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Selasa, 06 April 2010

Riba And The Credit Needs of Muslims

Syed Hashim Ali Akhter
Courtesy: Link
[Note: This document has been retrieved from the abovementioned link, where there was some formatting problem. Some Tables were not properly aligned and therefore some anomalies could be there. If the original document becomes available, relevant corrections, if warranted, would be made.]
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Introductory comments by Azher Quader

It is spring time in America. It is tax time too. Millions of Americans just finished an annual chore and paid to the piper what they owed. To most the tax code is too confusing to understand. It would be nice if the tax code was based on some simple formulas. But that will throw a whole lot of people out of business. Not to mention the politicians who delight in changing these rules ever so often to keep everyone guessing and reading. Within this realm of fuzzy maths everyone is in search of exemptions and deductions. Within this domain of deductions there is nothing more powerful and more desirable than interest deductions. This one category for most of us decides if we are to write a check or get a refund.

For a good many centuries now, the faithful in Islam have struggled with this category both conceptually and practically, advancing arguments of belief and disbelief, demonstrating attitudes of guilt, living with the inevitability of double standards and wondering for the most part what could be the Divine intent here, leave alone the Divine will.

For many of us there will never be a convincing argument that will change our understanding of riba as we have come to understand it. But for a few who believe that the permanency of the message is rooted in its capacity to evolve through the inevitable progression of time, the traditional understanding of riba will remain inconclusive and unacceptable, spurring them on to travel that less traveled road of ijtehad, that can ultimately bridge the divide between the Divine intent and the Divine will.

Hashim Ali Akhter’s thought provoking essay on riba takes the reader on such a journey. Having known him for a lifetime, we know this work of his, was a work of his lifetime. Eminently qualified in the worlds of religion and economics, uniquely gifted with the wisdom of theory and practice and unconditionally motivated with the desire to seek the truth, Hashim Ali Akhter offers in this paper a remarkable depth of scholarship and spirituality. We believe his service to the Muslim community through his appointments as Vice Chancellor of Osmania and Aligarh Universities, two prestigious centers of education in India, during a life of many accomplishments, takes a backseat to this article that best symbolizes his real legacy for bettering the economic plight of Muslims everywhere. We reproduce it here in its entirety. We hope you agree with our assessment.

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Riba and the Credit needs of Muslims

Syed Hashim Ali Akhter

Introduction

As a welfare and development administrator it was a painful experience to watch poor and pious Muslims struggling to decide whether they should take a loan offered through a government sponsored scheme for their amelioration, and get their problem solved, or consider it as riba, reject it, and remain in misery. These schemes consisted of long-term loans for land development, medium term for tractors, bullocks, and agricultural implements and short term for seeds and fertilizers. All these were given on low rates of interest for agricultural development. Self- employment schemes offered loans to unemployed engineers to establish industries or to become builders; to doctors to open clinics; to artisans, taxi and auto-riksha drivers to buy tools or own vehicles, and for other professions. Housing schemes gave loans for construction and repairs to houses. Poverty eradication schemes offered micro-loans for the purchase of cows or buffaloes, material for cottage industries, chicken for poultry farming all meant to augment their meager incomes and improve their quality of life. It was tragic to see a Muslim family left homeless after the death of the breadwinner or after a natural calamity like a flood. While non-Muslims used all these facilities, a Muslim had to face a dilemma. He had been advised to live in a rented house as taking a loan and paying the same amount as installments of the loan were prohibited by his religion. It was equally painful to see a poor and bright young student getting deprived of higher education as an educational loan was prohibited.

Those Muslims, who ignored the medieval interpretation of the religious edict, took the loan and prospered. They however, could not get rid of the lurking prick of their conscience for having committed a sin.

It appears that the world-wide backwardness of Muslims is the result not only of disunity, poverty, lack of education, technological deficiency and submissive acceptance of fate, but mostly because they are not able to make use of the credit facilities offered by the welfare oriented credit based schemes implemented through the modern banking system, which is a bye- product of the industrial revolution. This system enabled common people to reinvest their idle capital or savings and freed the borrowers from the usurious loan sharks whose exorbitant rates resulted in the loss of their property or possessions (amwal). It also saved them from risky joint ventures with other individuals, which generally end up in loss due to the incompetence or dishonesty of the working partner.

An administrator has to be a problem solver, an innovator and an improviser to achieve the objectives set before him. Past precedents do not guide in totally new situations. The practices of the seventh century desert economy, or the law developed in the ninth century agricultural economy by an imperial dynastic system has no precedents for the requirements of the development oriented economy of modern times. Legal opinions based only on past precedents given by people who have no knowledge of the complexities of modern economic, political and administrative systems, without consulting the subject matter experts on the problem under consideration, have failed to solve the problems of the modern Muslims. The interpretation of the Divine law by jurist of a totally different period in history is treated as more important than the spirit and purpose behind it.

The writer was a senior Muslim officer of a non-Muslim country with a secular constitution, who has spent twenty years out of forty five years of his working life in implementing welfare and development schemes for the poorest sections of humanity, and has seen the tremendous benefits of credit- based schemes.

This paper is being written after years of tormented thinking about the causes of the world wide backwardness of Muslims, and is a humble effort as a layman to examine whether religion prohibits exploitation of the weak and needy by the rich and powerful, or does it debar the less fortunate from all progress and prosperity. The Qur’anic prohibition of Riba prevents exploitation. The Muslims have failed in the last fourteen centuries to evolve a system for the reinvestment of the idle capital or savings of Muslims to deal with the amelioration of the deprived for the benefit of both as desired by the Qur’an. R (3:92; 4:29)

For the sake of brevity while quoting books, articles and reports, a condensed version is being used and arguments leading to the conclusion are omitted and Qur’anic verses are generally shown as surah/ chapter and ayah/verse numbers.



The confusion caused by translations

The translations of the original Arabic text vary so much that the very concept changes. One such example is the translation of the word Riba. Most English translations have used the word Usury, though even this word does not convey the full import of the word riba as defined in several verses of the Qur’an. In the Urdu language it has been translated as Sood as there is no word for usury. All literature on Islamic banking and Pakistan’s report on interest free banking use the term interest. If this translation is correct and conveys the purpose and the spirit behind the prohibition of riba, then there is no need to proceed further as this is an injunction, which has to be obeyed. If the word usury is closer to the concept of riba, then nearly every modern government in the world has defined usury as a rate of interest higher than the prevailing bank rate by a prescribed percentage and has treated it as an offense, punishable by law. The word usury also does not convey the full import of the qur’anic term riba.

The effect of wrong translations

In the Islamic community of India and Pakistan the Urdu word Sood is generally taken as synonymous to Riba, perhaps because there is no word for the term Usury in Urdu. If sood is really synonymous to riba, no Muslim can question its proscription because the Holy Qur’an has clearly prohibited it. This improper translation or definition has resulted in the economic backwardness of Muslims for the following reasons:

• If interest is prohibited there is no incentive for saving and investment.

• When the urge to save money recedes, the principles of frugality do not survive in life and is the cause of the evil of senseless spending among Muslims.

• The capital needed for starting a business and the working capital needed for continuing and developing it is not available to the Muslim and so he can neither start a business nor compete with others. This is the reason why there are so few Muslims in business and this is the greatest cause of their poverty.

• Banking is itself a big commercial sector and while there are thousands of millionaires in other communities, the few Muslims that are in Banking also believe in its unlawfulness, thus they either intentionally or openly commit a sin and indulge in an unlawful act, or they have lost the reverence for religious commandments in view of their urgent need for a loan.

• The rich Muslims do not believe in lending on interest, and the needy Muslim is forced to borrow from others Thus contributing to the economic progress of others at the expense of Muslims,

• Qard hasan, or lending without interest may be a virtue but generally it ends in ingratitude and loss to the lender. (pp. 21-24 WIR)

As the Qur’an is meant for universal guidance for all time its definition should not be bound by the prevalent practices of a certain area at a certain point in history. Unfortunately, none of the fuqaha has tried to derive its definition from the Qur’an itself. All hadiths quoted deal with barter transactions or advance trading of crops. In all religious literature the lender is shown as avaricious, miserly, selfish, hard-hearted, blood-sucking evil individual. co-operatives and banks, which developed after the Industrial revolution as anti-usury measures, find no place in the legal edicts based only on past precedents. Thus institutional finance has no place in our literature.

