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Tuesday, 6 March 2012

Riba in The Quran

The Arabic term for interest is riba which means ‘to grow, to exceed, to increase.’ Technically it means ‘premium’ paid or payable by the borrower to the lender along with the principal amount as a condition for the loan or for the extension in its maturity. In other words it is the extra amount, benefit or advantage received on any loan.

Riba has been discussed in the following verses of the Holy Qur’ān in chapters, al-Baqarah, Aal-e-Imran, al-Nisa and al-Rum.
“Those who swallow usury cannot rise up save as he arises whom the devil has prostrated by (his) touch. That is because they say: Trade is just like usury; whereas Allah permits trading and forbids usury. He unto whom an admonition from his Lord comes and (he) refrains (in obedience thereto), he will keep (the profits of) that which is past, and his affair (henceforth) is with Allah. As for him who returns (to usury) –Such are rightful owners of the Fire. They will abide therein.
“Allah has blighted usury and made almsgiving fruitful. Allah loves not the impious and guilty. Lo! Those who believe and do good works and establish worship and pay the poor-due their reward is with their Lord and there shall no fear come upon them neither shall they grieve. O you who believe! Observe your duty to Allah and give up what remains (due to you) from usury, if you are (in truth) believers. And if you do not then be warned of war (against you) from Allah and His messenger. And if you repent, then you have your principal (without interest). Wrong not and you shall not be wronged. And if the debtor is in straitened circumstances, then (let there be) postponement to (the time of) ease; and that you remit the debt as almsgiving would be better for you if you did not know.” (2: 275-280)
“O you who believe! Devour not usury, doubling and quadrupling (the sum lent). Observe your duty to Allah, that you may be successful.” (3:130)
“Because of the wrongdoings of the Jews We forbade them good things which were (before) made lawful unto them, and because of their much hindering from Allah’s way. And of their taking usury when they were forbidden it, and of their devouring people’s wealth by false pretences. We have prepared for those of them who disbelieve a painful doom.” (4:160-161)
“That which you give in usury in order that it may increase on (other) people’s property has no increase with Allah; but that which you give in charity, seeking Allah’s countenance, has increase manifold.” (30:39)

Dr. Mohammad Nejatullah Siddiqi has discussed at length the inferences drawn from the above verses of the Qur’ān in his book “Riba, Bank Interest And The Rationale Of Its Prohibition” (published by Markazi Maktaba Islami Publishers, New Delhi). The following quotation from the book may be noted:
“These verses establish a number of important points. Firstly riba is categorically prohibited, secondly, it is stated that riba is what is over and above the principal and thirdly that it is unjust (zulm). It is also said that riba is destined to destruction (mahq). And last but not the least, the worst effect of riba mentioned in the above passage is that on human personality: riba demeans and diminishes individuals who indulge in taking it. Significantly, the claim of equating riba with trade is also rejected (trade being mutually beneficial whereas the benefits of riba may well be confined to one party only).”
Finally Dr. Nejatullah Siddiqi has summarised his masterly arguments under following heads:
Riba corrupts society.
Riba implies improper appropriation of other people’s property.
Riba’s ultimate effect is negative growth.
Riba demeans and diminishes human personality.
Riba is unjust.

Some scholars initiated a debate whether the word Riba used in the Qur’ān covers interest payment by banks or not. The whole argument by such scholars is to prove that interest is not the correct translation of Riba as it implies only usury, i.e. high rate of interest charged by money-lenders for consumption loan. In other words, according to this line of argument, bank interest is not Riba, as such, as it is meant for production. Premium on production loan is not prohibited. Riba implies only premium on consumption loan. This distinction between consumption loan and production loan is done on the logic that persons taking loan for production purpose use that for earning profit and they should pay interest like the rent paid on land and other resources. The person who is giving loan is parting with his resource and liquidity, the cash, and so he should be rewarded positively, i.e. on fixed rate for predetermined period. Taking interest on consumption loan is not judicious so it should be discouraged, either prohibited or made soft loan where interest may be as low as possible.

Maulana Syed Abu Ala Maudoodi has discussed related issues in the Foot Notes number 315-318 against verse 2:275 in Tafheemul Qur’ān [Towards Understanding the Qur’ān, published by Markazi Maktaba Islami Publishers, New Delhi]. A summary of the discussions therein follows:
“The proponents of this view argue that if profit on money invested in a business enterprise is permissible, why should the profit accruing on loaned money be deemed unlawful? …. Their argument runs as follows: A person who could have profitably invested his money in a commercial enterprise loans it out to somebody who, in turn, makes a profit out of it. In such circumstances why should the borrower not pay the lender a part of the profit? Such people, however, disregard the fact that no enterprise in which a man participates, whether it is commercial, industrial or agricultural, and whether one participates in it with one’s organising skill or capital, or by both, is immune from risk. No enterprise carries absolutely guaranteed profit at a fixed rate. What is the justification, then, for the fact that out of all the people in the business world, the financier alone should be considered entitled to a profit at a fixed rate in all circumstances, and should be protected against all possibility of loss?....

Let us consider only the question of loans for profitable enterprises, and confine our consideration to loans made at non-exorbitant rates of interest. The question, however, remains: Which rational principle, which logic, which canon of justice and which sound economic principle can justify that those who spend their time, energy, capacity and resources, and whose effort and skill make a business thrive, are not guaranteed profit at any fixed rate, whereas those who merely lend out their funds are fully secured against all risks of loss and are guaranteed profit at a fixed rate?”

Dr. Nejatullah Siddiqi in the above referred book has discussed this issue threadbare and proved that bank interest too is riba, the one prohibited by the Qur’ān. Another authority on Islamic economics Dr. M. Umer Chapra has also discussed this issue and showed that riba implies both interest on consumption loan and production loan [Prohibition of Interest: Does It Make Sense? published by Markazi Maktaba Islami Publishers, New Delhi].
The distinction between interest and usury and between low and high rate of interest done by the supporters of bank interest on production loan is not tenable in economics. For an economist theory no such demarcation is possible. Interest and usury have same meaning for him. The issue is simply a distinction between interest and profit (on trading) which the Qur’ān has highlighted by saying “Allah permits trading and forbids usury.”

(By: Dr. Waquar Anwar)

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