elderly of modest means who can no longer work and seek conservative ways to make money from their life savings.[250]
To argument that interest violates the hadith stating that "profit arising from something which does not involve liability (to accept loss)" is unlawful,[251][252] Khan notes that asset-based lending also does not involve liability and in any case bankers face the "risk of non-payment, delayed payment, erosion in the value of money" from inflation.[253]
To the argument that interest has been prohibited by Shariah because of its "negative role in the economy,"[254] Khan notes that interest-based finance is "deeply entrenched" in the developed countries of the OECD yet per capita income is quite high and the percentage of poor people "quite" low.[255] It is true that the debt burden in many poor developing countries has created a hardship, denying funds for human needs and development, it must be asked whether this stems from the fact that the loans charge interest, or "mismanagement, fraud and corruption" that wasted the borrowed funds. A further question is whether Islamic lending would help poor countries that cannot pay their debts since as mentioned above, economists of Islamic finance agree abolishing interest would not mean abolishing any kind of cost to Islamic finance.[256]
In answer to the charge (by Taji al-Din and Monzer Kahf)[110] that interest-bearing loans increase division between the rich and poor because lenders will not loan money "to those who are unable to repay them" if the loans charging interest, M.A. Khan replies that "no business firm will extend credit to a customer until it is satisfied with its credibility".[257]
M.O. Farooq replies to M. Umer Chapra contention that Western economist, Milton Friedman, agreed that interest has caused financial instability by quoting an email by Friedman stating that his quoted writing did "not provide any support whatsoever for the zero interest doctrine" and that he did "not believe there is any merit to the argument that an interest-free economy might contribute toward greater economic stability. I believe indeed it would have the opposite effect."[258] He also notes that the countries that have gone in an "'interest-free' direction" are "hardly examples of greater economic stability."[259]
In reply to Mirakhor and Krichene's warning of the dangers of destabilizing credit bubbles,[231] M.A.Khan argues that a secondary market for financial instruments "is a real live need" of finance, even if it may pose a risk of speculation. "Even if we eliminated interest ... the alternative instruments of finance such as sukuk and other Islamic bonds would also require a secondary market." And in fact there have been "efforts to create" these markets for Islamic financial instruments but the need to follow the ideology of contemporary Islamic finance means that the markets "have ended up in a host of ruses, compromises and strategems".[232]
Alternatives
In arguing that any interest on loans and any "increased amount was charged on the principal amount of a debt",[47] is forbidden in Islam, leading orthodox scholars such as Taqi Usmani, (writing in The Historic Judgment on Interest Delivered in the Supreme Court of Pakistan) cite ahadith such as,- "Every loan which derives a benefit is a kind of riba."[126]
- "If one of you has advanced a loan and the debtor offer the creditor a bowl (of food), he should not accept it, or if the debtor offers him a ride of his animal (cattle) the debtor must not take the ride ...".[127]
Some commentators both defending and criticizing the orthodox idea of interest-free Islamic banking have framed it in terms of paying no return on loans. Muhammad Siddiqi claims that interest-free accounts paying no return to savers would not mean a drastic reduction of savings because savings is mainly a function of the income of the savers rather than their expectation of any return.[240] Mawdudi states that zero return loan would allow production that is socially useful but generates a small return to flourish.[citation needed] Sidiqqi states interest is unjust because the borrower is "obliged to pay to the bank an extra amount," i.e. interest [260]
On the critical side, 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".[261]
Notwithstanding these arguments, there is reportedly "a consensus" among Muslim economists that Islamic finance for commercial transactions "would not be free", but would have some kind of "cost" other than interest.[256] Taqi Usmani writes: "People not conversant with the principles of Shari'ah and its economic philosophy sometimes believe that abolishing interest from the banks and financial institutions would make them charitable, rather than commercial, concerns which offer financial services without a return. Obviously, this is totally a wrong assumption. According to Shari'ah, interest free loans are meant for cooperative and charitable activities, and not normally for commercial transactions ..."[262]
- 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.[263]
- 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.[263]
Interest and credit sales
