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No ambiguity about the concept of Riba

November 14, 2010

R Aqdas Ali Kazmi, in his article, entitled “Misconception about Riba”, published in this space on October 24 had observed: “It has never occurred to the religious scholars that by equating Riba with interest, they were indulging in gross misinterpretation of the Quranic verses on prohibition of Riba.”

He opposes equating Riba with interest or more precisely the “bank interest.” He seems to prefer Abdullah Yousaf Ali’s definition of Riba, which is “any increase sought through illegal means such as usury, bribery, profiteering, fraudulent trading, etc.” He has observed, “in other words, the opportunity cost of corrupting Riba by equating it with interest has been unbearable as the entire socio-economic structure of Islamic world has been corroded by corruption, which is ubiquitous and universal.” He concludes, “price of capital — interest — cannot be eliminated from the economic system. If interest is abolished by an ordinance, the entire economic system comes to the ground.”

Is there any ambiguity about the concept of Riba? Any doubt in this regard reminds one of an episode mentioned in the Quran in the Chapter on the Cow. Jews in the times of Prophet Moses (PUH) used to worship cow and were ordered to sacrifice it.

Unwilling as they were, they started raising questions about the age of cow, its colour, etc. When they had given all the details and felt helpless then they complied with the order. The Quran says: “Then they slaughtered her, though they would rather not do so.” (2:72 ) This is a typical Jewish attitude towards divine Commandments.

In sharp contrast, Muslims say, “we hear and we obey.” (2:286) No questions are asked to evade the Commandment. This was amply demonstrated when wine was prohibited. Arabs were known to be extremely fond of alcohol. Before the prohibition, some Muslims were having a wine party. It was in full swing. Under the influence of wine, one is not amenable to any sane suggestion.

In that condition, they heard a person announcing that wine had been prohibited in Islam. Without least hesitation, they simply smashed the wine pitchers and pots there and then. No Muslim ever asked the Holy Prophet (PBUH) what sort of wine was prohibited, the one made from grapes, dates or barley.

The Holy Prophet (PBUH) has defined the concept of Riba in unambiguous terms, “Kullu qarze jarra manfata fahowa riba.”

(Sauti, Jamae Saghir and Masnaf Ibne Abi Sheeba). It means every loan which draws benefit is Riba. The benefit need not be only monetary. It may be anything. The Holy Prophet (PBUH) said, “The lender should not accept any gift from the borrower unless they were already on these terms before the loan transaction.” (Ibne Maja).

How cautious early Muslims were in this regard is evident from an incident relating to Hazrat Umar (RA). The dates grown in the garden of Abi bin Abi Kab were the best in Medina and would mature early. He used to present them to Hazrat Umar as a friend. Once he borrowed ten thousand dirhams from him and when his dates ripened, he, as usual, presented them to Hazrat Umar but the latter refused to accept them. Abi said to him, “I return your loan. I do not need the money that has made you to return my present.” On this, Hazrat Umar (RA) accepted his present saying, “Riba is in loan which you give with the intention of gaining any benefit.” (Abu Daud) A word about the so-called interest-free loans, interest-free banking or Islamic banking. The Islamic banks use Arabic terminology but are, in fact, as much interest based as conventional banks. Following the capitalist value system, they are as exploitative as conventional banks, if not more. This is evident from their banking spread, which is the same as that of other banks.

Islam has a complete and comprehensive code of conduct covering every human activity, religious or worldly. This equally applies to banking. Unless Islamic banks abide by that value system, they will not be serving their purpose to deserve the title and are to face the problems afflicting conventional banks. The basic and most important element in the Islamic value system is justice as the minimum requirement. In other words, it means avoidance of economic exploitation. This is the rationale for prohibition of interest in Islam and is explicitly mentioned in the Quran: “You shall have the capital and thus you shall not wrong nor shall you be wronged.” (2:280) Needless to say that exploitation is inherent in interest.

There is a basic difference in capitalistic and Islamic philosophies. The basic objective of the former is to increase production for accumulation of wealth, hence little concern for equitable distribution of income and wealth. In fact, concentration of wealth is promoted on the assumption that the rich have higher propensity to save and invest for increasing production. In sharp contrast, in the latter, acquisition of wealth is played down. Production being unpredictable, all the emphasis is on distribution and a comprehensive system is prescribed by way of widespread distribution of inheritance, compulsory levies like Zakat and practically unlimited voluntary charity.

In this perspective, Islamic banks should not be making the rich richer but must play their role to ensure distributive justice by giving fair return to the small depositor and by financing productive economic activities ultimately benefiting the down-trodden. In short, Islamic banks have to be a unique breed of banking governed by justice tinged with compassion. This has to be quite an innovation.

Some Muslim economists exposed to western economic and capitalistic values argue that sky will fall if interest is abolished.

Abolition of interest does not mean that capital will be available free of charge. Islam only changes the system of distribution of the outcome of the use of capital. For those who idolise interest-based banking and financial system, there is an object lesson in the current global economic crisis dubbed as the Great Recession 2008-09.

Thanks to unconventional state support to rescue the financial system, the worst is certainly over, but recovery is quite slow, fragile and uneven. The possibility of second dip recession is not ruled out. In any case, the pre-crisis level of economic activity in advanced countries is not likely to be regained for quite some years and the recession might prove to be the longest, if not the most severe, in history. The ILO assessment is that the pre-crisis level of employment may not be regained till 2014.

It must be recognised that the recession originated in the banking system of the US, the most advanced county in the world. It has certainly proved the failure of interest-based debt-driven economic system. The experience reminds the Quranic warning, “O ye who believe! Fear Allah and relinquish what remains of interest, if you are believers. But if you do not, then beware of war from Allah and His Messenger.” (2:279-80) Accordingly, anyone persisting with interest is bound to get into trouble.

What a trouble the recession is!

Allah is All-Aware and Almighty. He certainly knew that banking and other financial institutions shall develop sophisticated financial instruments like derivatives. When He prohibited interest, it was in view of its deleterious effects and He has the power to abolish it. The Quranic verse, “Allah abolishes interest,” (2:280), carries a prophecy. In Arabic, the same tense is used for both present and future. Accordingly, the verse means that Allah abolishes and will abolish interest in future. This covers the period of the Holy Prophet (PBUH) and the present time.

There should, therefore, be no doubt that interest has to go. The question is should the world be left at its own devices and it will after many bitter experiments come round to the idea of abolishing interest. This will take a long time and entail lot of human misery in the meantime. It is a challenge for Muslim scholars to facilitate the transition by developing an ideal genuine model of Islamic bank which does not mimic conventional banking and honestly follows the Islamic value system in letter and spirit.