It is therefore considered necessary, for the purposes of this paper, to use the original terms, riba. amwal, sadaqa, zakah etc., and define the modern terms, bank, interest, usury, capitalism etc., from standard dictionaries.

In view of the strong aversion to the words interest or sood, the expression bank rate is being used.

Riba as known in Arabia

Qur’anic injunctions deal with the prevailing evils of society with the objective of reforming them. It is therefore necessary to see as to which evil was meant to be corrected. The contemporary generation of the Prophet knew the evils of the prevalent riba. The Prophet abolished all exploitative transactions whether in lending or in trade when he said, ‘Every riba that was in jahiliyah (before Islam) is abolished and the first riba that is abolished is that of Abbas bin Abdul Muttalib.’ This was a case of advance sale. According to Anas bin Malik the Messenger forbade muhaqata, mukhadara, mulamasa, munbadha and muzabana, all related to riba or exploitative and dishonest practices in sale and barter transactions and therefore not relevant to institutional financing which is the subject of this paper.

The second Caliph, Umar ibn al -Khattab is reliably reported to have said; ‘The last (of the Qur’an) that was revealed was the passage on Riba; and behold, the apostle of God passed away without (before) having explained its meaning to us’.(p.30 WIR) This clearly shows that all the hadiths quoted were from a period prior to the prohibitory order in the Qur’an.

Riba al nasia as practiced in Arabia is defined as follows:

One person gives a loan to another person on the condition that the borrower pays a fixed amount every month to the lender, the capital remaining intact. If the payment was not made, an extension in time was given and the capital amount and the payment were also increased. This increase in capital and the increase in the already usurious rate were called Riba. The borrowers were generally poor people who took loans from the rich for their daily needs. All the Qur’anic verses concerning Riba are about these poor people for whom the Qur’an repeatedly asks Muslims to be generous.

The Muslim jurists have added from their ijtehad and qiyas conditions such as sharing of profit and loss, or have treated even a very low rate of interest as prohibited, though the Qur’anic wording ‘doubled and quadrupled’ clearly emphasizes the very high rate charged. Ignoring these words would mean committing the unpardonable sin of questioning God’s choice of words, or changing the very purpose for which this last revelation was sent to the Prophet.. This also goes against the concept of taking the Zahir or apparent and straightforward meaning of the Qur’anic injunctions.

The Qur’an says: ‘O you who have attained to faith! Do not ask about matters which, if they were to be made manifest to you (in terms of law) might cause you hardship.(5:101)

According to Asad, the above statement implies that the believer should not try to deduce additional laws from the injunctions clearly laid down in the Qur’an and the prophet, since they may cause you hardship. Some of the greatest Muslim scholars have concluded that Islamic law, in its entirety consists no more than the clear cut injunction forthcoming from the self-evident (Zahir) wording of the qur’an and the Prophet’s commands and that consequently, it is not permissible to extend the scope of the self evident ordinances by means of subjective methods of deduction. (Ibn Hazm:Muhalla) Quoted in note 120 of ayah 5:101 by Asad.)

Rasheed Rida observes: ‘Many of our jurists (Fuqaha) have by their subjective deductions, unduly widened man’s religious obligations (Takalif) thus giving rise to the very difficulties and complications which the clear wording of the Qur’an had put an end to, and this has led to the abandonment by many individual Muslims as well as their governments, of Islamic law in its entirety.(Manar, vol. vii, P.138, quoted by Asad in note 123 in Surah 5)
This practice perhaps also goes against a hadith narrated by Aisha: ‘Why do some people impose conditions, which are not present in Allah’s Book? Whoever imposes such a condition is invalid even if he impose one hundred conditions, for Allah’s conditions are more binding and reliable.’

Riba Fadl is not about loans but a barter arrangement by taking a superior thing by giving more of the same goods of an inferior quality.

Definitions by classical Imams: No consensus

There is great variation in the definitions given by classical Imams. The Prophet had enumerated six commodities in one hadith. Here is a very brief account of their views.

Dawud-al-Zahiri:
‘There is riba only in these six things, i.e., barley, wheat dates, salt, gold and silver and there is no riba in other things.’

Imam Shafa’i:
‘Edibility is the cause of riba in the first four of the mentioned articles and valuability is the reason in the remaining two’

Hanafi Fuqaha:
‘Measurability and weighability are the reason of riba’

Imam Malik:
‘There is riba in storable (Non-perishable) edibles only, and there is no riba in any other commodity.’

Imam Baghawi:
‘The riba prevalent in Arabia was in bay’e salaf transactions, and at the time of the deal, there used to be no condition / promise for an eventual increase. When the buyer on credit or debtor, due to his inability failed to repay at the appointed time, he agreed upon the sheer pressure of the creditor, to an increase over the original amount. This excess amount was called riba by the Arabs. Such a deal was generally contracted by the indigent and the poor. They for the sake of their survival, used to take food items such as barley, wheat or dates before the crop would be ready, or would borrow dirhams and dinars in order to buy those things and thus sold in advance their next crop. At the time of repayment after the crop was ready, if he would give away the crop according to earlier promise, he would have nothing left for his sustenance. So he would give part of the produce and the creditor would give him a further period for returning the balance on condition that its quantity would be increased. (Imam Baghawi, in his Tafsir, Ma’alim al-Tanzil, while interpreting the ayah on the proscription of riba. (pp 30,96 WIR)

Al Jaziri:
‘The Shariah definition of Riba is as follows:
Riba is one of those unsound (Fasid) transactions which have been severely prohibited. It literally means increase’ (Abd al Rahman al Jaziri in al fish al madahib al Arabah)

Maliki, Hanbali, Shafai schools and Imam Abu Yusuf prohibit it in darul harb. Only Imam Abu Hanifa and Imam Muhammad permit it in non-Muslim countries. (Jamuah, vol. 13, issue3, 1422H.)

Views of present day Jurists

The opinions of present day jurists are based on past precedents of decisions taken by Muslim jurists about a thousand years ago when it was considered that no further ijtehad is necessary and the doors of ijtehad had been closed. No religious scholar considers it necessary to consult the subject matter specialists on the problems under consideration; in this case economists, bankers, social scientists, accountants, businessmen, government policy makers and management experts.

Maulana Abul Hasan Ali Nadvi, an eminent Islamic scholar from India has this to say:
‘The practice of lending money on interest conversely breeds egotism, covetousness, parsimony and mistrust. It fosters the concentration of wealth in the hands of the few. The moneylender is like a small tank into which all the wealth of the community ultimately flows. Usury sustains and promotes conditions that give rise to class hatred. The poor and under privileged masses are always at a loss. The society gets divided into two distinct groups of haves and have-nots.’ (p. 114 FPI)

Obviously, institutional financing by the banks has not been considered in this opinion. All others give similar reasons, keeping the unscrupulous moneylender as the model.

Maulana Maududi also has a Shylock in his view when he states:
‘Interest is the result of selfishness, miserliness and small mindedness.’ (p235, MI)

An economist discusses Maududi’s concept as follows:
‘ Maududi’s approach to modern economics is highly simplistic. His diagnosis of the defects of the capitalist system, to say the least is elementary. According to him the basic blunder that was committed in capitalism was to permit interest, and no stigma was attached to it All the features of Islamic economy he has enumerated with the exception of perhaps the prohibition of interest can be easily incorporated in the capitalist economy. The traditional concepts will only be valid as long as the level of development and technology underlying these remain the same. The Concentration of wealth and inequalities in income can no longer be tackled by payment of two and a half per cent of zakat on un spent income nor the Muslim inheritance law can only be effective. Prohibition of interest was indeed a very important tool to free humanity from exploitation. In modern society the borrowers who pay interest gain large profits even after the payment of interest. To insist on abolition of interest is rather unrealistic. Muslim orthodoxy is frozen in the stubborn denial of change. Their static attitude of life and fear of innovation has disastrous consequences. Islam prohibits Riba as an instrument of exploitation. There is a section of opinion that bank interest is permissible. There are fatwas to this effect. The other argument put forward is that Islam wants to abolish unearned income. It is difficult to accept this point of view when sleeping partnership is considered permissible. The concept of sharing profits and losses also needs re-examination. Certain industries have long gestation period in which share holders do not get any profit but debenture holders and banks continue to get interest. (Naeemuddin: ICMW)

Dr. Kaukab Siddique has this to say: ‘At this time in America and most of the world investments are hooked to the international banking system. The claims of Islamic banking and Islamic investment within the capitalist system are merely forms of deception. (al Balaagh)

Definitions

The definitions of terms related to the subject are as follows:
Interest or Bank rate, is the price paid to lenders for the use of their capital. Interest is figured as a percentage of the amount-borrowed.. Interest plays an essential part in commerce, businesses and government, consumers borrow and lend money and thus pay and receive interest. Businesses borrow money to buy new machinery or to build new factories. Governments borrow to make up for the money they spend and they collect in taxes. People and businesses that lend money have incomes greater than their expenditure, so they let others use their money, instead of simply hoarding their funds. Lenders use money to earn more money through interest. Borrowers pay interest so that they can make purchases that they cannot afford to pay immediately, (for house, car, household needs, etc.) and repay in monthly installments.
Usury is interest at a higher rate than the law allows. The person or institution charging more than the maximum legal rate is a usurer.