This includes increases in a sale price: "the Riba prohibited by the Holy Qur'an ... had different forms ... At times, this debt was created through a transaction of sale and it was created through a loan"[47]—but in another work (Introduction to Islamic Finance) Usmani explains that if a transaction of sale involves increased the price "taking the time of payment into consideration", that increase does not come "within the ambit of interest", i.e. riba.[264][265]Getting 90 days credit on a Rs10000 (cash price) product and paying an extra Rs500, may cost the same as paying in cash, using a three-month loan at 20% per annum. But while the exchanges are equivalent in the eyes of standard accounting practices and truth-in-lending regulations,[Note 37] they are not to orthodox scholars.[264]
According to this (second) theory Islamic banking forbids even low interest as riba on cash loans, it does not forbid paying back over time more for an item, than that item cost in spot payment (immediate payment).[264] An example being "credit sales" (such as involved in murabaha, the "most common" mode of Islamic financing).[267]
Paying more for credit when buying a product does not violate sharia law because it is "an exchange of commodities for money"[268][269] while a bank loan is "an exchange of money for money"[268] and forbidden unless interest is zero ("effected at par value").[264] The buyer in a credit sale is paying not "interest" and "principal", but "cost" and "profit".[267][Note 38]
Attaching commodities to money in finance prevents money from being used for speculative purposes, according to other orthodox writers (such as Monzer Kahf).[110]
This distinction between credit sales and interest has been criticized as a way of charging interest using another name, by at least one opponent (M.A. Khan) and one supporter (Khalid Zaheer) of the interest=riba formulation. Khan calls it "frivolous and laboured", necessary because businesses "cannot survive where cash and credit prices are equal".[270] Zaheer notes the lack of enthusiasm of orthodox scholars—such as the Council of Islamic Ideology—for credit sales-based Islamic Banking, which (the council) calls "no more than a second best solution from the viewpoint of an ideal Islamic system."[271]
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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.[272]
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.[273] 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.[263]
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".[28]
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".[274] 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,[275] 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.[274]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 interest
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).[276]Time value of money
One concept instrumental in explaining (and defending) the charging of interest on loans[277] is the time value of money[278]—the idea that there is greater benefit in receiving money now rather than later, so that later payment should be discounted and savers/investors/lenders who defer consumption be compensated. As such, some Islamic finance supporters have attacked the concept,[Note 39] Irfan argues that the value of money diminishes very little over time because some consumption—such as eating—can only be done over time, and that negative outcomes such as unsustainable production leading to desertification, are encouraged by discounting for time since the desertification comes in the discounted future.[282] However, since Islamic banking also calls for rewarding delayed gratification in the form of "return on investment", most Islamic scholars and economists have taken a middle path—insisting that time value of money is an invalid concept if the rate of discount over time is interest on a loan, but not if it is the `rate of return` on capital.[277][283][284][285]Early payment of debt
The opposite of credit sales (i.e. higher charge for deferred payment) is reduced charges for early payment, and also implies an acknowledgment of the time value of money and validity of interest on loans according to some (M.A. Khan).[286]It is considered haram by the four Sunni schools of juriprudence (Hanafi, Maliki, Shafi'i, Hanbali), but whether there is a consensus of jurists is unclear. According to Ridha Saadullah, such reductions have
been permitted by some companions of the Prophet and some of their followers. This position has been advanced by Ibn Taymiyya and Ibn al-Qayyim, and it has, more recently, been adopted by the Islamic Fiqh Academy of the OIC. The Academy decided that `reduction of a deferred debt in order to accelerate its repayment, whether at the request of the debtor or the creditor is permissible under Shariah. It does not constitute forbidden riba if it is not agreed upon in advance and as long as the creditor-debtor relationship remains bilateral. ...[287][288]
Inflation
Whether and how to compensate lenders for the erosion of the value of the funds from inflation, has also been called a problem "vexing" Islamic scholars,[289] since finance for businesses will not be forthcoming if a lender loses money by lending. Suggestions include indexing loans (opposed by many scholars as a type of riba and encouraging inflation[290]), denominating loans "in terms of a commodity" such as gold, and doing further research to find an answer.[291][292] (One source suggests that there is no problem. Volume 1 of Investment Laws in Muslim Countries Handbook, states "an interest rate that did not exceed the rate of inflation was not riba according to classical Islamic jurists."[11]Not all sources are vexed, however. Islamqa.info merely states, "Yes, it is haraam to pay interest on loans even if that is because of inflation. The scholars are agreed that if it is stipulated that a loan be repaid with something extra, that is riba (usury) which is forbidden by Allaah and His Messenger."[293][294] Abu Umar Faruq Ahmad and M. Kabir Hassan state that: "Qur'anic injunctions against riba, and must be accepted as they stand." Using "interest to neutralise inflation would tantamount to using a bigger ‘evil’ [interest] to fight a smaller one [inflation].[295]
