AND THE USE OF INTEREST RECEIVED ON BANK DEPOSITS
AND THE USE OF I NTEREST RECEI VED ON BANK DEPOSI TS BY UMAR I BRAHI M VADI LLO Oct ober 2006
F A T W A
FATW A ON BAN KI N G
Ta ble of Con t e n t s 1 . I n t r odu ct ion ........................................................................ 3 2 . Th e I ssu e ............................................................................. 7 3 . Un de r st a n din g Riba ........................................................... 1 0
3.1 A world shaped by Riba .................................................... 10
3.2 What is Riba? ................................................................. 11 4 . Th e M isu n de r st a n din g of Riba ............................................ 2 0
4.1. Religious reform ism and capit alism ................................... 20
4.2 The I slam ic Reform ers ..................................................... 23
4.3 The followers of Reda ...................................................... 27
4.4 The m isunderst anding of Riba an- nasiah t oday .................... 28
4.5 Equat ing Riba t o int erest in a loan ..................................... 33
4.6 I slam ic Banking .............................................................. 34
4.6.1 I slam ic Banks are banks ............................................. 34
4.6.2 Murabaha: what it is and what it is not ......................... 38
4.6.3 How t he I slam ic Bank’s version of t he cont ract of Murabaha cam e int o being ................................................................. 41
4.6.4 The danger of m aking principles out of cont ract s ............ 46
4.7 The St ages of t he “ I slam isat ion” process ............................ 48
4.8 On t he m et hodology of m odernism .................................... 49 5 . Un de r st a n din g Pa pe r M on e y .............................................. 5 4
5.1 Paper m oney backed by gold and silver .............................. 54
5.2 Devaluat ion in paper m oney ............................................. 60
5.3 Paper m oney wit h no backing, but only St at e legal com pulsion .......................................................................................... 61 6 . Th e I sla m ic M u ’a m a la t ....................................................... 6 3
6.1 The I slam ic business cont ract s .......................................... 65
6.1.1 Shirkat ( Part nership) .................................................. 67
6.1.2 Qirad ( business loan) ................................................. 73 7 . Con clu sion : W h a t t o do? .................................................... 7 6
7.1 Pract ical St eps ................................................................ 77
1 . I n t r odu ct ion
Riba ( usur y) has been clearly and explicit ly pr ohibit ed in t he Qur’an and Sunna. Allah and His Messenger, sallallahu alayhi wa sallam , have declared w ar on t hose who do not abst ain from it . These are som e of t he relevant ayat s regarding Riba. Allah says in t he Qur'an:
Tho se who pra c tic e rib a will no t rise fro m the g ra ve e xc e pt a s so m e o ne drive n m a d b y Sha yta n's to uc h. Tha t is b e c a use the y sa y, "Tra de is the sa m e a s rib a ." But Alla h ha s pe rm itte d tra de a nd He ha s fo rb idde n rib a . Anyo ne who re c e ive s a wa rning fro m his Lo rd a nd the n de sists, c a n ke e p wha t he re c e ive d in the pa st a nd his a ffa ir is up to Alla h. But a ny who re turn to it will b e the C o m pa nio ns o f the Fire , re m a ining in it tim e le ssly, fo re ve r. Q ur'a n (2, 274) Alla h o b lite ra te s rib a b ut He m a ke s sa da q a g ro w in va lue ! Alla h do e s no t lo ve a ny pe rsiste ntly ung ra te ful wro ng - do e r. Q ur'a n (2, 275) O yo u who b e lie ve ! Sho w fe a r o f Alla h a nd fo rg o a ny re m a ining rib a if yo u a re b e lie ve rs. Q ur'a n (2, 277) If yo u do no t, kno w it m e a ns wa r fro m Alla h a nd His Me sse ng e r. If yo u turn in re pe nta nc e yo u m a y ha ve yo ur c a pita l, witho ut wro ng ing a nd witho ut b e ing wro ng e d. Q ur'a n (2, 278) O yo u who b e lie ve ! Do no t fe e d o n rib a , m ultiplie d a nd the n re m ultiplie d. Sho w fe a r o f Alla h so tha t pe rha ps yo u m a y b e suc c e ssful. Q ur'a n (3,130)
Be c a use o f wro ng do ing o n the pa rt o f the Je ws, We m a de unla wful fo r the m so m e g o o d thing s whic h ha d pre vio usly be e n la wful fo r the m ; a nd b e c a use o f the ir o b struc ting m a ny pe o ple fro m the wa y o f Alla h, a nd b e c a use o f the ir pra c tising rib a whe n the y we re fo rb idde n to do it, a nd b e c a use o f the ir c o nsum ing pe o ple 's we a lth b y wro ng ful m e a ns. We ha ve pre pa re d a pa inful punishm e nt fo r tho se a m o ng the m who re je c t. Q ur'a n (4, 159- 160)
Rasulullah, sallallahu alayhi wa sallam , said t he following concerning t he gravit y of Riba: Abu Hurair a said t hat t he Messenger of Allah, sallallahu alayhi wa sallam , said: “ Riba is of sevent y different kinds, t he least grave being equivalent t o a m an m arrying ( i.e. having sexual int ercourse w it h) his own m ot her.”
