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Friday, 28 February 2014

Gradual Approach in Prohibiting Riba (P. I)

Among the proofs of the realistic approach of shari`ah is gradation in legislation. In the previous two articles of this series, I studied the gradual approach of shari`ah in prohibiting intoxicants and the abolishment of slavery that prevailed the whole world even before the advent of Islam. It was evidenced that it was not Islam who brought slavery into this world as unfairly alleged by some biased Orientalists as well as Westerners.

Here, I would study the case of the prohibition of riba(usury or interest) as a third example of gradation in legislation. 

Meaning of Riba

Lexically, the word riba means excess, increase, augmentation, expansion or growth.
Mawdudi defines riba as “a predetermined excess or surplus over and above the loan received by the creditor conditionally in relation to a specified period.”[1]

On the exact meaning as well as relation between riba and interest, Kahf states,

Riba is defined with regard to financial transactions as any contractual increment in a loan or debt due to the time element. This is exactly what we know today as interest. Both legally and financially, interest is defined as an increment paid by the debtor to the creditor for granting a loan or for extending the maturity of an existing debt.[2] 
Types of Riba
There are two distinguishable types of riba: [3]
1. Riba al-nasi’ah: It occurs when the specified increase is in return for the delay of, or waiting for, the payment.
2. Riba al-fadl: It occurs when the increase is mentioned irrespective of the postponement and is not offset by something in return.

Islamic Ruling on Riba
As far as Islamic shari`ah is concerned, riba is condemned and prohibited in the strongest possible terms. This prohibition cannot be questioned or undermined in any way.

Allah Almighty says in the Ever-Glorious Qur’an,
{… whereas Allah permits trading and forbids usury (riba)}. (Al-Baqarah 2:275) ,
{Allah has blighted usury …}. (Al-Baqarah 2: 276) and,
{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.}. (Al-Baqarah 2: 278-9)
Kahf comments on the last verse as saying, “No other sin is prohibited in the Qur’an with a notice of war from Allah and His Messenger!”[4] Surely, this shows how grave the sin of getting involved in usurious transactions is in the sight of Allah and His Messenger.
Ibn `Abbas said that, “{Then be warned of war (against you)} means, ‘Be sure of a war from Allah and His Messenger.’ He also said, “On the Day of Resurrection, those who eat riba will be told, ‘take up arms for war.’ He then recited, {And if you do not, then be warned of war (against you) from Allah and His messenger.}. (Al-Baqarah 2: 279)”[5]
In the same vein, the Prophet’s Sunnah is abundant in hadiths that declare riba as unlawful as well as abhorred. To cite a few:
The Prophet (peace be upon him) said, “The wrath of Allah is on the taker of riba, its giver, its writer, and its two witnesses.”[6]
On the day of Fat-h Makkah (i.e., the opening of Makkah) the Prophet said, “All forms of riba during the time of jahiliyyah (pre-Islamic period of ignorance) is annulled and under my feet, and the first riba I annul is the riba of al-`Abbas (the Prophet’s uncle).”[7]
Ibn Majah reported that abu Hurayrah said that the Messenger lah (peace be upon him) said, “Riba is seventy types, the least of which is equal to one having sexual intercourse with his mother.”[8] 
Ibn Mas`ud narrated that the Messenger of Allah (peace be upon him) said, “May Allah curse whoever consumes riba, whoever pays riba, the two who are witnesses to it, and the scribe who records it.”[9]
It is also worthy of note that the wisdom behind the prohibition of riba is the elimination of injustice and the call for human brotherhood and cooperation. This will be clearly shown throughout the following lines. 
Catastrophic Effects of Riba
No one can deny the atrocities and catastrophes riba has brought to humanity both in the past and at present. The latest global financial crisis is a good example on this as attested to by financial specialists and economists from different backgrounds. Some Western as well as other countries still feel the pressure of that crisis from which their economies have not yet fully recovered.
To use Daryabadi’s eloquent words, “The devastating propensities of usury are visible to every eye. The evils attendant on it are neither few nor far between – the callousness it engenders, the profligacy it lets loose, the greed it encourages, the jealousy it breeds, the misery it entails, the abjectness it inculcates, and so on.”[10]Part of the wisdom behind the prohibition of riba – as hinted to earlier – is to fight all these injustices and more.
Moreover, “In the language of modern socialism, interest is an unjustifiable tax on the laboring classes, the unpaid wage of the laborer.” Accordingly, those who have abundance lend money and that money returns to them to increase that abundance, the increase being the unpaid dues of labor, which are the only source of legitimate wealth – “the rich are thus made richer and the poor poorer, by every fresh act of taking interest, and the stability of the social organism is thus disturbed.”[11]
Therefore, Islam clearly and decisively declares riba as unlawful, absolutely and unconditionally.
Let us take a look at the ancient civilizations to see their stand on riba. Greece and Rome both groaned heavily under riba’s yoke, but none of their legislators, like the economists of modern Europe, thought of banning it altogether. In Greece, ‘the bulk of the population became gradually indebted to the rich to such an extent that they were practically slaves’, and ‘usury had given all the power of the state to a small plutocracy.’ The Romans were nothing but worse than the Greek. ‘The attempt to regulate the rate of interest utterly failed. In the course of two or three centuries the small free farmers were utterly destroyed. By the pressure of war and taxes they were all driven into debt, and debt ended practically, if not technically, in slavery.’[12] 
Daryabadi further continues,
With all these horrors experienced and patiently borne, nobody ventured to eradicate the evil root and branch. The utmost that a Solon[13] among the ancients or a Bacon[14] among the moderns could advise to ‘grind the tooth of usury, that it bite not too much, that is to say, to regulate its rate, without attaching the slightest moral taint to the usurer’.
The Bible went no doubt many steps further inasmuch as it forbade the advance of usurious loans to the Israelites (Ex. 22: 25: DT. 23: 19). But even the Biblical prohibition did not include usurious loans to non-Israelites. It is the Ever-Glorious Qur’an which, to its everlasting glory, has categorically forbidden usury in all its forms.[15]
Even the people of jahiliyyah understood the fact that Allah is Good and does not accept but what is good and thus upon rebuilding the Ka`bah before Prophet Muhammad (peace be upon him) was sent as Prophet, one of them, namely Abu Wahb ibn `Amr said,
“O Quraysh! Do not let into this building anything but lawful gains; so no harlotry,riba, nor unjust practices [should be included].”[16]
(On Islam / 28 Feb 2014)
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Phases of Prohibiting Riba