In the biblical times all payments for the use of money were regarded as usury. Interest and usury were regarded as synonymous until the late middle ages because most of the borrowers were poor persons who needed money to obtain the necessities of life. After the Industrial Revolution rich people needed large amounts for railroads, shipbuilding and factories etc. It became accepted practice to pay interest for the use of borrowed money. Usury came to be associated with excessive charges.

Bank is a business establishment that safeguards people’s money and uses it to make loans and investments. Money is safer in banks. It provides an easy way to pay bills, earns money for depositors who get interest for the use of their money. Banks are an essential part of business activity. Banking is as old as civilization. Modern banking began to develop between 1200s and 1600s in Italy.

Money is safe as there is deposit insurance if bank fails. There are many types of banks. Federal Reserve banks /Central Banks work for governments, control banking and control the nation’s money supply by regulating bank rates others can charge depending on inflation or recession in the country. They are the lender’s last resort. The US Government started regulation of banks after 9000 banks failed in USA between 1930 and 1933. Most countries control their banking system by legislation.

Muslim religious writers call capitalism as ‘soodi nizam’ or a system based on interest and summarily reject it. The actual definition of the system is as follows.

Capitalism: ‘An economic system marked by open competition in a free market, in which the means of production and distribution are privately or corporately owned and development is proportionate to increasing accumulation and reinvestment of profits. (Chambers New Riverside Dictionary)

Nations whose economics are based on capitalism include USA, Canada, West Germany and Japan. Capitalism is some times called free enterprise, free market system, entrepreneurial system or laissez faire. The driving force of a capitalist economy is the profits. Profits are a firm’s earnings after it has paid all expenses. The desire for profits called profit motive encourages firms to operate efficiently. Some Government welfare programs aid the poor in capitalist nations. (World Book)

It may be seen that in all these descriptions the word interest has not been used as the objective. Countries practicing democracy and capitalism are the most powerful and prosperous countries in the world. Maududi’s concept of the Islamic system is similar to capitalism. Socialism is closer to Ghulam Ahmed Parvez’s concept of an Islamic economy.

The Prophet disapproved of leaving productive resources idle. ‘Let him who owns land cultivate it himself, and if he does not do so, let him have his brother cultivate it.’ (Muslim) Caliph Umer has said ‘He who has money should develop (invest) it and he has land should cultivate it’ (Husain Haykal:Hayat Muhammad.)

The banking system enables every person with surplus funds or idle capital to invest and have an assured share in the profits, unaffected by the inefficiency or corruption of the bank management. He also shares the losses when the bank fails. Thus the profit/loss sharing (PLS) advocated by the orthodox jurists in each transaction is also available in the banking system but on the long-term basis. This is in a way implementing the use of idle assets mentioned above and the Qur’anic injunction ‘But let there be amongst you traffic and trade by mutual good will’ (4:29)

Riba is a Qur’anic term that has been defined in the Qur’an in several verses and has a comprehensive meaning that is not covered by the usual translations Usury and Interest, though usury describes it better.

In view of the conflicting definitions, we have to follow the direction of the Qur’an, which says:
‘If there is any dispute amongst you on any issue, refer it back to Allah and the Prophet’ (4:59)

If we try to define it based on the Qur’an and hadiths the definition would be as follows:

Qur’anic definition of Riba

When a rich believer gives a loan to a poor and needy believer (who is eligible to get charity (sadqat and zakat), on an exorbitant, and predatory rate of interest (3:130) with difficult terms of repayment (2:280) and with the dishonest or malicious intention of devouring the borrower’s amwal / property / possessions (2:188; 4:29,30,161) it is called Riba.

The Qur’an desires to abolish this exploitative Riba and it asks the lender to forego the balance of Riba. (2:278); advises granting time to the borrower till it is easy for him to repay, and encourages even remitting the loan as charity. (2:280; 30:39) It clarifies that Riba is not trade. (2:275) It prohibits exploitation or devouring the amwal of others even by way of trade even when based on mutual consent or agreement. (4:29,30)

The alternatives of foregoing riba, or even the capital and treating it as charity clearly indicate that the borrower’s poverty and his being a brother-in-faith (2:188) were the main reason for these concessions.

It denigrates wasteful expenditure and recommends investment for mutual benefit. (4:29)

Prescribing zakat and abolition of Riba shows the concern of the Qur’an for the economically depressed classes of the society and calls upon every member of the society to share his earnings with those who are not economically well off.

It mentions that it was prohibited for the Jews also.

Which Riba was forbidden to the Jews?

‘For the iniquity of the Jews, We made unlawful for them certain good things (of life) which had been lawful for them, because they hindered many from Allah’s way, and because they took usury though they were forbidden, and because they devoured other people’s property wrongfully. (4:160-161)

The following verses from the Bible are quoted to find out what was forbidden to the Jews.

‘If you lend money to any of my people that is poor by thee, thou shalt not be to him an usurer, neither shalt thou lay upon him usury’ (Exodus, 22:25)

‘And if thy brother be waxen poor, and fallen in decay with thee, then thou shalt relieve him: though he be a stranger or a sojourner that he may live with thee. Take thou no usury of him, or increase: but fear thy God; that thy brother may live with thee. Thou shalt not give thy money upon usury nor lend him thy victuals for increase’ (Leviticus, 25:35-37)

‘Thou shalt not lend upon usury to thy brother, usury of money, usury of victuals, usury of anything that is lent upon usury. Up to a stranger thou mayest lend upon usury but unto your brother thou shalt not lend upon usury: that the Lord thy God may thee in all thou settest thy hand to, in the land whither thou goest to possess it’ (Deut.23: 19-20)

From the above instructions of the Bible the forbidden riba is the increase, which is charged from an indigent person over and above the original loan, from a brother- in faith, and in the land, which is under the rule of one’s faith. It allows taking interest from strangers. (pp. 117-118 WIR)

The qur’an confirms the Bible in these words; ‘ And before it (The Qur’an) was the Book of Moses, a guide and mercy. And this Book confirms it in the Arabic tongue in order that it might admonish the wrong doers and give glad tidings to those who do good to others.’ (46:12-13)

The Qur’anic verses on the prohibition of riba (2:267-281) have been devoted to persuasion of charity and benefaction to the poor and the indigent, i.e., generosity, has been mentioned as a means to attract Allah’s pleasure and blessings and a way to increase wealth.(p.121 WIR)

Riba in the chronology of the Qur’an

Ayah (30: 39) makes the earliest mention of the term and concept of Riba in the chronology of Qur’anic revelation. In its general linguistic sense, this term denotes an ‘addition to’ or an ‘increase of’ a thing over and above its original size or amount: in the terminology of the Qur’an it signifies any unlawful addition, by way of riba, to a sum of money or goods lent by one person or body of persons to another. (Q. 30:39)

Ayah (3:130) the exorbitant rate has been mentioned: ‘O you who have attained to faith! Do not gorge yourself on Riba, doubling and re-doubling it’

According to Qiffal (as quoted by Razi): since it was mainly through usurious gains that the pagan Meccans had obtained the wealth which enabled them to equip their powerful army and almost defeat the poorly-armed Muslims at Uhud the latter might have been tempted to emulate their enemies in this respect; and it was to remove this temptation- from them as well as the later generations of believers- that the prohibition of usury was once again stressed through revelation.

