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Monday, 4 November 2013

Riba: An effortless profit

Friday, November 01, 2013 - Riba is a loan with the condition that the borrower will return to the lender more than and better than the quantity borrowed. The literal meaning of interest or Riba as it is used in the Arabic language means to excess or increase. In the Islamic terminology interest means effortless profit or that profit which comes free from compensation or that extra earning obtained that is free of exchange. Allah the almighty say in Surah Al-baqarah (verse 275) “Those who devour usury will not stand except as stands one whom the Satan by his touch has driven to madness. That is because they say, “trade is like usury”, but Allah has permitted trade and has forbidden usury”.

Interest is not a subject without trade and commerce. Islam recognises trade and commerce not only as a lawful profession but also as a moral duty. Islam has laid down a complete set of rules for trade. The reason for these rules is to specify what halal earning is. There are many traditions (Ahaadith) concerning halal provision that can also be found in the books containing the traditions of the prophet (peace be upon him). Actually, Islam has encouraged men to earn their own provision and to provide it to their families. Islam is a complete code of life which offers its own social, political and economic systems to guide human behavior in all spheres of life. 

History has recorded that the economic system of Islam, for the first time in the world had established social and economic justice during the period of al-Khilafah al-Rashidah. In any ideal Muslim society, socio-economic justice is considered as one of the most significant characteristics for the social, political, economic as well as all realms of human interaction. Exploitation and any source of unjustified enrichment in Islam is prohibited. 

The Holy Qur’an has emphatically instructed Muslims not to acquire each other’s property wrongfully. Islam is not an ascetic religion. It takes a positive view of life as the natural outcome of the belief that human beings are the vicegerents of Allah. The goals of socio-economic justice and equitable distribution of income and wealth are integral parts of the moral philosophy of Islam. However, one of the socio-economic reforms made by Islam was the prohibition of Riba (interest).

Riba is prohibited in Islam as it appears explicitly in the Holy Qur’an. There is complete unanimity among all Islamic schools of thought regarding the prohibition of riba. Since the Qur’an is the undisputed source of guidance in Islam, there is unanimous agreement on the fact that Islam has forbidden the practice of riba. The debate on whether riba is interest or usury has been settled. The ulama have made crystal clear that both interest and usury fall within the domain of riba. The modern banking system is organized on the basis of a fixed payment called interest. That is why the practices of the modern banking system are in conflict with the principles of Islam which strictly prohibit riba. 

Islam is opposed to exploitation in every form and stands for fair and equitable dealings among all men. To charge interest from someone who is constrained to borrow to meet his essential consumption requirement is considered an exploitative practice in Islam. Charging of interest onloans taken for productive purposes is also prohibited because it is not an equitable form of transaction. In several verses of the Holy Qur’an, Allah has mentioned the consequences of riba. The Qur’an did not declare the prohibition of riba in the early stage of revelation, rather we find that the complete prohibition of interest came sequentially. In the Qur’an Allah says: “That which ye lay out for increase through the property of (other) people, will have no increase with Allah: But that which ye lay out for charity, seeking the countenance of Allah (will increase): it is these who will get a recompense multiplied”. (30:39). 

Islam gives in detail the punishment for those involved in interest and narrates the condemnation of interest in different manners in different places. However, in connection with the condemnation of interest in one place it comes very close to giving a rationale. The Qur’an says: “Allah has permitted trade and prohibited interest”. The implication of this is that the principle of interest is quite opposite to that of business. This shows Islam does not consider lending on interest as a business in the real sense.

It is not Islam alone which has prohibited interest. Other major religions like Judaism, Christianity and Hinduism have also done the same. The Bible disapproves of interest severely and makes no distinction between usury and interest. Allah the almighty has mercifully given guidance to humankind for all aspects of life. This guidance covers not just acts of worship but everything from economics and business ethics to marital relations, international relations, ethics of warfare and so forth. People who accumulate most of the society’s wealth are the hostile towards the rest of the people, therefore, the institution of interest leads to a highly unstable society. 

Moreover, conventional economy today is debt-based, and only does risk transfer. Islamiceconomy in contrast is asset-based, and does risk sharing. It is all about fairness to all parties. Where a riba-based market fails, Islamic financial institutions do not suffer the same consequences since the risk is shared by both parties. Lenders will be more careful, as they also share the risk of losing money if the borrower cannot pay back the original sum. Given all the problems that riba creates, it is no wonder Islam prohibits such a detestable act. 

(Pakistan Observer / 01 Nov 2013)

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