In Part One of this study, I explored the meaning of riba (interest or usury) and its ruling in Islamic Shari`ah. I also elaborated the catastrophes and atrocities of riba. Here, I would study the gradual stages of prohibiting riba in Islamic legislation.
First Stage:
This stage started with the revelation of the Makkan Qur’anic verse in surat ar-Rum whose meaning is rendered into English as,
{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}. (Ar-Rum 30: 39)
Apparently, this is a direct advice that riba has no profits or gains with Allah. The verse came in the context of speaking about sustenance and recommendation of spending on relatives, the poor, and wayfarers. This shows the ethical, moral, and social dimension of the issue. According to Qur’an commentators, this verse applies to those who give to others gifts or services to receive from them greater benefits in return. Such seemingly good acts are meritless and deserve no reward from Allah, since He knows the real intention behind such allegedly good deeds.
Basically, riba is prohibited for the principle that “any profit which we should seek should be through our own exertion and at our own expense, not through exploiting other people or at their expense.”[1] However, as Muslims, we are asked to go beyond the mere act of avoiding what is wrong. We are enjoined to love our community in a practical manner; that is to spend of our own resources in the service of those who are in need. We should also have the belief that our reward is with Allah the Almighty Who will surely multiply it for us even more than what we do deserve because He is the Most-Generous.
Finally, the aim behind the verse is the “awakening of the live souls,” addressing the people who have not been aware so far that such gain from usury is to be interdicted.[2]
Second Stage:
Then, two Madinian verses in surat an-Nisa’ were revealed; these verses tackled one aspect of the story of the Jews and how they were condemned for taking riba when they were forbidden from taking it. The verses may mean in English,
{Because of the wrongdoing 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}. (An-Nisa’ 4: 160-161)
Ibn Kathir said, “Allah states that because of the injustice and transgression of the Jews, demonstrated by committing major sins, He prohibited some of the lawful, pure things which were previously allowed for them.” In addition, “Allah prohibited them from taking riba, yet they did so using various kinds of tricks, ploys and cons, thus devouring people’s property unjustly.”[3]
The second verse is seen by many scholars as prohibiting riba, though some understood it as referring to the Jews and their taking of riba; a matter which – to them – leaves it unclear if such a prohibition applies to Muslims as well. However, in this verse a stronger expression is used, i.e., ‘take’ instead of ‘give’ which is used in the preceding verse in surat ar-Rum. As a linguist, I understand this as to connote the graduation in prohibition.