Ayahs 2:275 -281 were the last revelation received by the Prophet, condemning and prohibiting Riba in legal terms. He died a few days later.

According to Asad: ‘Roughly speaking the opprobrium of Riba (in the sense in which the term is used in the Qur’an and in many sayings of the Prophet) attaches to profits obtained through interest bearing loans involving an exploitation of the economically weak by the strong and resourceful: an exploitation characterized by the fact that the lender, while retaining full ownership of the capital loaned and having no legal concern for the purpose for which it is to be used, or with the manner of its use, remain contractually assured of gain irrespective of any loss which the borrower may suffer in consequence of this transaction. As to what kind of financial transactions fall within the category of Riba, is in the last resort a moral one. Closely connected with the socio-economic motivation underlying the mutual relationship of the borrower and lender; and stated in purely economic terms, it is a question of how profits and risks may be equitably shared by both partners to a loan transaction. Hence every successive Muslim generation is faced with the challenge of new dimensions and a fresh economic meaning to the term which, for the want of a better word, may be rendered as usury. The prohibition laid down in 2:75 is already foreshadowed with the reference to the immoral hope of increasing one’s own substance through (other) people’s amwal, i.e. through the exploitation of others.

Riba and bank rate (interest)

To see whether Islam has really prohibited exploitation or has closed all progress to Muslims, the first step is to see whether there is anything common between Riba prohibited by Islam and the Bank rate, which is paid by the banks to depositors and investors and charged on loans taken by the borrowers.

Here is a comparative statement.


RIBA BANK RATE

Parties to the Transaction Rich believer to needy believer Individual to bank deposits, investments)
Bank to individual (loan) Bank to bank
Bank to Government Government to bank
Government to Government International institutions to countries


Capital Lender’s own Individual deposits in bank
Government deposits in bank Loans from other banks
Returned loans from borrowers Profits earned


Interest Rate Fixed by the individual lender Limited by Government
Related to inflation rate and Impacted by international
competition among banks institutions (e.g.,
for deposits and borrowers International Monetary Fund)

Installments Heavy installments with a view
to devour the borrower’s property
(4:160, 161; 2:188; 4:29, 30)
At the personal discretion Vary, but limited by Government
of the lender

Purpose Personal Agricultural, industrial, developmental
educational, personal


It will thus be seen that there is nothing in common between the exploitative Riba and the anti-Riba or anti-usury measures taken by the Banks to lend funds at reasonable rates to the borrowers as decided by the respective governments from time to time.


The thinking in Muslim countries

In 1999 when Sheikh Zaki Yamani, a former minister in the Saudi Government, which claims to be governed by the Shariah, made a suggestion that the Shariah needs some modifications, the traditional people raised a storm. When a person of his intellectual level and practical experience of administering the system at the highest level makes a suggestion it has to be examined with all seriousness.

At about the same time Sheikh Hasan Turabi, the brain behind the Islamic revolution in Sudan as stated: ‘We are an Islamic state but we are still studying the following issues:
The form of government
The electoral system
The constitution
The Shura
The improvement of economy by Islamic means
The role of Islamic banks and insurance
The nature of Islamic justice
The ways in which music and art can be encouraged.(p139,ISP)

It is obvious from the above that practically every issue needed for modern administration has yet to be decided.

Dr. Mahatir Muhammad, Prime Minister of Malaysia, speaking in the Emirate International Forum in Dubai on April 27, 2001 said:

‘After 1400 years we have still no codified Islamic laws, leaving it to the judge to refer to instances of similar crimes in the past to pass judgments and sentence. à.. It is because we have forsaken the true teachings of our religion and returned to our pre-Islamic ways: fending with each other, closing our minds to modern knowledge, ignoring reality, and deceiving ourselves that we are better than others, when we are not’

Pakistan’s President Gen. Musharraf’s speech to Muslim religious leaders on June 5, 2001 has this comment:

‘Seventy per cent of world’s energy resources are in Muslim countries. But our GDP of the entire Muslim ummah comes barely to 13 billion dollars. On the other hand Japan’s GDP stands at 5,500 billion and Germany’s at 2,500 billion dollars. In other words Germany’s GDP is twice that of the entire Muslim ummah and Japan’s is four and a half times though we are one fourth of the world’s population sitting on 70 per cent of the world’s energy resources. Why is this so? An analysis tells us that it is because of the difference in the advancement of human quality, of environmental development. . The entire Muslim world has some 380 universities of which only 25 are of world ranking.

In Japan 1000 universities award Ph.D. degrees. The entire Muslim ummah can boast of a total of 500 Ph.Ds. In England in each year 3000 Ph.D. are awarded and in India 5,000. Unless foreign investors come in, and our own people make investments, we cannot make any economic headway’.

The above statements from persons with experience of administration at the highest levels in Muslim countries show that the existing interpretations of the Divine Law needs reinterpretation, that most of the issues dealing with the functioning of modern governments are yet to be decided. There are only past precedents of a bye gone age, there are no codified laws, that we are educationally and technologically backward and require either economic or technological assistance from the more advanced countries.

No attempt has been made to co-relate the actual situation and problems of Muslims. There is only reaction to criticism than a creative response. There is absence of genuine concern to the social, economic and cultural condition among Muslims. (A.Moazzam: ICMW))

Islamic Banking

A recent survey of ‘Current researches on Islamic Banking and finance’ has this to say:

‘Although it is a matter of debate whether there existed any Islamic economy or financial system at all in the Muslim world in the past, but the way Muslim writers, economists, bankers and jurists have put their arguments in favor of this system are quite interesting. Just two decades back, Islamic finance had not such a deeper theme and was considered as a passing phenomenon of religion, money and politics.

There is consensus that interest in all its forms is similar to riba but Muslim scholars still raise the controversy when in recent times even some jurists legalize bank interest, calling it profit such differing interpretations of the Shariah when Islamic banking is presented as an alternative method does in fact give Islamic banking a confused image’. Some Muslim economists suggest that commercial interest should be substituted as profit and loss sharing mechanism. There are a number of studies, providing critical notes of the practical aspects of this system. Ideals and theories aside, here are some facts.

In Pakistan, Islamic banks provide profit and loss sharing (PLS) techniques for inter-bank, or for the State Bank- commercial banks transactions, but actually the fixed rate interest rates are being charged at every stage. (p104 JOS)

Researches indicate that up to 85% of advances made by Islamic banks everywhere are on (mark-up basis) or (murabaha) financing while PLS finance is comparatively insignificant.

A major portion of assets in Islamic banking is concentrated in shot term assets, as such Islamic banks hold a large cash reserve which earns no return, because they can not keep time deposits or invest in treasury bills which yield interest. (p. 106 JOS)

Islamic banks can flourish in countries where the political, moral, legal and social environment suits them. The impact of PLS on aggregate saving and investment in contemporary economics is highly controversial. No Islamic Bank (IB) has yet taken a high profile role in supporting charitable or other events of national and international importance. No IB is funding financially sustainable, environmental friendly projects, or funding micro-industries, low cost housing, renewable energy cooperatives, fair trade, sustainable transport or building restoration projects.

This perhaps brought one healthy criticism that Islamic banks need to discard their solely profit-pursuing, soft, non-socially conscious image. (p. 107 JOS)

Many Islamic banks are still family owned or owned by a group. They need massive injection of public subscription and greater transparency and disclosure. The auditing and accounting problems of Islamic banks are yet to be solved.(p109-110 JOS)

Ikbal Daredia, head of ABN AMROÆs Global Islamic Financial Services, Bahrain has this to say:
‘There are an estimated 1.2 billion Muslims world wide, a market worth any where between $150 billion to $200 billion. Yet because the Qur’an, the Muslim holy book, forbids riba (interest on money) these potential customers cannot participate in many of the banking services that benefit customers in the Western world Some 150 financial institutions in Islamic countries have developed riba-free services, but only a few Western banks have recognized the value of this market’ Basically, Islamic banking system is based on trade or asset-based financing. You essentially step into the shoes of the customer and buy goods on his behalf. Then you sell the same goods to him on a deferred payment basis with a markup (Murabaha) In the end you have profit, not interest.”

