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FAQs on Riba
Q: What is meant by Riba?
Q: What are types of Riba?
Q: The prohibition of Riba in Sruah Baqarah is only for poor and needy. It is injustice to claim any additional amount on the principal from a poor person, but it is not so in the case of a rich man who borrows money to develop his own commercial enterprise and earn huge profits through it.
Q: There was no concept of Productive or Commercial loans in the days on Prophet (SAW) so the verse of Riba doesn't deal with that and hence these are not Haram.
Q: On the basis of Ayah 130 of Surah Ale Imran ["O ye who believe! Devour not Usury, doubled and multiplied; but fear Allah; that ye may (really) prosper."] It is argued that only exorbitant or excessive rate of interest is prohibited.
Q: The value of money is decreasing constantly; the interest should be taken as a compensation for the erosion of the value of money during the period of borrowing.
Q: As a merchant can sell his commodity for a higher price than his cost, he can also sell his money for a higher price than its face value, or just as he can lease his property and can charge a rent against it, he can also lend his money and can claim interest thereupon.
Q: Holy Qur'an has allowed even to eat pork in the case of extreme hunger to save one's life. The interest-based system has now become a universal necessity and no country can live without it. Interest is no doubt prohibited by the Holy Qur'an but to implement this prohibition on countrywide level may be a suicidal act which may shatter the whole economy.
Q: What is meant by Riba?
A: Riba means addition, increase. So, riba literally means to increase, to grow to rise, to add, to swell. It is, however, not every increase or growth which has been prohibited by Islam. In the Shari'ah, "riba" technically refers to the premium that must be paid by the borrower to the lender along with the principal amount as a condition for the loan or for an extension in its maturity.
The Holy Qur'an did not give any definition for the term for the simple reason that it was well known to its immediate audience. It is like the prohibition of pork, liquor, gambling, adultery etc, which were imposed without giving any hard and fast definition because all these terms were well known and there was no ambiguity in their meaning. Similar was the case of riba. It was not a term foreign to Arabs. They all used the term in their mutual transactions. Not only Arabs but all the previous societies used to practice it in their financial dealings and nobody had any confusion about its exact sense. Surah An-Nisaa where the Holy Qur'an has criticized the Jews for their taking riba while it was prohibited for them. Here this practice is termed as riba in the same manner as it is termed in Surah Al-i-'Imran or Surah Al-Baqarah. It means that the practice of riba prohibited for Muslims was the same as was prohibited for the Jews.
The Definition of Riba as given by the Exegetes of the Holy Qur'an
Imam Abubakr Al-Jassas (D.380 AH) in his famous work "Ahkamul Qur'an" has explained riba in the following words:
"And the riba which was known to and practiced by the Arabs was that they used to advance loan in the form of Dirham (silver coin) or Dinar (gold coin) for a certain term with an agreed increase on the amount of the principal advanced."
"The riba of Jahiliyya is a loan given for stipulated period with a stipulated increase on the principal payable by the loanee."
The well-known Imam Fakhruddin Al-Raazi [Tefseer-e-Kabir] has mentioned the practice of riba in the days of Jahiliyya as follows:
"As for the riba An-Nasiah, it was a transaction well-known and recognized in the days of Jahiliyya i.e. they used to give money with a condition that they will charge a particular amount monthly and the principal will remain due as it is. Then on the maturity date they demanded the debtor to pay the principal. If he could not pay, they would increase the term and the payable amount. So it was the riba practiced by the people of Jahiliyya."
Ibn Jarir explains on the authority of Qatadah in the following words:
"The Riba of Jahiliyya was a transaction whereby a person used to sell a commodity for a price payable at a future specific date, thereafter when the date of payment came and the buyer was not able to pay, the seller used to increase the amount due and give him more time."
The same explanation has been given by al-Suyuti on the authority of Faryabi in the following words:
"They used to purchase a commodity on the basis of deferred payment, then on the date of maturity the sellers used to increase the due amount and increase the time of payment."