( t ransm it t ed by I bn Maj ah, Baihaqi) Abdallah ibn Hanzala report ed t hat t he Messenger of Allah, sallallahu alayhi wa sallam , said: “ A dirham of Riba, which a m an receives knowingly, is worse t han com m it t ing adult ery t hirt y- six t im es.” ( Ahm ad) Baihaqi t ransm it t ed it , on t he aut horit y of I bn Abbas, wit h t he addit ion t hat t he Prophet , sallallahu alayhi wa sallam , cont inued t o say: “ Hell is m ore fit t ing for him whose flesh is nour ished by t he Haram .”
( t ransm it t ed by Ahm ad) Abu Huraira report ed t he Messenger of Allah, sallallahu alayhi wa sallam , as saying: “ On t he night I was t aken up t o heaven I cam e upon people whose bellies w ere like houses which cont ained snakes which could be seen from out side t heir bellies. I asked Jibril w ho t hey were and he t old m e t hey were people who had consum ed Riba.”
( t ransm it t ed by Ahm ad, I bn Maj ah) Sam ura bin Jundab r eport ed t hat t he Messenger of Allah, sallallahu alayhi wa sallam , said: “ This night I dream t t hat t w o m en cam e and t ook m e t o a holy land whence we proceeded on t ill we reached a river of blood, w here a m an w as st anding, and on it s bank w as st anding anot her m an wit h st ones in t his hand. The m an in t he m iddle of t he river t r ied t o com e out , but t he ot her t hr ew a st one at his m out h and forced him t o go back t o his original place. Whenever he t ried t o com e out t he ot her t hrew a st one at his m out h and forced him t o go back. I asked: “ Who is t his?” I was t old: “ The person in t he river was one who consum ed Riba.”
( t ransm it t ed by Bukhari) The Messenger of Allah, sallallahu alayhi wa sallam , cur sed t he one who t akes Riba, t he one who gives Riba, t he one who records t he t ransact ion and t he t wo wit nesses t hereof. He said t hey are equally guilt y.
( t ransm it t ed by Muslim ) There are of course alt ernat ives t o Riba. As Rum i once explained, “ What is Halal is possible.” The hypocrit e – Rum i also said – is t he one who says, “ What is Halal is not possible.” To est ablish t he Halal is an im perat ive for every Muslim . Am ong t he I slam ic alt ernat ives for Riba- based t ransact ions are Shirkat ( or Musharakah) and Qirad ( or Mudarabah) . These are t he t w o m ain business cont ract s in I slam . Their principles are known. The problem is t heir applicat ion in an envir onm ent t hat is not suit able for t hem .
Th e a n sw e r t o t h is pr oble m is n ot t o a lt e r t h e con t r a ct s bu t t o a lt e r t h e e n vir on m e n t .
Herein lies t he m ain difference wit h our brot hers in I slam ic Banking. They are preserving t he capit alist environm ent and t ools at t he expense of t he condit ions im posed by t he Shari‘ah. They are doing t his wrongly in t he nam e of ij t ihad and darurah.
We, on t he ot her hand, st and for t he re- est ablishm ent of t he I slam ic environm ent t hrough t he rest orat ion of som e m issing key t ools and inst it ut ions of t rading, which are necessary for Shirkat and Qirad t o operat e properly.