The Pakistan experiment

The Council of Islamic Theology and Elimination of Interest appointed by the Pakistan Government has submitted a detailed report in 1980.

Unfortunately, instead of using the Qur’anic term Riba, they have used a translation in which riba is translated as interest though most of the standard translations use the word Usury. Secondly, they have made no effort to define riba, based on the original text of the Qur’an. They were therefore bound these two basic deficiencies. They could not invent a new system against the prevalent system in the whole world. They had to improvise, compromise and camouflage.

Some of their conclusions are very briefly listed below.

1) Cases where the committee feels changes are not possible.
To allow the capitalist system to remain and to consider that by the abolition of interest all our problems would be solved is like living in the fool’s paradise. This committee categorically rejects this concept.

Ideally the real alternative to interest under an Islamic system are profit/loss sharing or Qard-e-Hasan Some recommendations lean on other methods than profit/ loss sharing, On account of prevailing standards of morality in the society there is a danger of eventual misuse. Efforts must be stepped up to bring about a substantial improvement in the standards of honesty in the society and to remove illiteracy, because both dishonesty and illiteracy militate against the success of the new system.

Indexation was discarded, as under the Shariah, currency transactions are not treated differently from commodity transactions. As such no allowance can be made for the change in the value of money.

Bai Muajjal: permissible under Shariah but is not practical, as it would open the back door for dealing with interest.

Normal rate of return; May degenerate into pure interest.

Time multiple counter loans: Not correct to use as a permanent alternative

Elimination of interest from transactions relating to international trade and aid poses the most difficult problems and cannot be achieved by the lone efforts of a single country.

Substituting medium and long-term finance for farmers by a single substitute confirming to the Shariah is not possible.

In order to avoid any adverse effect on depositor’s confidence and deposit mobilization by banks, deposits may continue to be accepted by banks on the existing basis.

The operation of foreign branches of Pakistani banks and foreign currency deposits and transactions with banks abroad would have to continue on the basis of interest.

Borrowings from international agencies may continue to be interest bearing.
Government would not be able to issue fresh market loans on terms compatible to the Shariah. Government borrowings from external sources will continue on the basis of interest.

The Alternative methods suggested:

a) Changing the name.
Calling it Service charge instead of interest. It may meet the requirement of Shariah, but neither accord with the true spirit of Islam nor would be advisable from the economic point of view.
Using the words Fine and deterrent punishment instead of calling it penal interest.

b) Changing procedures and making them more complicated.
Leasing can be done but the cost of insurance of assets will have to be borne by the lessor to confirm to Shariah.
Investment auctioning: Bank to set up an industry and auction it.

This means that when a Henry Ford or a Bill Gates asks for a loan, the bank will hire other experts and build an industry and sell it the geniuses who could have done it better without the extra cost. The highest bidder could be a different person who may also need a loan to pay up!

Hire purchase under joint ownership.

This means that instead of giving a loan to a person to buy a car, the bank would buy it, add the markup, call it a joint ownership, share the loss when due to the negligence of the borrower, the car gets damaged.

In order to avoid frequent shifts of deposits from banks of lower profitability to banks with higher profitability, the rates of return on deposits in nationalized commercial banks should be made uniform by pooling their profits for distribution among depositors.

This means going back to the system of predetermined rate of interest and allowing incompetent banks to survive at the cost of more efficient banks, and calling the same interest as profit.

Housing loans on joint ownership basis with rent sharing arrangements.
This means that the bank would buy a house, add the usual interest for the total period of repayment, and sell it next day on a joint ownership basis with a clear conscience that no riba has occurred. This would also mean that if the buyer pays the full amount in a shorter period, the price would remain the same, whereas in the present system he did not have to pay for the remaining period. In the present system a mortgage safeguards the interest of the lender and insurance safeguards the interests of both the lender and the survivors of the borrower.

Special loans: interest free for general welfare.
This lending would be to the detriment of the common investors who are not rich and avaricious money lenders but could be old widows or pensioners who are incapable of working and had invested their life’s savings to augment their reduced incomes in old age. The profits rightfully due to them would have been frittered away in helping weak banks and giving interest free loans, thus mixing business with charity. Charity is enjoined on every Muslim, and should be the duty of a Muslim government, not of a banking institution at the cost of the investors.

The final phase of elimination of interest was to take effect from first January 1982. but it has not yet implemented in 2001.

It is obvious from the above that even in a Muslim country which was created in the name of Islam it has not been possible to have a workable original system which is not a patch work on the much maligned capitalist system.

Umer Chapra in his book ‘Towards a Just Monetary System’ quotes J.K. Galbraith ‘ The best economic system is the one that supplies what most people want’ And suggests that the Islamic system would supply the needs and not the insatiable lusts. This may perhaps give a discretion to the IB to give a loan for a Ford but not for a Mercedes.

His book makes a detailed examination of the Pakistan report.

Regarding changing from the profit motive to profit / loss sharing system, apart from the fact that it is an unwarranted addition by Muslim economists and jurists, some economists have this to say: all quotes are from Chapra’s book. A Just Monetary System

The elimination of interest and introduction of PLS would not change the level of uncertainty. (Dr. Anis Zarqa,)

A mere replacement of riba by profit sharing will not serve the purpose. To merely substitute interest on loans by other forms of interest or profit fails to offer a real alternative.(Dr. Abdul Hameed Abu Sulaiman, Theory of economics of Islam: Paper in Contemporary aspects of Islamic thinking in Islam, Bloomington, Indiana, MSA, 1976.

Any proposition that asserts that a zero rate of interest is sufficient for the establishment of an Islamic system is false. (Dr. SNH Naqvi: Ethics and economics; An Islamic synthesis. Leicester, UK, The Islamic foundation)

Capitalism and democracy are on the march. The fact that Muslim countries have in general experienced slow growth rates has nothing to do with Islamic values. (Fareed Zakaria)

Economic exploitation in all its diverse forms is as prevalent in the Muslim world as in capitalist or feudal society. It would therefore be a mistake to try to achieve transition from the conventional capitalist money banking system to the Islamic system in one stroke over a short period.

The status of implementation


A Pakistani newspaper has this comment on the actual working of the PLS system in Pakistan. ‘There are two counters side by side in our banks. One of them deals with un-Islamic banking and the other with Islamic banking.. The Bank Manager informs us that in reality both types of accounts are really the same. The amounts collected at both counters are invested together. The interest on one is fixed. The profit on the other is not fixed. The depositor in the first window knows the rate of interest beforehand. The depositor in the Islamic system is informed at the end of the year about the profit he has earned. The account holders may deem it as interest or profit, as they like’

Ishrat Husain, the Governor of the State Bank of Pakistan lambasted the Mudaraba (PLS) sector and said that it failed to give a model Islamic system to the country. It has gained just 0.2% of the total assets of the financial sector of the country since its inception twenty years ago. The banks with their huge network of asset base will be a major threat to mudarabas in a level playing field. (Pakistan link, July 6,01.)

This statement coming from the highest authority in banking clearly shows that the normal Muslim does not want to risk his investment in the PLS system. One reason for this mistrust could be his experience with the corrupt rulers who damaged the whole banking system though it did not provide for profit and loss sharing. The PLS would validate the presumed losses claimed by dishonest borrowers.

Perhaps the Divine wisdom in the use of the expression ‘doubled and quadrupled’ will be understood now when we see the Hadith:

‘There will certainly come a time for mankind when everyone will take riba and if he does not do so its dust will reach him’. (Abu Dawud; Ibn Majah)

The present interest based economy is controlled by the international monetary system and the concerned governments do not allow rates that can be called ‘doubled and redoubled’ It appears, as if the rest of the world has implemented many of the Islamic precepts and has found solutions to the problems facing the world. The Muslim jurists on the other hand have been busy finding problems with all the solutions offered. To deal with the exorbitant rates charged by the individual moneylenders the world has taken action to find anti-riba measures. They have made usury or charging interest above the rate prescribed by government as illegal and punishable.

In compliance with the directive in ayah 4:29, which says:

But let there be amongst you traffic and trade by mutual good will’ co-operative and commercial banks have been developed in which ordinary people can invest their surplus funds for the common good and for mutual benefit.