The common feature of all these transactions is that an increased amount was charged on the principal amount of a debt. At times, this debt was created through a transaction of sale and it was created through a loan. Similarly, the increased amount was at times charged on monthly basis, while the principal was to be paid at a stipulated date, and some time it was charged along with the principal. All these forms used to be called Riba because the lexical meaning of the term is increase.
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Q: What are types of Riba?
A: Althought the Qur'an did not specify any particular kind of riba, it is generally held that the word al-riba in the Qur'an is that kind of dealing which had been in vogue during the pre-Islamic days. Muslim jurists have classified riba in two types:
1. Riba al-Nasi'ah /Riba al Jahiliyya / Riba al Quran, and
2. Riba al-Fadl / Riba al Sunnah
Riba al- nasi'ah
The term nasi'ah means to postpone or to wait and it refers to the time period that is allowed for the borrower to repay the loan in return for the addition of the premium. Hence it refers to the interest on loans. The prohibition of riba al nasi'ah essentially implies that the fixing in advance of a positive return on a loan as a reward for waiting is not permitted by the Shari'ah.
Riba al-fadl
Islam, however, wishes to eliminate not merely the exploitation that is intrinsic in the institution of interest, but also that which is inherent in all forms of unjust exchange in business transactions.
Riba al-fadl is the excess over and above the loan paid in kind. It lies in the payment of an addition by the debtor to the creditor in exchange of commodities of the same kind. The following tradition of the Prophet Muhammad (saw) is cited as evidence. It is related that Abu Said al-Khurdi said: "the Prophet Muhammad (saw) has said that gold in return for gold, silver for silver, wheat for wheat, barley for barley, dates for dates and salt for salt, can be traded if and only if they are in the same quantity and that is should be hand to hand. If someone gives more or takes, then he is engaged in riba and accordingly has committed a sin."
To sum up, riba al-nasi'ah and riba al-fadl are both covered by the verse, "Allah has allowed trade and prohibited riba" (2:275), while riba-al nasi'ah relates to loans and riba al-fadlrelates to trade. Although trade is allowed in principle it does not mean that everything in trade is allowed.
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Q: The prohibition of Riba in Sruah Baqarah is only for poor and needy. It is injustice to claim any additional amount on the principal from a poor person, but it is not so in the case of a rich man who borrows money to develop his own commercial enterprise and earn huge profits through it.
A: The validity of a financial or commercial transaction does never depend on the financial position of the parties. It rather depends on the intrinsic nature of the transaction itself. If a transaction is valid by its nature, it is valid irrespective of whether the parties are rich or poor. Sale, for example, is a valid transaction whereby a lawful profit is generated. It is allowed regardless of whether the purchaser is rich or poor. The most one can say is that a poor purchaser deserves concession on humanitarian grounds, but one cannot say that charging any amount of profit from him is totally haram or prohibited.
The prohibited transactions are invalidated on the basis of their intrinsic nature and not on the basis of the financial position of the parties. Gambling is prohibited for both rich and poor persons. Bribery is unlawful regardless of whether the bribe is charged from the rich or from the poor. It is, therefore, evident that it is not the richness or poverty of the parties that renders a transaction valid or invalid. It is the intrinsic nature of the transaction that really determines its validity or otherwise.
Moreover, 'poverty' is a relative term which has different degrees.
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Q: There was no concept of Productive or Commercial loans in the days on Prophet (SAW) so the verse of Riba doesn't deal with that and hence these are not Haram.
A: It is not correct to say that commercial or productive loans were not in practice when riba was prohibited. More than enough material has now come on the record to prove that commercial and productive loans were not foreign to the Arabs, and that loans were advanced for productive purposes both before and after the advent of Islam.