2 . Th e I ssu e
Many Muslim s have int erest - bearing account s. I nt erest is w it hout any doubt Riba and t herefore Haram . What are t he circum st ances in which we find ourselves t hat force us t o have bank account s even t hough we know bank account s are Haram ? How is it j ust ified? Most people claim t hat t his is a case of darurah, t hat is, ext rem e necessit y. Darurah is a legal inst r um ent applicable in cases of ext rem e necessit y or vit al int erest by which a person is allowed t o act in a m anner t hat w ould ot herwise norm ally be forbidden. The m ost crit ical charact erist ic of darurah is t hat it is only a t em porary m easure. I f you find yourself in t he desert and all you have is a pig t o eat , t hen it is fard ( obligat ory) t o kill and eat t he pig. Eat ing t he pig is not Halal, it is fard. I t is a very different t hing t o st art farm ing pigs while st ill claim ing darur ah. Once we find ourselves in a sit uat ion of darur ah, it is obligat or y t o do ever yt hing in our power t o m ove away fr om t hat sit uat ion. I t is not allowed t o dwell in t he sit uat ion for ever. The issue we are concerned wit h here is “ what t o do wit h t he int erest t he Muslim s are receiving on t heir bank deposit s?” What is t he correct way of dealing w it h t he int erest , given t he present circum st ances? Most people decide bet ween t he follow ing opt ions: 1] Keep t he int erest as part of t he darurah sit uat ion 2] Give t he int erest t o charit y 3] Ret urn t he int erest t o t he bank direct ly or arrange a special non- int erest account .
What all t hese opt ions have in com m on is t hat t hey do not change t he st at us of darurah. They sim ply perpet uat e t he condit ion. Opt ions 1 and 2 at least help t he account holder or t he charit y beneficiaries; but opt ion 3 only enriches t he bank, m aking it t he w orst possible opt ion.
There is a fourt h opt ion which is t he one we are proposing: t o use t he int erest t o change t he condit ion of darurah.
W h e n a da r u r a h st a t u s is cla im e d, t h e im pe r a t ive a ct ion is t o ch a n ge t h e con dit ion n ot t o pe r pe t u a t e it . Therefore t he priorit y is
t o change t he condit ion of darurah. The int erest can cont ribut e t o changing t he st at us in which w e find ourselves obliged t o use t he bank. How? By est ablishing t he appropriat e alt ernat ive t o t he banking syst em . Not anot her bank, but an inst it ut ion t hat can allow paym ent s wit hout resort ing t o banking act ivit ies. That inst it ut ion should allow us t o perform paym ent s and savings in an I slam ic m anner.
Darurah relat es t o our econom ic environm ent . Therefore t o underst and our pr oblem it will not be sufficient t o focus on t he com m er cial t ransact ion, we will need t o have a wider look, exam ining t he condit ions t hat surround t he com m ercial t ransact ion. Thus, we need t o invest igat e how banking inst it ut ions have becom e alm ost a m onopoly in t he cr eat ion and handling of m oney. We need t o look at t he nat ure of t he banks, and also at t he nat ure of t he credit - m oney which we use. Finally w e need t o underst and what m oney is in I slam , and how we can r e- est ablish an I slam ic econom ic fram ewor k in which banks w ill cease t o be a necessit y for us, while w e r em ain fully capable of sat isfying all our econom ic needs.
The key t o underst anding our pr esent econom ic sit uat ion is t he concept of Riba in t he Shari’ah. Wit hout a proper underst anding of what is Haram we will not be able t o m ake a correct j udgem ent . To underst and Riba we will need t o elim inat e som e com m on m isunderst andings, such as m aking int er est ident ical t o Riba – when in fact t he t w o concept s are not t he sam e. Making t hese t wo concept s ident ical is part of t he confusion t hat reigns t oday in t he com m on discourse on Riba. Expressions such as ‘int erest - free’ or ‘zero- int erest ’ do not m ean t hat t he t ransact ion is free of Riba. Such expressions are decept ive, m isleading and ult im at ely have served t o lure Muslim s int o forbidden pract ices. We will look at t his m at t er in t he sect ion called ‘Underst anding Riba’.
