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A World without Interest (Riba)

By Amal Sohail

There was no banking system in operation during the lifetime of Prophet

Muhammad (PBUH). The trends in the global capital market changed with the
passage of time and the conventional banking system was implemented throughout
the world. The Muslims had to co-exist with money and capital markets so there
was a need for them to put their money in some sort of a market and fulfil their
financial needs in a manner that was in line with their religious beliefs. This
brought about the emergence of an Islamic financial system based on the
guidelines stated in Quran and Hadith.
Prohibition of Usury/ Interest (Riba)

The Islamic banking system considers the charging of interest (riba) an act of
injustice and this is what distinguishes it from the conventional or modern system
of banking. Islam is against all forms of injustices and exploitations and pleads an
economic system that aims at securing extensive socio-economic justice. This is
why Quran strictly prohibits interest or usury in all its form and intent.
And their taking of Riba though they were forbidden from taking it and their
devouring of mens substance wrongfully (bribery). And we have prepared for the
disbelievers among them a painful torment, (4: 161).
The word Riba is mentioned in several other places in the Quran:
Surah Ar-Rum (30: 39)
Surah Al-Imran (3:130)
Surah Al-Baqarah (2: 275)
Surah Al-Baqarah (2: 276)
Surah Al-Baqarah (2: 278)

The practice of dealing with interest is also prohibited in Sahih Al-Bukhari Volume 6, Chapters 49, 50, 51 and in Sahih Al-Muslim Volume 3, Chapter 623,
Hadith No. 3845-3849.
Arguments posed by Muslims defending the practice of Riba

Although Allah clearly declares Riba as unlawful in the Quran, some Muslims
often come up with arguments like:

Riba mentioned in Quran refers to usury which is similar to the practice of

moneylenders who give loan to people and take exorbitant amounts in return.
Usury is prohibited and not interest charged by the modern day banks.

The definition of the word interest according to the oxford dictionary is amount
paid for the use of amount lent. On the other hand, usury is defined as the

practice of lending money at a rate of interest considered to be too high. The

literal meaning of the Arabic word Riba is addition to or increase over and above
the original amount or the original size and in Quran the word Riba means
unlawful addition above the original amount and refers to both usury and interest
irrespective of whether the rate is high or low.
Interest is like trade so there is no harm dealing with it.

The answer to this argument is in Surah Al-Baqarah (2: 275), this verse clearly
states that trade is permitted whereas usury is not:

Those who eat Riba will not stand (on the Day of Resurrection) except like the
standing of a person beaten by Satan leading him to insanity. That is because they
say: Trading is only like Riba, whereas Allah has permitted trading and
forbidden Riba. So whosoever receives an admonition from his Lord and stops
eating Riba shall not be punished for the past; his case is for Allah (to judge); but
whoever returns to Riba, such are the dwellers of the Fire-they will abide therein,
(2: 276).
They further argue

Riba mentioned in Quran is Riba Istilah i.e. interest charged on loan that is
given to a person for purchasing basic necessities. So Riba Istilah is forbidden in
Islam whereas Riba or interest charged on loans (Conventional banking) for doing
business is considered to be lawful.
There were two kinds of businesses practiced in the Pre-Islamic era in Arabia:

1) Mudaraba: A person lent money to a businessman (mudaarib) and the profit

earned in the business was shared by both parties.
2) Money was given to a businessman and a fixed interest was charged on that
Immediately after the revelation of the 278th verse of Surah Al-Baqarah, Prophet
Muhammad (PBUH) let go of the interest that was due to his relative Hazrat Abbas
ibn al Muttalib (R.A).
O you who believe! Be afraid of Allah and give up what remains (due to you)
from Riba (from now onward), if you are (really) believers, (2: 278)
In his last sermon Prophet Muhammad (PBUH) had said:

Allah has forbidden you to take usury (riba), therefore all riba obligation shall
henceforth be waived. Your capital, however is yours to keep. You will neither
inflict nor suffer inequity. Allah has judged that there shall be no riba and that all
the riba due to Abbas ibn al Muttalib shall henceforth be waived.
Thinking logically no Muslim would assume that Hazrat Abbas (R.A) gave loan to
poor people for their basic needs (Riba Istilah) and charged them interest in return.
It is quite obvious that he lent money to businessmen to run business charging a
fixed interest on that loan. But after the commandment of Allah, naturally all the
Muslims of that time nullified any amount that was due to them.
The following verse was revealed after Allah had asked the Muslims to give up the
practice of Riba:

And if you do not do it, then take a notice of war from Allah and His Messenger,
but if you repent, you shall have your capital sums. Deal not unjustly (by asking
more than your capital sums), and you shall not be dealt with unjustly (by receiving
less than your capital sums), (2: 279).
Gambling and taking intoxicants have also been regarded as sins in Islam but
nowhere in the Quran has Allah mentioned that He will wage a war against us
except in this verse. This indicates that indulging in usury would be a dreadful
mistake as no one would want to challenge Allah for a war.

It should be noted that the passage in Surah Al-Baqarah (275-281) forbidding Riba
in legal terms was the last revelation received by Prophet Muhammad (PBUH),
who expired a few days later, hence the companions had no opportunity to find out
the minute details of the implications of the Shariah - so much so that even Hazrat
Umar bin Al Khattab (R.A) is reliably reported to have been said that he wished
that he had more light from the Prophet (PBUH) regarding this matter
(commentary of Ibn Kathir). However, in the glossary of Sahih Al-Bukhari,
Volume 1, usury has been clearly defined to be of two major kinds:
1) Riba Nasiah - interest on lent money
2) Riba Fadl - taking the superior thing of the same kind of goods by giving more
of the same kind of goods of inferior quality, e.g. dates of superior quality for dates
of inferior quality in greater amount.
Why Islam stresses on an interest-free economy

There are four main objectives of the Islamic economic order justifying why Quran
promulgates an interest-free economy:
1) Economic well-being within the framework of the moral norms of Islam:

Eat and drink of that which Allah has provided and do not act corruptly,
making mischief on earth, (2: 60).

O mankind! Eat of that which is lawful and good on the earth, and follow not the
footsteps of Satan. Verily he is to you an open enemy, (2:168).
Then when the (Jumuah) Salat (prayer) is ended, you may disperse through the
land, and seek the bounty of Allah (by working), and remember Allah much: that
you may be successful, (62: 10).
The aforementioned verses of Quran and there are several others like these, strike
the keynote of the Quranic message in the field of economics. Islam urges Muslims
to enjoy the bounties provided to them by Allah. On the other hand, Islam
discourages begging (The hand that is above is better than the hand that is below
(Sahih Al-Bukhari, Volume 1, page 133)), and encourages Muslims to work hard to
earn their livelihood. It can be deduced from this premise that the one of the
primary economic goals of a Muslim society should be to create an economic
environment in which those who are willing to and looking for work are able to
find gainful employment in accordance with their abilities. If this is not
accomplished then the Muslim society would fail to succeed even in its spiritual
objectives, because those unemployed would be subjected to a life of extreme
hardship unless they live on charity, or resort immoral practices or begging, all of
which are repugnant to the spirit of Islam.

This stress of Islam on the economic well-being within the framework of the moral
norms of Islam springs from the very nature of its message. Islam has been
designed to serve as a blessing for mankind and it aims at making life richer and
worth the living and not poorer, full of hardships.
2) Universal brotherhood and justice:

O mankind! We have created you from a male and a female, and made you into
nations and tribes, that you may know one another. Verily, the most honorable of
you with Allah is that (believer) who has At-Taqwa [i.e. he is one of the Muttaqun
(the pious)]. Verily Allah is All-Knowing, All-Aware, (49: 13).
The aim of Islam is to establish a social order where all people are united by bonds
of brotherhood and affection just like members of one single family created by one
God from one couple. This concept of brotherhood is not bound by any
geographical boundaries encompassing the entire mankind; it is universal and not
limited to a particular group, race or tribe.
Closely related to, and inseparable from this concept of brotherhood is the
emphasis of Islam on justice, the establishment of which on earth is unequivocally
declared by the Quran to be one of the main objectives of the teachings of all the
prophets of God including Prophet Muhammad (PBUH). Being just is considered
to be a necessary condition for being God-fearing and pious, the basic
characteristics of a Muslim:
O you who believe! Stand out firmly for justice, as witnesses to Allah, even
though it be against yourselves, or your parents, or your kin, be he rich or poor,
Allah is a Better Protector to both (than you). So follow not the lusts (of your
hearts), lest you avoid justice; and if you distort your witness or refuse to give it,
verily, Allah is Ever Well-Acquainted with what you do, (4: 135).
Justice is to be followed even if one has to sacrifice his own interest and the
interest of his near ones.
3) Equitable distribution of wealth:
Gross inequalities of wealth and income are repugnant to a religion that fosters the
feelings of human brotherhood and promotes social and economic justice. Islam is
against the philosophy that wealth be concentrated in the hands of a few
individuals since all the resources are Gifts of Allah to all human beings, (2: 29).
It aims to reduce the gap between the rich and the poor. Therefore, Islam stresses
on distributive justice and incorporates a programme in its system for redistribution
of money and income so that every individual is guaranteed a humane and
respectable standard of living that is in harmony with the regard for the dignity of
man inherent in the divine laws of Shariah. A Muslim society that fails to
accomplish such a humane standard is really not worthy of the name that was
declared by the Prophet (PBUH).
In order to equally distribute wealth and prevent it from circulating among the rich
in the society, the redistribution programme of Zakat had been devised in Islam.
The ruling on Zakat is such that every Muslim who has a saving of more than the
minimum wealth required (Nisaab level) should pay 2.5% of that wealth every
lunar year. Zakat can be given to:
The poor (Fuqara) and the needy

Those who are engaged in the collection and redistribution of wealth

Those whose hearts are inclined towards Islam (converts/reverts)
Those who have taken loan debtors
Wayfarers / travellers- even if they are rich but stranded in a foreign land and
have no money to return
Those who are striving in the way of Allah:
- Giving religious education
- Acquiring religious education
- Involved in Jihad
- Daee those who invite people towards Islam
- Obtaining secular education
If every individual on earth practices this system with justice, there will not be a
single human being who would die of hunger. Unfortunately not even all the
Muslims give correct Zakat that is due to them, they may give a part of it or only a
small percentage. If all Muslims in this world pay Zakat properly there will not be
any Muslim who lies below the poverty line.

Another part of Islams wealth redistribution programme is to assist in finding

lawful and gainful employment to those unemployed and are looking for work and
teaches us to give a good remuneration for those working.
Moreover, to intensify and accelerate the distribution of wealth in society, the
division of the estate of a deceased person should be done in accordance with a
given formula stated in Quran (refer to - 4: 11, 4: 12, and 4: 176). The wealth of the
deceased should not be distributed to one or two individuals, like how it is done
these days.
4) Individual freedom within the context of social welfare:

According to Islam man has freedom from all bondage (refer to 7: 157). A man is
born free and not even the state has the right to abrogate his freedom, or the right to
subject him to regimentation. Every individual is free as long as he does not
overstep the moral bounds of Islam and harms the society, because in Islam, the
larger welfare of the society as a whole takes precedence over individual freedom.
Regarding individual freedom Islamic jurists have agreed upon the following
A bigger loss cannot be inflicted to relieve a smaller loss or a bigger benefit
cannot be sacrificed for a smaller one. Conversely, a smaller harm can be inflicted
to avoid a bigger harm or a smaller benefit can be sacrificed for a larger benefit.
Individual freedom is therefore sacred as long as it is within the ethical limits of
Islam, and does not conflict with the larger social interest or as long as the
individual does not misuse the rights of others.
The article begins with an introduction stating the need for a banking system for
Muslims that complies with the laws of Shariah. The next section discusses the
prohibition of usury in Islam followed by answers to the arguments posed by
Muslims on the same topic. It ends with an explanation of the four objectives of the
Islamic economic system indicating why usury is forbidden in Islam. It must be
noted that the Islamic banking system has been derived from the fundamental
principles in the Quran and Sunnah since they do not and could not minutely
describe all the details of the Islamic economic system. There are many aspects of
Islamic banking and economic system that will be covered in the next issue


Interest-Free Economy Promulgated by Quran Dr. Zakir Naik

The Noble Quran Summarized version of At-Tabari, Al-Qurtubi and Ibn Kathir
Sahih Al-Bukhari
Sahih Al-Muslim
The Economic System of Islam: A Discussion of its Goals and Nature The
Islamic Quarterly
BNM: Islamic Banking - www.bnm.gov.my/index.php?ch=174&pg=469&ac=382

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