Arab, Makkah, in particular, consisted of barren lands and hills with very little amount of water and therefore was totally unfit for cultivation. That is why commerce and trade was the basic characteristic of the economic life of the Arabs of Makkah. Their main business was to export their own goods to all the surrounding countries and import their goods to their own cities. For this purpose their commercial caravans used to travel to Syria, Iraq, Egypt, Ethiopia etc.
The Holy Prophet, Sall-Allahu alayhi wa sallam, has, in another authentic hadith reported by Imam Bukhari (Bukhari: Book 3: Volume 37: Hadith 488), narrated the story of an Israelite person who had borrowed one thousand dinars from another person and then embarked on a sea voyage. Some other reports have expressly mentioned that this borrowing was for commercial purpose. Moreover, such a huge amount cannot be borrowed for normal consumption needs, and the hadith mentions that the borrower set out on his sea voyage.
Ibn Saad has reported Sayyidna Umar, Radi-Allahu anhu, wanted to send a trade caravan to Sriya, and for that purpose he borrowed four thousand dirhams from Sayyidna Abdurrahman ibn Awafa, Radi-Allahu anhu.
Ibn Jarrir has reported that Hind, daughter of Utbah and wife of Abu Sufyan borrowed four thousand dirhams from Sayyidna Umar, Radi-Allahu anhu, for the purpose of her trade. She invested this money in purchasing goods and selling them in the market of the tribe of Kalb.
The concept of commercial loans was not alien to the Holy Prophet, Sall-Allahu alayhi wa sallam, or his companions when riba was prohibited. Therefore, it is not correct to say that the prohibition of riba was restricted to the consumption loans only and it did not refer to the commercial loans.
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Q: On the basis of Ayah 130 of Surah Ale Imran ["O ye who believe! Devour not Usury, doubled and multiplied; but fear Allah; that ye may (really) prosper."] It is argued that only exorbitant or excessive rate of interest is prohibited.
A: This argument overlooks the fact that the different verses of the Holy Qur'an relating to the same subject must be studied in juxtaposition with each other. No verse can be interpreted in isolation from the other relevant material available in other parts of the Holy Qur'an. As explained at the very beginning, the Holy Qur'an has dealt with the subject of riba in four different chapters. Obviously, no verse can contradict another verse on the same subject. The most detailed treatment of the subject of riba is found in Surah Al-Baqarah, the relevant verses of which have already been quoted and translated in paragraph 15 of this judgment. These verses include the following command:
"O those who believe fear Allah and give up whatever remains of riba, if you are believers." [Al-Baqarah 2:278]
The words "whatever remains of riba" in this verse indicate that every amount over and above the principal has to be given up. This point is further clarified in express terms by the following sentence:
"And if you repent (from the practice of riba) then you are entitled to get back your principal."
These words do not leave any ambiguity in the fact that repentance from the practice of riba is not possible unless any amount exceeding the principal is given up and that a lender is entitled only to the principal he has actually advanced. A combined study of the verses of Surah Al-i-'Imran and Surah Al-Baqarah leaves no doubt that the words "doubled and multiplied" occurring in Surah Al-i-'Imran are not of restrictive nature, and that "doubled and multiplied" is not a necessary condition for the prohibition of riba. These words have rather been used to refer to the worst kind of practice of riba rampant at that time.
Holy Qur'an contains some words or expressions used either for emphasis or for explaining the evil results of a particular act. They are not meant to be taken as a restrictive qualification for the command or the prohibition preceding them. A self-evident example of this style of the Holy Qur'an is the verse which says:
"Do not sell my verses for a little price." [Al-Baqarah 2:41]
Nobody can take this verse to mean that selling the verses of the Holy Qur'an is prohibited only because the price claimed is very low and that if the verses are sold for a higher price, the practice can be held as permissible.
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Q: The value of money is decreasing constantly; the interest should be taken as a compensation for the erosion of the value of money during the period of borrowing.