Anot her im port ant m at t er is t o clearly st at e t hat I slam ic Banking is Haram , j ust as all ot her com m ercial banks are Haram wit hout except ion. I slam ic Banks pract ice Riba in t he sam e w ay t hat ot her banks do, except t hat t he differences are purely cosm et ic. They m islead com m on people by t he use of Arabic nam es and t he m isr epresent at ion of com m ercial cont ract s as well as t he int roduct ion of cert ain forbidden pract ices such as ‘t wo t ransact ions in one’, which are usually not know n t o be Haram by m ost people. I slam ic Banks dwell on t he except ionalit y of darurah in order t o j ust ify t heir own int erpret at ion of t he Shari’ah, which validat es banking pract ices. I slam ic Banks do not int end t o change or elim inat e t he sit uat ion of darurah, because such a change would im ply t he end of t heir j ust ificat ions. We will exam ine t his m at t er in great er det ail lat er when we look at t he m et hodological rout e used by m odernist scholars in order t o alt er t he definit ion of Riba, t herefore allowing t hem t o accept t he inst it ut ions of banks and paper m oney.
Ult im at ely we m ust underst and t he im port ance of what is Halal, what is t he I slam ic way of doing t hings. We have lost our I slam ic Mu’am alat and t he only way t o rest ore t he pract ice of t he Shari’ah is t o rest ore som e crit ical aspect s of t he I slam ic econom ic infrast ruct ure t hat m ake t he Mu’am alat viable. Therefore t he m at t er m ust ult im at ely r esult in t he rest orat ion of our own econom ic m odel. Wit hin an I slam ic m odel we have t he resources t o rest or e t he right way of t rading and elim inat e Riba form our lives.
3 . Un de r st a n din g Riba 3 .1 A w or ld sh a pe d by Riba
I t is gener ally assum ed t hat from t he point of view of m at erial wealt h, t hings have never been bet t er t han t hey are t oday. This is assum ed, despit e j ust having t raversed t he m ost m urderous cent ury in hum an hist ory, w hich saw for t he first t im e t he use of w eapons of m ass dest ruct ion on civilian populat ions, t he colossal annihilat ion of t he eco- syst em and fauna, and t he largest num bers of st ar vat ion vict im s known in hist ory. All past and present m iseries are forgot t en before t he general assum pt ion t hat t he average person t oday enj oys a st andard of living not equalled in any ot her t im e. However, it has not been t he sam e for all t he people of t he w orld. While a m at erial im provem ent has been achieved for a relat ively sm all port ion of m ankind, t he bot t om half st ill lives below t he povert y- line of 2 USD a day, and earn less collect ively t han t he 387 largest individual earners. This disequilibr ium in wealt h goes hand in hand w it h a corresponding polit ical and m ilit ar y im balance t hat has t ur ned one nat ion in part icular int o t he police- ruler of t he wor ld. During t his per iod of a m assive shift of wealt h t o a sm all corner of t he world, t he Muslim s have lost an im m ense part of t heir past econom ic and polit ical st at us. The polit ical unit y represent ed by t he Khalifat e, which grant ed Muslim s a voice in w orld affair s, w as devast at ed, and inst ead a plet hora of t iny nat ions em erged under t he auspices and new legal fram e of t he Unit ed Nat ions. Large part s of our populat ion belong t o t he bot t om half of world earners, and our com bined Gr oss Dom est ic Product does not reach one t ent h of t he GDP of t he USA. Polit ically divided, and losers in t he econom ic share- out , Muslim s face only t he prospect of being underdogs in t he present econom ic syst em . Under t his regim e a cont inuous erosion of our social and cult ur al life is inevit able, which in t urn result s in t he increased anger and fr ust rat ion of our yout h.
This present syst em of econom ic disequilibrium is self- pr eserved by diver t ing people’s at t ent ion away from econom ic m at t ers and t owards polit ical m at t ers. The econom ic syst em which causes t he im balance is t aken for grant ed, and individual polit ical t yrant s becom e t he focus of polit ical st ruggle. Under t hese circum st ances t he econom ic syst em rem ains unquest ioned and t herefore it s cont inuat ion is guarant eed.
At it s core, t his syst em of disequilibr ium w hich w e call capit alism is based on Riba. Riba is in it self disequilibrium . Mechanised usury t hrough t he banking syst em has t urned a crim inal cont ract int o a m eans of econom ic dom inat ion. As long as we r em ain slaves of Riba, our Muslim nat ion will rem ain enslaved. A societ y which m isunderst ands t he dynam ics of t he world w ill find it difficult t o focus on est ablishing it s goals. These are swept away in t he em ot ion of t he m om ent . And so, act s which are int ended ‘t o do good’ are lost t o a lack of direct ion. Under such circum st ances, no am ount of effort w ill prove fruit ful.
