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ISLAMIC ECONOMICS

PROHIBITION OF INTEREST

The Arabs use the word majnun (possessed by jinn) to characterize the insane. The Qur’an use the same expression about those who take interest. In his commentary, Sayyid Abul A’la Maududu explains, “Just as an insane person, unconstrained by ordinary reason, resorts to all kinds of immoderate acts, so does one who takes interest. He pursues his craze for money as if he were insane. He is heedless of the fact that interest cuts at the very root of human love, human brotherhood and fellow-feeling, and undermines the welfare and happiness of human society, and that his enrichment is at the expense of the well being of many other human beings.

This is the state of ‘insanity’ in this world: since a man will rise in the Hereafter in the same state in which he dies in the present world, he will be resurrected as a lunatic.”

Those who take Riba are so mad for money-making that the divorce themselves from common sense similar to a madman. Allah says, “ … That is because they say: ‘ Trading is only like Riba (usury),” whereas Allah has permitted trading and forbidden Riba (usury)….” (Al-Qur’an 2: 275)

This statement even though revealed over 1400 years ago is still reiterated in some circles to date. The Arab money-lenders were not alone in arguing like this; the bankers and money-lenders of today also put forward similar arguments for charging interest. They argue that a person, who lends a sum of money to another, could himself make profit from it and that the debtor actually does invest it in a profitable business. Why should not the creditor, then, get a portion of that profit from the debtor for his productive credit? They based and still base their reasoning on a wrong theory and did and do not see the fundamental difference between profit and interest. They argued and still argue that when profit on capital is lawful in trade, why should then interest on money invested in loans be unlawful?

Allah (SW), ” whereas Allah has permitted trading and forbidden Riba (usury)….” (Al-Qur’an 2: 275). They forget that there is no business in the whole world where there is a fixed and guaranteed profit without any risk. In trade, commerce, industry agriculture etc. one has to spend both labour and capital and at the same time one has to face risks, without any guarantee of a fixed profit. Let us compare the case of trade and interest.

Trade Versus Riba(Usury)
1. In trade there is no guarantee that the trader is guaranteed a fixed profit without risk. Riba guarantees the lender a fixed and guaranteed return.

2. In trade, money is used as a medium of exchange to facilitate trade. Profit is earned through the trading in commodities or service and not from money itself. In Riba money is the commodity that is traded. Riba is earned through the trading in money.

3. Abul A’la Maududi states, “Traders devote their time, labour, talent and invest their own capital, etc., and work day and night so that their business may become profitable by virtue of their efforts. But even then they are not guaranteed any fixed profit, and have to bear all the risks. On the contrary, the money-lender, who lends his capital only, goes on receiving a fixed amount of profit without any risk whatsoever. By what reasoning and on what principles of logic, justice and economics is it right for him to receive a fixed amount of profit? How can one be justified in lending on a fixed rate of interest to a factory a sum of money today for twenty years, when none can say what rise or fall in price may take place during these twenty years? And how is the subscriber to a war loan justified in charging interest at a fixed rate for a full century, an that too, from his own nation whereas the whole nation has to face risks, bear losses and make a sacrifice?

4. The fundamental difference between profit and interest that produces different moral and economic results is this:-

i) The settlement of profit between the buyer and the seller is made on equal terms. The buyer purchases the product he needs and the seller gets profit for the time, labour and brains employed in providing that product to the buyer. In contrast to this, in the case of interest, obviously the debtor cannot settle the transaction on equal terms with the creditor because of his weaker position. As far as the money lender is concerned, he gets that fixed sum of interest which he considers as his profit. If the debtor spends the borrowed money in fulfilling his personal needs, the time factor definitely does not bring any profit at all. And if he invests that money in trade, commerce, industry, agriculture etc., then there are equal chances of profit or loss. Thus lending money at interest might bring a guaranteed and fixed profit to one party and loss the other, or a guaranteed and fixed profit to one party and an uncertain and indefinite profit to the other.