Anti-Riba measures

(A) Co-operatives:
To free themselves from the clutches of the Jewish money-lenders a group of German farmers started a co-operative society nearly two hundred years ago by pooling their savings and lending to the needy farmers and then charging the expenses equitably. This initial experiment started a major movement of self-help among people and thousands of co-operatives in every country began the great task of freeing small farmers and others from the clutches of the heartless moneylenders. State level, district level and village banks were created for the needs of the farmers who gave long term, medium term and short term credit to cater to the different needs of the farmers at specially low rates, easy installments, and concessions when the crops failed.

(B) Commercial banks
Before the Industrial Revolution, the words usury and interest meant the same thing. After the Revolution when rich people had to borrow large amounts for the establishment of industries, the bank- rate charged by the banks was called interest and the exorbitant rate charged by the professional moneylender was called Usury and Governments made laws to regulate it. Even in the USA anyone who charges more than the bank -rate permitted by the Government is punishable by law. The increase permitted varies from state to state.

The Qur’an has this to say about wealth sharing
‘You shall never attain piety till you share with the others (the poor and the needy) what you cherish (particularly your wealth). And whatsoever you give away, God surely knows it.’ ( 3:92).

The prophet had said, ‘Mankind is a fold every member of which is a shepherd unto the other and responsible for the welfare of the entire fold’

The world has responded to this noble call and world organizations have been formed to help the poor countries in many ways. The World Bank, the IMF and rich countries give loans for all types of development at reasonable rates, and consider converting them into grants when a poor country is unable to pay.

It is a matter of regret that practically all Muslim governments misused these funds and the people in power borrowed beyond the repaying capacity of the country to enrich themselves, and then blamed the lenders for a conspiracy to destroy them.

Need for ijtehad.

Maulana Waheeduddin Khan, President of the Markaz e Islami, New Delhi has this to say:
‘The intellectual development of the present day Muslims has practically stopped. The reason is that they have become used to following blindly whatever scholars have written in the past. The mujtehadana or independent rational way of thinking has ended, as if it is an evil. Such people lag behind the other nations in knowledge and intellect. The main reason of the failure of Muslims is that while they think about what is right and what is wrong, they fail to see what is possible. All their unnecessary sufferings are the result of rushing for something that they consider right without the practical consideration of what is possible. They fail to follow the gradual process adopted by the Prophet, of changing the minds before changing the system. Ijtehad is not merely an intellectual process. Ijtehad is the most important need of the Muslims. By applying the principles of Islam in changed conditions, they have to update procedures to prove that Islam is relevant to every age. For this continuous thinking is necessary. Ijtehad does not mean freethinking. Ijtehad requires treating the Qur’an and Sunnah as the original sources and instead of following the opinion of earlier jurists who took those decisions in totally different conditions, try to follow the original sources and deduct new procedures according the changed times. This is the process called Qiyas. Muslim jurists had done the same work in the second century Hijri. A lot of new problems had arisen for which there was no guidance in the Qur’an and Sunnah. The jurists solved the problems by Ijtehad. After the second and third Hijri, for some reason, a wrong concept developed that everything that had to be decided has already been decide by the jurists and that later Muslims should treat these as final. Thus the Jurists of the Abbasi period were treated as Mujtahede-Muthluq and the later jurists as mujtahed-e-Muqqaied or restricted jurists who were not allowed to interpret the original sources. This was the beginning of the intellectual tragedy of Islam.

The existing Fikh was developed in the Abbasi period when the Muslims were a world power. It represented a model from a position of strength. There is no existing model in the present law of Islam for a position of modesty. The Prophet had passed through both stage of modesty and power and in his life we have both models of behavior. Criticism is a means of intellectual development. Ijtehad is a product of discussion. Free discourse brings out new aspects of a problem. Analysis and audit may bring out a well-researched solution to the problem. This intellectual process is Ijtehad. Ijtehad is an unavoidable need for progress. The people who cannot tolerate criticism can never attain the intellectual good fortune to belong to the group of trail blazers.

According to Shah Waliullah, in his book Aqd al Jeed a mujtahid needs the following: “Knowledge of the Book of God, of the sunnah, views of past jurists, their differences, the language, and qiyas and istenbaat.”

These are enough for ordinary ijtehad but for special ijtehad not only the face value but the undercurrents and the knowledge of the times is also necessary.

The dominance of the West is not only political superiority but also a superiority of knowledge, science and technology. To meet this situation Muthlaq Ijtehad is necessary.” (quotation ends: emphasis added: Al-Risala, July,2001)

The above extract is a free translation from a long Urdu article, and is an excellent analysis of the reasons of the present backwardness of Muslims all over the world.

The credit needs of Muslims require an Ijtehad-e-muthlaq. The orthodoxy has not been able to solve the complex problems of the modern world. This work has to be taken up with the help of the Muslim scholars who are experts in all the subjects relevant to the problem that has to be solved. Our orthodoxy does not believe in consulting the authorities on any modern subject before expressing an uninformed opinion on a complex matter.

Ijtehad by modern Muslim Scholars.

Dr. Muhammad Sayed Tantawi, the Rector of the oldest Islamic University, the Jamia Azhar and the Mufti of Egypt, in an unprecedented Fatwa has countered the objections of traditional Muslim jurists when he said:

There is nothing wrong with the bank’s specification of profit rate. The banks, which set the rate of its profit, are much closer to Islam.
If a Bank for its reasons and out of its hands, has made a loss, then it has to prove before the courts, that every depositor would bear a portion of the loss commensurate with the volume of his deposited capital.
The specification of interest rate as to the bank’s deposit is not speculation.
Deposition is an absolute mandate in which the depositor delegates the bank to invest his money. Therefore we should take the matter with ease and flexibility, but within the limits specified by the Lord.
Even in regard to bank loans, if the loan was needed for a justifiable reason such as medical treatment or the embankment of an investment project, it is halal.
The banks neither lend nor borrow, but rather play the role of a mediator between the borrower and the depositor and the bank as such receive the latter category’s money in order to invest them on their behalf. Hence when a bank lends some money to an entrepreneur who intends to invest the funds in the some way, it then has the right to take some money out of the transaction. “(The Muslim World, Makkah, April 24-May 1,1990, quoted in Fikre Islami.FI)

Maulana Sayyid Ahmad Ali Sa’id, Grand Mufti of Darul Uloom Deoband gave a detailed fatwa, which specifically deals with non-Muslim countries. His fatwa is based on Hanafi law and contains detailed arguments and quotations from earlier scholars. The following is a brief account of his conclusions.

Riba is a major sin, but for any amount to become riba it is necessary that both the amounts (the Original capital and the increase on it) are inviolable (legal/legally protected). If one amount is inviolable the increase on it, according to Hanafi fiqh, is not considered inviolable, but a violable (unprotected) one, then such an increase will not be considered riba. (al-badai waÆl-Sana’i; vol.5 p.192) Allama Shami: Shami, vol.4,p. 244).

There is no riba in the transaction of two trading partners, if they buy using the partnership money.
There is no riba between a resident of dar al-Harb and a Muslim living there with permission even if the contract is invalid or involves gambling because the property of the resident of dar al-Harb is lawful there and its acquisition is lawful with his consent, without deceiving him, therefore it is halal to him. (Al-Durr al-Mukhtar (shami, vol.4, p.260)

The condition of riba will not apply to such transactions, and to term it as riba is incorrect. This is the view of Imams Muhammad sufyan al-Thawri and Al-Awza’i. For a Hanafi, the view of Imam Abu Hanifa has preference, if Imam Muhammad also agrees; it is even more powerful and binding. Even if the shaykhs have given fatwa contrary to it. (Rasm al-mufti, p.72)

The definition of dar al-Harb is that the supreme power there should belong to non-Muslim and his orders are obeyed therein. India is undoubtedly a dar al-harb. But the constitution of the secular government has given security and religious freedom to Muslims so that they can act according to their religion. This is why the country is called dar al aman (abode of peace). Like wise, Russia, China, America, Britain and France etc. where Muslims enjoy security are dar al-harb.