3 .2 W h a t is Riba ?
Underst anding Riba is essent ial t o underst anding capit alism and t hus t o com prehending t he econom ic environm ent in w hich we operat e. The I slam ic underst anding of Riba opens t he pat h t o rest oring our own Mu’am alat and t hus creat ing t he t ools t hat can overcom e t he present syst em . Riba is not j ust negat ive. I t opens t he pat h t o t he posit ive const ruct ion of t he Halal. Only while w e rem ain confused bet w een t he Halal and t he Haram do we perpet uat e t he present sit uat ion.
The basis of t he argum ent against Riba is what Allah says in t he Qur'an ( Surat al- Baqara, 274) : “ Allah has perm it t ed t rade and forbidden Riba.” Riba represent s t he opposit e of t rading, it is t he corr upt ion of t rading.
There cannot be t rading w it h Riba, nor Riba wit h t rading. Yet , Riba has becom e t he core of t oday’s face of kufr: capit alism . For t his reason, Riba is t he m ost im port ant polit ical issue facing our Muslim nat ion t oday. Riba affect s every aspect of our life and it can be t raced back t o t wo m ain inst it ut ions: t he Bank and t he St at e. Despit e it s im port ance, m ost Muslim s’ under st anding of it rem ains superficial. Most people sim ply t hink t hat Riba is m er ely int erest . The realit y of Riba is a m uch m ore com plex affair. This m isunderst anding is not j ust a m iscalculat ion; it is t he product of a m is- educat ion and indoct r inat ion which has result ed from t w o phenom ena: one, t he dest ruct ion of t he polit ical power of t he Khalifat e, and t wo, t he process of t he so- called ‘I slam ic reform ’ which followed. This m isunderst anding opened t he gat es t o t he ‘I slam isat ion’ of t he m ost im port ant inst it ut ion of capit alism : t he bank. What t he open m arket - place is t o t rading, t he bank is t o Riba. A ‘reform ed Riba’ was t o allow t he new prom ot ers of t he ‘I slam ic Bank’ t o j ust ify t heir act ions. I t is for t his reason essent ial t o ret urn t o a cor rect under st anding of t his key t er m in t he Fiqh, which can allow us t o discern what is Haram and what is Halal. This is crucial t o over com ing capit alism and it s illusion of power.
This brief int roduct ion will t r y t o out line as plainly as possible t he issue of Riba in I slam ic Law , and undo t he m isunderst anding creat ed by t he ‘reform ers’ and m odernist scholars. Riba lit erally m eans ‘excess’ in Arabic. Qadi Abu Bakr ibn al- Ar abi, in his ‘Ahkam ul Qur’an’, defines it as: ‘Any excess bet w een t he value of t he goods given and t heir count er- value ( t he value of t he goods received) .’ This excess refer s t o t wo m at t er s:
1] An ext ra benefit arising from unj ust ified increase in t he w eight or m easure, and 2] An ext ra benefit arising from unj ust ified delay. These t wo aspect s have led our scholars t o define t w o t ypes of Riba. I bn Rushd said: “ The j urist s unanim ously agreed about Riba in buyu’ ( t rade) t hat it is of t w o kinds: deferm ent ( nasiah) and st ipulat ed disparit y ( t afadul) .” That is t o say, t here are t w o t ypes of Riba: 1] Riba al- Fadl ( excess of disparit y) 2] Riba al- Nasiah ( excess of deferm ent ) Riba al- fadl refers t o quant it ies. Riba an- nasiah refers t o t im e delay.