ii) The trader charges his profit, however high it may be, once and there is a limit once it is charged. The money-lender goes on charging interest over and over again and it goes on increasing with passage of time. There is no limit to the interest the creditor may charge on his money. He may, as sometimes actually happens, receive all the earnings of the debtor, may even deprive him of all the means of livelihood or of the articles of his personal use and still might have the same amount of debt against him that was at the time of borrowing.

iii) The transaction in trade comes to an end as soon as the article and its price change hands. After this the buyer is not required to return anything to the seller. As regards the rent of furniture, house, land, etc., the rented item is not itself spent up but is returned to the owner after the term. But in the case of the principle the debtor has to spend it first and then to reproduce it and return it, to the creditor along with its interest. Thus the debtor runs a double risk; he has to reproduce the principal and also to produce its interest.

iv) One engaged in trade, industry, agriculture etc., earns profit by spending time, labour and intelligence but the money-lender becomes the stronger partner in the earnings of the debtor without any risk or labour on his part simply because he invests the money which is over and above his need. He is a partner only to the extent that he is entitled to a fixed guaranteed interest, irrespective of whether there is any profit at all or how much or whether there is even a loss. From the above it becomes quite clear that even from the economic point of view, trade helps construct society but interest leads to its ruin. As for the moral point of view, interest, by its nature, breeds greed, meanness and selfishness among those who receive interest. AT the same time , those who pay interest develop strong feelings of hatred, resentment spite and jealousy.

O you who believe! Be afraid of Allah and give up what remains (due to you) from Riba (usury) (from now onward), if you are (really) believers.

This allowance applies only to the aspect that interest which had been take before the revelation of this verse about prohibition and does not mean that the income from that interest had also been made lawful. From the very wording of the verse, it is clear that the case will go to Allah for decision and that it has not been pardoned out-right by Allah. The money-lender is no doubt ungrateful to Allah. As a grateful servant of Allah, Who gives him more, the least he ought to do is to lend it to His other servants without interest. And if, instead of this, he uses the bounty of Allah exploiting His other servants who are getting less than he, he becomes not only ungrateful but also cruel and wicked.

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 our 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). This verse was revealed after the conquest of Makkah, but it has been inserted here because it also deals with interest. Even before its revelation, interest was regarded as a hateful thing in the Muslim society, though it had not yet been declared to be unlawful. But after its revelation, money lending at interest became a criminal offence in the Islamic State. Those clans who carried on this business in Arabia, were duly warned to up this business, for otherwise a war would be declared against them. Then Christians of Najran were granted autonomy within the Islamic state, it was specified in the treaty that if they continued their money –lending business, the treaty would come to an end and there would be a state of war between the two.

Interpreters of the Holy Qur’an have argued that the harshest verse in the Holy Qur’an in terms of punishment are those that relate to Interest. “A good number of Muslims refuse to bank at all or to bank only so far as it is absolutely necessary because of the respect they have for the prohibition of interest, it can be argued that untapped resources will come to surface if Islamic banks (Interest-free based banks) are established” (PPIBA p3) From the concluding portion of this verse, Ibn-i-Abbas, Hasan Basri, Ibn-i-Sairain and Rubai’ –bin-Anas have concluded that the one who takes interest in the Islamic State Should be warned to repent of it, and if even then he does not give it up, he should be put to death. But the other jurists are of the opinion that he should be put in prison and kept there until he undertakes to give up this business. The Qur’an, as explained by Maududi adopted one of its common approaches in prohibiting Riba.

The first of these revelations emphasized that while interest deprived wealth of God’s blessings, charity raised it manifold. The second severely condemned it in line with its prohibition in the previous scriptures. (The Injil and the Torah). It placed those who took interest in juxtaposition with those who wrongfully appropriated other people’s property and threatened both with severe punishment from God. The third revelation enjoined Muslims to keep away from interest if they desired their own welfare. The fourth and last revelation strongly censored those who take interest, established a clear distinction between interest and trade, required Muslims to annul all outstanding interest instructing them to take only the principal amount and forego even this in case of the borrowers’ hardship and declares war from God and His messenger for those who will not desist from dealing in interest.

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© 2007 Jamia Masjid Nairobi