A: Actually the rates of interest are though a major cause of inflation among other factors; they are not based on the rate of inflation. Had it been compensation for inflation, the rate of interest should have always matched the rate of inflation, and obviously this is not the case. The rates of interest are determined by the demand and supply of money and not by the rate of inflation at the time of the contract. If at any given time both rates match each other, it may be by chance and not as a matter of principle. Therefore, the interest cannot be held as a compensation for the loss of purchasing power.
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Q: As a merchant can sell his commodity for a higher price than his cost, he can also sell his money for a higher price than its face value, or just as he can lease his property and can charge a rent against it, he can also lend his money and can claim interest thereupon.
A: The basic points of difference between money and commodity are as follows:
(a) Money has no intrinsic utility. It cannot be utilized in direct fulfillment of human needs. It can only be used for acquiring some goods or services. A commodity, on the other hand, has intrinsic utility and can be utilized directly without exchanging it for some other thing.
(b) The commodities can be of different qualities while money has no quality except that it is a measure of value or a medium of exchange. Therefore, all the units of money of the same denomination, are hundred per cent equal to each other. An old and dirty note of Rs.1000/= has the same value as a brand new note of Rs.1000/=.
(c) In commodities, the transactions of sale and purchase are effected on an identified particular commodity. If A has purchased a particular car by pin-pointing it, and seller has agreed, he deserves to receive the same car. The seller cannot compel him to take the delivery of another car, though of the same type or quality.
Money, on the contrary, cannot be pin-pointed in a transaction of exchange. If A has purchased a commodity from B by showing him a particular note of Rs.1000/- he can still pay him another note of the same denomination.
Imam Al-Ghazzali (d.505 A.H.) the renowned jurist and philosopher of the Islamic history has discussed the nature of money in an early period when the Western theories of money were non-existent.
Allah Almighty has, therefore, created dirhams and dinars (money) as judges and mediators between all commodities so that all objects of wealth are measured through them"¦ and their being the measure of the value of all commodities is based on the fact that they are not an objective in themselves.
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Q: Holy Qur'an has allowed even to eat pork in the case of extreme hunger to save one's life. The interest-based system has now become a universal necessity and no country can live without it. Interest is no doubt prohibited by the Holy Qur'an but to implement this prohibition on countrywide level may be a suicidal act which may shatter the whole economy.
A: Islam is a realistic religion and it never binds an individual or a State with a command, the implementation of which is beyond its control. The doctrine of necessity is one of the doctrines enshrined and developed by the Holy Qur'an and Sunnah and expounded by the Muslim jurists. But the doctrine of necessity in Islam is not an obscure concept. There are certain criteria expounded by the Muslim jurists in the light of the Holy Qur'an and Sunnah to determine the magnitude of necessity and the extent to which a Qur'anic command can be relaxed on the basis of an emergent situation. Therefore, before deciding an issue on the basis of necessity one must make sure that the necessity is real and not exaggerated by imaginary apprehensions and that the necessity cannot be met with by any other means than committing an impermissible act. On analyzing the case of interest in the light of the above principles, there is a great deal of exaggeration in the apprehension that the elimination of interest will lead the economy to collapse.
This apprehension is also based on unawareness of the new thoughts about the present financial system and about what has been happening in the field of Islamic economics and banking for the last three decades. The fact is that Islamic banking is no longer a fanciful or utopian dream. Muslim jurists and economists have been working on various aspects of Islamic banking from different dimensions for the last 50 years, and it is from the 1970s that the concept of Islamic banks has been translated into real institutions working on the Islamic lines.
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Source:
- Text written by Maulana Justice Taqi Usmani in decession by Shariah Appellate Bench of SCP on prohibition of Interest.
- Sood by Maulana Syed Abul Ala Moududi.
- Sood by Naveed Ahmad (Anjuman Khadam ul Islam)
Compiled By: Waseem Ahmad
Reviewed By: S.M. Abdul Ghafoor (Chartered Accountant)
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