Riba al- fadl is very easy t o underst and. I n a loan, Riba al- fadl is t he int erest t hat is overcharged. But in general it represent s when one part y dem ands an addit ional increase t o t he count er- value. One part y gives som et hing w or t h 100 in exchange for som et hing wort h 110. Riba al- fadl also refers t o t he forbidden case in which t wo sales t ransact ions are linked by a single cont ract ( known as ‘t wo t r ansact ions in one’) , in which one part y is obliged t o sell som et hing at one price and t o resell it aft er a t im e t o t he original seller for a decreased value. As a m at t er of fact , t his is only a subt er fuge t o disguise a loan w it h int erest under t he pret ence of a sale. Nobody needs t his subt erfuge t oday because you can get t he loan direct ly from t he bank. But t he I slam ic Banks have resort ed t o t his old t rick t o deceive t heir cust om ers under t he m isint erpr et ed nam e of ‘Murabaha’. Underst anding Riba an- nasiah is m ore subt le. I t is an excess in t im e ( delay) art ificially added t o t he t ransact ion. I t is an unj ust ified delay. This refers t o t he possession ( ‘ayn) and it s non- possession ( dayn) of t he m edium of paym ent ( gold, silver and foodst uff – which was used as m oney) . ‘Ayn is t angible m er chandise, oft en referred t o as cash. Dayn is a prom ise of paym ent or a debt , or anyt hing whose delivery or paym ent is delayed. To exchange ( safr) dayn for ‘ayn of t he sam e genus is Riba an- nasiah. To exchange dayn for dayn is also forbidden. I n an exchange it is only allowed t o exchange ‘ayn for ‘ayn. This is support ed by m any hadit h on t he issue. I m am Malik relat ed: “ Yahya r elat ed t o m e from Malik t hat he had heard t hat al- Qasim ibn Muham m ad said, ‘Um ar ibn al- Khat t ab said, “ A dinar for a dinar, and a dirham for a dirham , and a sa' for a sa'. Som et hing t o be collect ed lat er is not t o be sold for som et hing at hand.” ’” “ Yahya relat ed t o m e from Malik t hat Abu'z- Zinad heard Sa'id al Musayyab say, ‘There is usur y only in gold or silver or what is w eighed and m easured of what is eat en and drunk.’” The Hanafi scholar Abu Bakr al- Kasani ( d. 587H) wrot e: “ As for Riba al- nasa’ it is t he difference ( excess) bet ween t he t erm inat ion of delay and t he period of delay and t he difference ( excess) bet ween t he possession ( ‘ayn) and non- possession in t hings m easured and weighed wit h different genera as well as in t hings m easured and weighed wit h a uniform it y of genera. This is according t o ash- Shafi’i ( Allah bless him ) , it is t he difference bet w een t he t erm inat ion of t he period and t he delay in foodst uff and precious m et als ( wit h currency- value) specifically.” Riba an- nasiah refers part icularly t o t he use of dayn in t he exchange ( sarf) of t he sam e genera. But t he prohibit ion is ext ended t o sales in general when t he dayn represent ing m oney overpasses it s privat e nat ure and replaces t he ‘ayn as m edium of paym ent . I m am Malik, m ay Allah be m er ciful t o him , illust rat es t his point in his ‘Al- Muwat t a’:
“ Yahya r elat ed t o m e from Malik t hat he had hear d t hat receipt s ( sukukun) were given t o people in t he t im e of Marw an ibn al- Hakam for t he produce of t he m arket of al- Jar. People bought and sold t he receipt s am ong t hem selves before t hey t ook delivery of t he goods. Zayd ibn Thabit , one of t he Com panions of t he Messenger of Allah, m ay Allah bless him and grant him peace, went t o Marwan ibn Hakam and said, ‘Marwan! Do you m ake usur y Halal?’ He said, ‘I seek r efuge wit h Allah! What is t hat ?’ He said, ‘These r eceipt s which people buy and sell before t hey t ake delivery of t he goods.’ Marw an t herefore sent guards t o follow t hem and t ake t hem from people’s hands and ret urn t hem t o t heir ow ners.” Zayd ibn Thabit specifically calls Riba t hose receipt s ( dayn) ‘which people buy and sell before t aking delivery of t he goods.’ I t is allowed t o use t he gold and silver or food t o m ake t he paym ent , but you cannot USE t he prom ise of paym ent . I n it t here is an excess t hat is not allowed. I f you have dayn, you have t o t ake possession of t he ‘ayn it represent s and t hen you can t ransact . You cannot used t he dayn as m oney.
I n general t he rule is t hat you should not sell som et hing which is t here, for som et hing which is not . This pract ice is called Ram a’ and it is Riba.