Delinquent payments/Defaults
While in conventional finance late payments/delinquent loans are discouraged by accumulating interest, control and management of such accounts has become a "one of the vexing problems" in Islamic finance, according to M.A. Khan.[296] According to Ibrahim Warde,Islamic banks face a serious problem with late payments, not to speak of outright defaults, since some people take advantage of every dilaroty legal and regal and religious device ... In most Islamic countries, various forms of penalties and late fees have been established, only to be outlawed or considered unenforceable. Late fees in particular have been assimilated to riba. As a result, `debtors know that they can pay Islamic banks last since doing so involves no cost` [296][297]Warde also complains that
"Many businessmen who had borrowed large aamounts of meny over long periods of time seized the oppostunity of Islamicization to do away with accumulated interest of their debt, by repaying only the principal -- usually a puny sum when years of double-digit inflation were taken into consideration.[296][297]
Permitting "bank interest"
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"[298] from "official" ulama "whose task it is to legitimize" rulers' policies.[299] Egyptian President Anwar Sadat obtained a fatwa from the Sheikh of al-Azhar ruled that interest-bearing treasury bonds were consistent with Islamic law.[298] More recently the mufti of Egypt, Dr. Muhammad Sayyid Tantawy issued several fatawa permitting bank interest in 1991.[139][300] 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."[139][301][302] Dr Abd-al-Munim Al-Nimr, an ex-minister of 'Awqaf in Egypt, publicly stated that banking interest cannot be considered riba.[139][303](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).[304])
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, mentioned above. In addition, Modernists interpreters of riba on the India-Pakistan subcontinent include: Ja'afar Shah Phulwarai (1959),[305] 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).[139]
- Modernist definition
Furthermore, contemporary bankruptcy laws "protect borrowers against the horrors once produced by riba", and "the goal of eradicating interest is both misguided and unfeasible," because interest is "indispensable to any complex economy".[28]
- Harm to borrower
Abd-al-Munim Al-Nimr, also argues that riba must involve harm to the debtor.[139][314] 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.[139][300] 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,"[139] rather than to exploit.[139]
- Practicality
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.[316]
Writers such as Fazl al-Rahman argue that an interest rate serves as a price for financing, limiting demand for it by borrowers. If the cost of finance (i.e. interest rate) were reduced to zero, finance markets will be faced with limited supply and infinite demand. How would credit be allocated?[317] (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.[318]
- Application
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.[319]
- Future
Reply to Modernists
Most of these arguments have been criticized by Islamic revivalist writers, including Siddiqi, Zarqa, Khan & Mirakhor and Chapra, and especially by Taqi Usmani's "Judgement on Interest Delivered in the Supreme Court of Pakistan".[320]Taqi Usmani argues that commercial, industrial and agricultural (as opposed to consumption) loans could not have been unknown to Arabs in the era of Muhammad since ahadith mention large loans and large scale caravans used by Arab traders.[321] Arabs of Muhammad's era also had "constant business relations" with the adjacent Byzantine province of Syria (Arabs used its dirhams (of silver) and dinars (of gold) for currency) where interest bearing loans were so widespread that a separate law was enforced to fix their rate of interest.[322] He also points out that there are a number of references to "all" riba being forbidden in ahadith, and all excess over principal being riba, but no mention of some smaller amount of interest being permissible.[127]
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, another type of riba—what jurists call riba al-fadl ("surplus riba") -- is also forbidden by orthodox jurists. Riba al-fadl does not involve paying back over time but instead the trading of different quantities of the same commodity (gold, silver, wheat, barley, date, or salt), typically because the quality of the smaller quantity is superior.Because riba al-fadl involves barter, and barter is much less common than it was in early Meccan society, riba al-fadl is of much less interest nowadays than riba an-nasiya.[323] It is also considered (at least by some sources) a form of riba prohibited by the Sunnah rather than the Quran. [Note 40] Taqi Usmani states that although Riba al-fadl was prohibited by Prophet Muhammad. However, "Riba al-fadl" was not largely prevalent during pre-Islamic jahiliya.[52]
Hadith
Examples of the ahadith cited in forbidding riba al-fadl—many from Sahih Bukhari—are:- Narrated Abu Said: 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). (Sahih al-Bukhari, 3:34:294)[324]