The amount deposited in a bank and the extra amount paid by the bank on the deposit is not riba. The second reason is that the amount deposited is not a loan so that the dictum ‘Every loan extracting a profit is riba’ could not apply to it. It is well known that the bank trades. So anyone depositing money in the bank will be considered a partner in the bank’s trading in proportion to his deposit, making this a form of mudarabah. In this way not considering the extra amount as riba and thereby rescuing Muslim economy from ruin is itself a religious need. Harming Muslim economy and society by branding this extra amount as riba is against religion and a proof of one’s lack of intelligence and wisdom. But this will not apply where the supreme power belongs to Muslims. (WIR, pp. 174-181)

Maulana Sayyid Manazir Ahsan Gilani, former head of the department of theology, Osmania University, Hyderabad had give an opinion during the British period that:

Riba does not occur between a Muslim and a harbi in dar-alharb.
Maulana Muhammad Zafiruddin, Mufti, Darul Uloom, Devband had a discussion with him, and has reported this:
In an article (WIR p.193) Maulana Gilani said: In this country we have to deal with non-Muslims day and night. They believe that it is valid for them to take riba from us and they take it. In this one-way trade a lot of Muslim wealth has been transferred to them through this channel. Muslims are left poor and bankrupt. This opinion is based on the authority of Imam Abu Hanifa and Imam Muhammad and we abide by them and do not care what the other Imams say about such issues.

According to Maulana Sohail ‘Literally Riba means an absolute raise or increase. ````````But it is absolutely certain that any raise or increase, or riba is not the Riba or ‘Al Riba’ prohibited by the Shariah. Thus all the verses of the Holy Qur’an regarding the prohibition of riba mention it as al riba that is with the definite article ‘al’. Certainly the definite article “al” here is not indefinite or general, otherwise every form of monetary increase, such as business profit would have been prohibited. (P.13 WIR)

The definition of riba rests solely on qiyas (inference) of the fuqaha. But there is lot of difference among them. They have normally mixed up riba with muratalah and sarf although these two types of commercial transactions. Muratalah is barter, and sarf is exchange of one currency with another. (P14WIR)

Maulana Sohail, after quoting all the Qur’anic ayahs and Hadiths and the differing opinions of fuqaha, all of whom just copied earlier opinions given before the advent of the modern banking system has summarized the rules of riba as follows::

If a person who is entitled to take sadaqat (charity) takes a loan to sustain himself or his family; or a debtor who is unable to pay his dues and in case of paying back his dues, he will not be left with enough money to maintain his family, enters into an agreement for an increase over the amount due, or on actual loan, then this is an agreement of riba which is unlawful. But this non-permissibility is conditional on two factors:
1) The place where this agreement is made is under Islamic rule that is where the government orders are issued according to the intent of the Shariah even in financial matters.
2) The transaction should be between Muslims
The above-mentioned definition makes lawful all instances in which a rich man takes a loan to satisfy his luxurious urges, or a trader takes a loan to further his business or when a person places his savings in a bank or official savings organization or a company or government department, and receives interest on the savings.

Maulana Suhail considers all such dealings as mudarabah, commercial investment, or ikra, that is renting, which are lawful. (p 17 WIR)

He has also quoted the following two Hadiths: The Prophet borrowed a two-year-old camel and returned a similar camel, and in addition gave another camel, and said: ’Best of you are the best in returning your debts. (Muslim, Tirmidhi)

Another narration is as follows in Abu Dawud: ‘ The Prophet took a loan from me. He repaid the loan to me and paid me an extra amount. (P107 WIR)

Maulana Rashid Pasha Rector and Mufti Khaleel Ahmed of Jamia Nizamia, Hyderabad, India have given similar fatwas according to which bank interest is not riba..

Ijtehad by Muslim countries.

With the exception of a few states known for their puritanical ideologies, the entire Arab world has, in the recent past, been the scene of an enormous jurisprudential revolution. This has culminated in reform and codification of civil, penal, commercial, procedural and personal laws in various Arab states. The laws of Egypt, Sudan, Syria, Jordon, Lebanon and Kuwait are, today, very much different from what they were in the beginning of the twentieth century.

A more extensive deviation from tradition and a speedier advance to modernity are noticed in the legislation promulgated in the North African Arab countries like Tunisia and Algeria. This was followed by Libya after the September 1969 revolution and Libya became a republic. A program of Islamization was taken up. On June 9,1972, Act 74 was enforced, in part, the Islamic principles relating to an important commercial concept, namely, usury (riba). As is well known, the Qur’an is believed to have prohibited usurious transactions of all kinds at all levels. Scope of this Libyan law is however limited. It prohibits usury in civil and commercial transactions among natural persons (individuals) al ‘ashkas al-tabiyin’, a-l afrad It lays down that: It will be unlawful to rovide for usury in all civil and commercial matters between natural persons; and any condition, express or implied, relating to usurious interest in such transactions will be absolutely void. The Act does not apply to banks and other artificial persons ‘ashkas I’tibari..(Tahir Mahmood: Reflorescence of Islamic Law in Libya:.ICMW)

This major ijtehad making a clear distinction between personal and institutional loans would enable the financial institutions and co-operatives to cater to the credit needs of Muslims in Muslim as well as in non-Muslim countries.

It is clear that except Libya, other Muslim countries have yet to develop and innovate their classical financial methods and yet to achieve unanimous Shariah approval for equity investment in the world’s interest- based financial market. They also need financial assistance from world organizations and rich countries for their development projects according to the system prevalent in the whole world. The impeccable honesty expected in a truly Muslim society needed for the success of the PLS system advocated as the Islamic alternative, being rather rare, Islamic banking should be considered as an experiment that has yet to prove itself.

Muslims in non-Muslim countries, who are even otherwise disadvantaged by being minorities, facing discrimination or even oppression in some countries, have to accept the ijtehad by eminent Muslim scholars as cited above and get their credit needs from institutions, invest their surplus funds, and prosper, with a clear conscience and without a sense of guilt.

The Doctrine of Zarurah

In the alternative they may follow the medieval interpretations, none of which deal with institutional financing, and remain content with their poverty and misery. They can however take cover under the doctrine of Zarurah, provided by the Shariah, to give us relief when the other alternative is harmful or fatal for us, as in the case of eating prohibited food to stave off hunger.

Dr. Najatullah Siddiqi the Faisal Award winner on his work on Islamic economics had this to say in the annual meeting of the Islamic Society of North America in September 2001.

Shariah is not a body of fixed written rules but a continuing process. Zarurah is also part of the Shariah and is a continuous and dynamic process. Islam has a positive attitude towards wealth, a life-supporting thing. Banking is a contractual relationship, with the legitimate consent of two parties who enter the contract without coercion. There are many opinions about riba which is prohibited because of fraud, coercion, ignorance of details, taking advantage of the need of the party, all relevant to independent Muslim countries. There are no answers to the problems of the modern world in old literature including banking. In his consultation with the orthodoxy he found them ignorant of economics, co-operative law and modern finance. Forty years back there was not a single person in the world of Islam with good knowledge of Arabic, good English and modern subjects. The answers by Ulema leave much to be desired. The days of fatwas based on past books are gone. Now a life long preparation is needed for all relevant subjects and a lot of assistance from others is necessary. No money is spent in Muslim countries on fundamental research. We have not yet found an alternative to banking with the necessary transparency, competitiveness and the interest of the consumer.


Conclusion

The prohibition of Riba in the Qur’an was a confirmation of similar orders in earlier scriptures. The purpose was to stop the exploitation of the poor and needy by rich individuals lending on exorbitant rates of interest with a view to usurp the possessions of the borrowers. The modern system of institutional financing from the World Bank and State Banks to specialized banks for industrial, agricultural, housing and other needs of the modern world, going down to the village cooperatives, to cater to the credit needs of countries, institutions and ordinary people were unknown at that time when the Shariah was considered complete and the so-called door of ijtehad was closed. Our religious orthodoxy remained unaware of the present developments and continued to give opinions on past precedents. Problem solving was not their responsibility. They could not distinguish between commercial profit sharing on a mutually agreed basis with an institution and profit and loss sharing between individuals, in which the loser was always the financier.

The translation of the term Riba which needs a comprehensive definition as interest or “sood” resulted in a situation by which Muslims deprived themselves of all economic progress. Poverty resulted in illiteracy, disease and all the evils of backwardness.