Third Stage:
Then the following Madinian Qura’nic verses were revealed and they may mean in English,
{O you who believe! Devour not usury, doubling and quadrupling (the sum lent). Observe your duty to Allah, that you may be successful. And ward off (from yourselves) the Fire prepared for disbelievers. And obey Allah and the Messenger, that you may find mercy}. (Aal `Imran 3: 130-132)
Commenting on the topic of riba, Daryabadi says,
The Arabic word is but partially covered by the English word usury which, in modern parlance, signifies only an exorbitant or extortionate interest. The Arabic expression al-Riba, on the other hand, means any addition, however slight, over and above the principal sum lent, and this includes both usury and interest.[4]
This means that any excess on the capital is riba (interest). There is no distinction in Islam in so far as prohibition is concerned, between low and high rates of interest.
In the above verses, Allah prohibits the believers from dealing with riba and from devouring the property of others through illegal means as they used to do during the pre-Islamic period. For instance, if the debtor asks for deferring a loan, the creditor would require interest and this would occur year after year until the little capital becomes multiplied many times. Also, Allah commands the believers to have piety in their hearts so that they may be successful in this life and the Hereafter. The believers are also threatened with Hell-fire and are warned against it in clear words.
In short, these verses enjoin the believers to keep away from riba if they desire their own welfare.
It is also worthy of note that there is a graduation in the strength of the word used in these verses, i.e., ‘devour’. In the verse in surat ar-Rum, the word “give” was used, then in the surat an-Nisa’ the word “take” was used, and here in surat Aal `Imran the word “devour” is used. Surely, the connotations as well as denotations of each of these words cannot be ignored by anyone who knows Arabic and appreciates the rhetorical inimitability of the Ever-Glorious Qur’an to the extent that makes one realize the fact that each and every word in the Qur’an is intended and no other word can replace it in its own context!

Fourth Stage:
Finally, four verses of surat al-Baqarah were revealed declaring the absolute and strict prohibition of riba in Islam. These verses may mean in English,
{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 shall 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 alms giving fruitful. Allah loves not the impious and guilty}. (Al-Baqarah 2: 275-276)
{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}. (Al-Baqarah 2: 278)
{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}. (Al-Baqarah 2: 279)

The above verses are seen as categorically forbiddingriba of all forms and rates as ordained by Islam. They came in the context of speaking about spending in the Cause of Allah, giving in charity, abolishing differences between the rich and the poor through forbidding extravagance, and declaring riba as one of the means of blocking the institution of spending in the Cause of Allah. All these confirm the ethical dimension behind the prohibition of riba as well as the social and integral dimension among members of the Muslim community.
Verse 275 means, on the Day of Resurrection, these people will get up from their graves just as the person afflicted by insanity or possessed by a demon would. This is understood from the hadith by ibn `Abbas which reads, “On the Day of Resurrection, those who consume riba will be resurrected while insane and suffering from seizures.”
In the same vein, al-Bukhari recorded that Samurah ibn Jundub said in the hadithabout the dream that the Prophet (peace be on him) had, “We reached a river -the narrator said, ‘I thought he said that the river was as red as blood’- and found that a man was swimming in the river, and on its bank there was another man standing with a large collection of stones next to him. The man in the river would swim, then come to the man who had collected the stones and open his mouth, and the other man would throw a stone in his mouth.”
The interpretation of this dream was that the person in the river was one who consumed riba.
Also, these Qur’anic verses show the difference between trading and riba and states that Allah has permitted trade and forbidden riba. The reason behind this can be learned from the following words, “Whereas legitimate trade or industry increases the prosperity and stability of men and nations, a dependence on usury would merely encourage a race of idlers, cruel blood-suckers, and worthless fellows who do not know their own good and therefore akin to madmen.”[5]
Verse 276 shows that Allah does not bless riba and that He increases charity. This can be also understood from the hadith of ibn Mas`ud which reads, “Riba will end up with loss, even if it was substantial.”[6]
And the hadith narrated by al-Bukhari that reads, abu Hurayrah said that the Messenger of Allah (peace be on him) said, “Whoever gives in charity what equals a date from lawful resources, and Allah only accepts that which is good and pure, then Allah accepts it with His right (Hand) and raises it for its giver, just as one of you raises his animal, until it becomes as big as a mountain.”[7]

 Finally, the above verses reproached those taking riba; they established a clear distinction between trading and riba; they required Muslims to terminate all forms ofriba, instructing them to take only the principal sum of the debt, and abstain from taking even the principal money in case the debtor is in difficulty.