- 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". (Sahih al-Bukhari, 3:34:344)[325]
- 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. (Sahih al-Bukhari, 3:34:379)[326]
- 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. (Sunan Abu Daud)[327]
However, there are various contradictions and discrepancies in ahadith on riba al-fadl. Both M.O. Farooq and M.A. Khan quote a well-known hadith by Usama bin Zayd (in Sahih al-Bukhari) making a rather categorical statement that
Farooq cites another from Sahih Muslim
- “There is no riba in hand-to-hand [spot] transactions.”[331]
(There are also contradictory ahadith on trading silver for gold: one stating: “... The bartering of gold for silver is Riba except if it is from hand to hand and equal in amount...",[333] while others say: "the Prophet ... allowed us to sell gold for silver and vice versa as we wished.”)[334][335]
Application
Islamic jurists have traditionally interpreted the admonition of riba by the ahadith to mean that if one amount of commodity is traded for the same kind of commodity 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 some question of why anyone would ever exchange equal quantities of the same quality commodity -- "like for like"—that the ahadith seems to call for—for example 100 kilograms of wheat for 100 kg of wheat.[336]) 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.[337] If someone has a 100 grams of 24 karat gold and needs 100 grams of 18 karat gold (and can only get it by trade with their gold), they must trade their 100 grams for an equal amount of that less pure gold or commit riba al-fadl.[337]All the schools of Islamic jurisprudence (fiqh) accept this prohibition.[338] In more recent times, the International Institute of Islamic Economics 1999 Blueprint of Islamic financial system including strategy for elimination of riba,[339] declared riba al-fadl forbidden under Islamic law, defining 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".[340]
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".[341] Imam Abu Hanifa, of the Sunni Hanafi school of fiqh believed that the six commodities shared the common feature (`llah) of being able to be weighed or measured, so that other commodities sold by weighing or measuring were subject to the same rule.[341] Imam Al-Shafi‘i, of the Shafi'i school of fiqh, was of the opinion that their common feature (`llah) was that they were either eatables or were used as a universal legal tender.[341] Thus, to him, all eatables and universal legal tenders were subject to riba al-fadl. 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 (i.e. were non-perishable),[341] so in this school only food items or storable items are included in this category.[341] This disagreement (according to Taqi Usmani) is the part of the lament of Rashidun Caliph Umar that Muhammad did not explain the prohibition more clearly.[18]
- Criticism
Khan and Farooq find the commandment suspicious on the grounds that it makes no sense. Why would anyone ever trade equal quantities of the same kind of 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 could "divine law" prescribe that a jeweller "who has spent his time and effort to convert gold into jewelery" not be compensated (if trading for gold)?[337][344] Khan 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!"[345]
Abdullah Saeed complains that the legal cause or feature (`illa) used by the schools of Islamic jurisprudence to determine what commodities were subject to riba (i.e. being able to be measured, eaten or used as legal tender) ignores reasons why a sale should be prohibited (hikmah) -- issues such as "the circumstances of the transaction, the parties thereto, or the importance of the commodity to the survival of society."[180]
Rationale
According to Abdullah Saeed, "the intended meaning" of the ahadith concerning riba al-fadl "was not very clear even to many jurists", who nonetheless believed the prohibition "was to be observed and complied with ... without probing into the reasons for the prohibition."[346] Other scholars have probed. Ibn Rushd stated that "what is targeted by the prohibition of riba is the excessive inequity it entails".[266] Taqi Usmani asserts that Riba al-fadl was developed by Muhammad after his ban on riba to avoid "certain barter transactions might lead the people to indulge in Riba", picking out commodities that were "a medium of exchange like money".[52]Iqbal Suhail believes trading lesser quality foodstuffs for better quality and less quantity was forbidden because the frugality and austerity of Muhammad was offended by something like the spending resources on higher quality foodstuffs "for the sake of gratification of the palate."[347] Others believe riba al-fadl makes little sense as a prohibited sin but does as a sort of consumer advice. Mohammed Fadel (of the faculty of law, University of Toronto) calls it a ‘prudential regulation’.[348] Farooq suggest it may have arisen to warn Muslims that barter is usually less profitable than buying and selling separately,[Note 41] and notes several hadith where Muhammad tells a Muslim not to trade dates of different quality but never mentions riba.[350][351][352][353] Khan argues that the prohibition against riba al-fadl comes not from any clear understanding of the ahadith but from an attempt to find a plausible explanation "to rationalize the ambiguity in the text".[336]
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