Even when scholars from prestigious Muslim centers of learning like al Azhar, Devband, Osmania and Nizamiah, all quoted above, gave clear well argued fatwas, the majority of our orthodoxy refused to distinguish between personal loans between individuals on exploitative terms and institutional loans regulated by the world’s economic system. This system enables individuals to make use of their savings for the mutual benefit of all parties, and with necessary safeguards in case of loss.

Islamic banking could not have been thought of, if some individuals or families had not become fabulously rich by treating the oil resources of the country as their own personal wealth and wanted to make more money from the huge surpluses accumulated by them. In a poor Muslim country no one has such wealth and the creation of bank’s capital by deposits and investments is considered haram by the orthodoxy. The huge un utilized capital in Islamic Banks also shows that the bank is afraid to lend. People also do not trust a system which does not guarantee an assured predetermined share in the profits for the investor. The very low percentage of people investing in the PLS system in Pakistan is a proof of their distrust in the new system. To be frank the so-called Islamic banking is a patchwork on the capitalist banking system which has been made more complicated and less trustworthy for lack of transparency and openness. To be honest we do not yet have a system as stated by Dr. Najatullah Siddiqi.

In such a situation, the only guide to a man is his conscience and the rectitude and sincerity of his intentions. If the arguments given by eminent scholars who know the needs of the time do not convince anyone, the only course open to him is to use the Shariah’s own practical concept of Zarurah and choose the lesser evil. The questions he has to ask himself would be:

Is this a personal loan or an institutional loan. If it is a personal loan, the following points are clear:

1) Riba is haram according to all schools when both parties are believers if they are in a Muslim country where the Shariah is in force.
2) Except the Hanafi school, all others consider it as haram even if one of the parties is a non-Muslim or the transaction is in a non-Muslim country.. Only Imam abu Hanifa and Imam Muhammad consider it permissible if one of the parties is not Muslim or when the transaction is not in a country which follows the Shariah .
3) If it is an institutional loan, there is no concept of it in the Shariah, and hence no past precedents. All rules of Shariah are about person to person loans. The translation of the term riba as interest is improper. Usury is a better word but this also does not convey the full meaning of riba. One has therefore to ask himself the following questions.

Am I cheating or exploiting anyone? Am I giving a loan to the bank? Or am I investing it in an institution which would use it for the mutual benefit of the investor, the borrower and the bank; and would share the profits with me under a well organized international monetary system?
Am I demanding doubled and quadrupled usurious rates from the bank? Or the law of the land has already determined the rates over which both contracting parties have no arbitrary control? Am I being exploited or is my property being usurped? Or is the bank enabling me to acquire the property I need?
The Bank insists on mortgage and insurance. Is not mortgage a safeguard for the lender? Is not insurance a safeguard both for the lender and the borrower? If so what is the rationality in objecting to these safeguards which are beneficial to both parties to the transaction?

Am I going to leave my family homeless by living in a rented place while the facility of owning the house is available in the present system by paying about the same amount as installment of a loan?

Am I depriving my children from university education by refusing to take an educational loan available for the purpose.?

Is the financing institution providing me with a facility, which I do not have and cannot afford without a loan on easy terms, or is it depriving me of my possessions and property?

Should I remain jobless and be a parasite on others or make use of the credit facilities offered for many of my needs including self-employment?

Can I walk several miles every day in intense heat or biting cold and snow? If not shall I remain jobless and make the family suffer, or buy a suitable transport with a loan facility available?

Can a poor country like Sudan or Afghanistan become self- sufficient and prosperous without an initial boost given by the international community in the shape of low-cost loans for many of its development needs?

Honest decisions on these questions would perhaps enable the Muslims to choose the lesser evils if they are still unconvinced that institutional financing is a genuine anti-riba measure.
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The writer Syed Hashim Ali has held the following senior positions in government, relevant to the subject:
Executive Head of two universities./ Principle Secretary to Govt. and Agricultural Production Commissioner of a state (population; 75 million)/ Command Area Development Commissioner and Secretary, Irrigation Utilization of all major projects/ / Head, Cooperative Department / Chairman State Co-operative Bank (supervising Thirty one thousand co-operative societies) / Collector and District Magistrate of two tribal districts dealing with welfare and development of backward people.

TRANSLATION OF THE QUR’ANIC VERSES IN THE ORDER THEY APPEAR IN THE PAPER
3:92
( But as for you O believers,)never shall you attain piety unless you spend on others out of what you cherish yourselves; and whatever you spend-verily God has full knowledge thereof.
4;29
O you who have attained the faith! Do not devour one another’s possessions wrongfully-not even by way of trade based on mutual agreement- and do not destroy one another.(Asad)
(other translations)
Yusuf ali: “
but let there be amongst you traffic and trade by mutual good will

Maududi:”do business by mutual consent

Latif:”but put into trade for mutual benefit

Majid Dayabadi;”but let it be a trading among you by mutual agreement
” Abul kalam Azad:” but put it together onto trade for mutual benefit

Syed Qutub:“ but if by mutual agreement it is trade and if profit occurs,
it is permissible

3;130
Do not gorge yourselves on usury, doubling and redoubling it.
2:280
If, however,(the debtor) is in straitened circumstances,(grant him) a delay until the time of ease; and it would be for your own good- if you but knew it-to remit( the debt entirely) by way of charity.
2:188
And devour not one another’s possessions wrongfully, and neither employ legal artifices with a view to devouring sinfully, and knowingly anything that belongs to others.
4:30
And as for him who does this with malicious intent and a will to wrong- him shall We, in time, cause to endure (suffering through) fire: for this is indeed easy to God.
4:161
and for their( the Jews) taking usury although it had been forbidden to them, and their wrongful devouring of other people’s possessions.
2:278
Remain conscious of God, and give up all outstanding gains from usury, if you are (truly) believers.
30:39
And (remember) what ever you may give out in usury so that it may increase through (other) people’s possessions will bring (you) no increase in the sight of God- whereas all that you give out in charity, seeking God’s countenance,(will be blessed by Him.)
2:275
Those who gorge themselves on usury...say” buying and selling is but a kind of usury”- while God has made buying and selling lawful and usury unlawful.
2:276
God deprives usurious gains of all blessing, whereas He blesses charitable deeds with manifold increase.


BIBLIOGRAPHY
1) Translations of the Holy Qur’an by Yusuf Ali / Muhammad Asad / S.A.Latif / Majid daryabadi Mauududi.

2) Sahih Al Bukhari, M. Mohsin Khan, Kitab Bhavan, New Delhi1984,

3) WIR: What Is Riba: Maulana Iqbal Ahmad Khan Sohail: 1999: Translation of Urdu book Haqiqat ur Riba,1936. Edited by Zafrul Islam khan, Ph.D.

4) FI: Fikre Islami: Maulana Waheeduddin Khan.

5) ICMW :Islam and the contemporary Muslim World: Anwar Moazzam

6) PR: Pakistan Report of The Council of Islamic Ideology on the Elimination of Interest from the Economy. June 1980.

7) JMS: A Just Monetary System: Umer Chapra

8) FPI :Four Pillars of Islam, Maulana Abul Hasan Ali Nadwi page 114

9) MI: Islamic Economics in Urdu: Abul Ala Maududi

10) ISP: In the shadow of the Prophet by Milton Viorst, 1998

11) JOS: Journal of Objective Studies: vol viii:nos.1&2

12) Imam Abu Haneefa: Halaate Zindagi, Qanoon Saazi aur Fiqhö by Mufti Azizur Rahman1979, Raiwind, Lahore, Pakistan.

13) Taqleed and Ijtehad; Maulana Waheeduddin Khan: al Risala Urdu, July 2001

14) Dr. K. Siddique, Al-Balaagh, vol.16 No2 Lenasia, South Africa

15) Tolu Islam, May 2001, Lahore Pakistan, quoting from Daily Jung, Lahore, January 21,1984.

16) Daily Muslim dated November 11,1980

17) Pakistan Link, June 22, 01 “Give him a fighting chance” by Ardsher Cowasji.

18) Jordan T. Pine quoting Ikbal Daredia, head of ABN AMRO Global Islamic Financial Service. on Internet daily Diversity inc.com

19) Dr. Najatullah Siddiqi, Speech, ISNA meeting, Chicago, September 2001

20) World Book

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