A Final Word
One of the Laws of Allah in natural disposition of man is the difficulty of change especially with things one is accustomed to and feels familiar with. Before Islam, the Companions of the Prophet (peace be on him) acquired habits that became part and parcel of their own lives. Islam came with morals and rulings that are contrary to some of these habits. It was out of Allah’s Mercy and Wisdom – which were also taught to His Messenger (peace be on him) – that the application of change came gradually and that gradation was one of the objectives and key characteristics during the Prophet’s life.
Examples of gradual approach Islamic legislation include the gradation in prohibiting intoxicants and riba as well as the abolishment of slavery step by step and through a deliberate systematic mechanism that led eventually to the complete avoidance and total submission to the Ordinance of Allah and His Messenger without the slightest inclination to return to the same state of affairs as was before Islam.

(On Islam / 03 Feb 2014)
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Asian retail sukuk looks to broaden appeal of Islamic finance

KUALA LUMPUR/SYDNEY: Issues of Islamic bonds targeting retail investors in Indonesia, Malaysia and Pakistan could broaden the appeal of sharia-compliant financial products, create a more active investor base and convince more companies to raise funds with sukuk.

Last year saw the first-ever issue in Malaysia of retail sukuk, which are offered to the public rather than being sold to banks or placed with large institutional investors.

The Malaysian issue was followed this month by Karachi’s electric utility; Indonesia’s finance ministry has been offering sovereign paper to the mass market since 2008.

Authorities hope that by involving large numbers of individual investors, retail sukuk can become popular among 400 million Muslims across the three countries - roughly one in every four Muslims in the world.

“We are very optimistic, as in the market there is demand for sharia-compliant financial instruments,” said Amir Khan Afridi, director at Pakistan’s Securities and Exchange Commission.

Proponents hope that retail sukuk will serve more than investment and fund-raising purposes; they could raise awareness of the principles of Islamic finance, such as its bans on interest payments and pure monetary speculation.

“This will provide an opportunity to investors to debate Islamic finance concepts. These debates and discussions will help bring more clarity among the public,” Afridi said.

Pakistani utility K-Electric, which serves over 20 million consumers, is in the process of raising 6 billion rupees ($57 million) through the country’s first retail sukuk issue. Afridi said another Pakistani firm, which he declined to name, had applied for permission to conduct such an issue.

K-Electric decided on its issue after it sold a 2 billion rupee conventional retail bond last year which was fully subscribed within six weeks, a company spokesman said.

There are major obstacles to successful issuance of retail sukuk, which explains why the instrument did not appear earlier in Malaysia and Pakistan, and why non-government issuers have not yet emerged in Indonesia.

In the Gulf, the world’s other main centre of Islamic finance, many sukuk are listed on stock exchanges - in theory allowing them to be traded by individuals - but issues are targeted at institutions, not at retail investors.

The United Arab Emirates’ National Bonds Corp offers sharia-compliant savings schemes in which investors can buy savings certificates based on the mudaraba format in very small denominations, but this stops short of a direct issue of sukuk to the retail market.

In Malaysia, Jamaluddin Nor Mohamad, head of Islamic and alternative markets at Bursa Malaysia, the national exchange, said engaging with potential issuers was a “daunting task”, while it was hard to raise awareness of the product among retail investors more accustomed to other instruments such as equities.

“The product features of a fixed income instrument did not fit perfectly into the mind space of our existing investors.”

Lack of familiarity has raised the costs of issuing. When Malaysia’s DanaInfra Nasional, set up by the finance ministry to raise funds for the country’s largest infrastructure project, issued its debut 300 million ringgit ($91 million) sukuk in January 2013, it structured the instrument to mimic an equity IPO but still had to offer a price premium to attract buyers. This created a “negative perception” among potential issuers, Jamaluddin said. DanaInfra’s subsequent retail sukuk, a 100 million ringgit issue last October, tried to correct this by pricing in line with the over-the-counter market used by big institutional investors.

DanaInfra may make two more retail issues of 100 million ringgit each in 2014, Jamaluddin said. “We continue to highlight that it is difficult for us as an exchange to promote this product when there is only one issuance. On that basis, we are saying two is not enough.”

In a statement, DanaInfra said the retail sukuk market needed more time to mature. “It may only be achieved with continuous support from all parties including the regulators, the brokers and the market makers.

(Daily Times / 28 Feb 2014)
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