I m am Malik: “ Yahya relat ed t o m e from Malik fr om ‘Abdullah ibn Dinar from ‘Abdullah ibn ‘Um ar t hat ‘Um ar ibn al- Khat t ab said: ‘Do not sell gold for gold except like for like. Do not increase part of it over anot her part . Do not sell silver for silver except for like, and do not increase part of it over anot her part . Do not sell som e of it which is t here for som e of it which is not . I f som eone asks you t o wait for paym ent unt il he has been t o his house, do not leave him . I fear ram a’ for you. Ram a’ is usury.’” Ram a’ is t oday t he com m on pract ice in all our m arket s. Dayn currency ( paper m oney, receipt s) has replaced t he use of ‘ayn currency ( Gold
Dinar, Silver Dirham ) . This pract ice is what Um ar ibn al- Khat t ab m eant when he said “ I fear ram a’ for you.” Selling wit h deferm ent is not rest rict ed t o m et als, it also includes food. Malik said, “ The Messenger of Allah, m ay Allah bless him and gr ant him peace, for bade selling food befor e get t ing deliver y of it .” Therefore, what is pr ohibit ed in Riba an- nasiah, is t he addit ion of an art ificial delay t hat does not belong t o t he nat ure of t he t ransact ion. What does ‘art ificial’ and ‘t he nat ure of t he t ransact ion’ m ean? I t m eans t hat every t ransact ion has it s own nat ural condit ions of t im ing and price. Riba al- fadl refers t o quant it ies. Riba an- nasiah refers t o t im e delay. To underst and what is j ust ified and what is not j ust ified, one has t o underst and t he different nat ure of each t ransact ion, in part icular t hose t ransact ions t hat involve t he sam e genus ( t he sam e goods are given and received) , such as loans, exchange and rent al:
- A loan involves deferm ent but not quantity disparity. One person gives an am ount of m oney, and aft er a period of t im e ( defer m ent ) t he person ret urns t he m oney w it hout increase. The excess in t im e is j ust ified and is Halal, but disparit y is unj ust ified and is Har am . That t ype of unj ust ified excess would be Riba al- fadl.
- An exchange involves no deferm ent and no disparity. One person gives an am ount of m oney and wit hout deferm ent t he equivalent is given. Deferm ent is unj ust ified in an exchange. I f you want t o delay t he paym ent , you have t o m ake a loan, you cannot obt ain a loan disguised as a ‘delayed exchange’. That t ype of unj ust ified excess would be Riba an- nasiah.
- A rent al involves both deferm ent and disparity and it is Halal.
When you rent a house, you t ake possession of t he house and you ret urn it aft er a t im e ( deferm ent ) and in addit ion you m ake an ext ra paym ent , t he rent ( disparit y) . These t wo excesses bot h in t im e and quant it y are j ust ified and t hey are Halal. You can only rent m erchandise t hat can be hired. You can hire a car, a house or a horse. But you cannot hire m oney or food st uff ( fungible goods) . To pret end t o hire m oney is t o corrupt t he nat ure of t he t ransact ion and it becom es Riba. What t ype of Riba is rent ing m oney? Riba al- fadl, because t he rent ing of m oney is t he sam e as adding a disparit y in a loan.
I n t h e ca se of a sa le t hat involves t he exchange of goods of different
genus, deferm ent is Halal, and disparit y is account ed for in a differ ent m anner. How do you det erm ine disparit y in a sale of goods of different genus? The disparit y is det erm ined by t he difference bet ween t he price offered on spot sales and delayed sales. This is called in t he Fiqh t he
st ipu la t ion of t w o pr ice s or ‘t w o sa le s in on e ’. The spot price is
considered t he pr ice; and t he excess occurs w hen t here is an increase ( in relat ion t o t he spot pr ice) in t he price offered in delayed t erm s. This can happen in t he follow ing cases:
- offering an increased price if the good are purchased on delayed t erm s; or
- offering a discount if the buyer pays on the spot; or
- selling only on delayed term s and denying the possibility of purchasing on t he spot ( t hus hiding t hat t here is an increase – as it happens in m any of t he 0% finance offer s t hat we see t oday) .
A com plet e discussion of t his t opic follow s lat er. We will sim ply out line t wo cases:
1 ] When t he seller says “ I sell at t his price if you pay in cash, and at
t his ot her one ( higher) if you pay in delayed t erm s.”
2 ] When t he seller m akes a salam ( a sale wit h delayed paym ent ,
which is Halal) and at t he t im e when t he m oney is due he says t o t he buyer ( who m ight not be able t o pay) : “ You can delay it furt her if you pay an excess ( disparit y) ; ” and also when t he seller says t o t he buyer: “ I f you pay before t he end of t he t erm s, I will offer you a discount ( disparit y) .” This is t he t ype of Riba known as Riba al- j ahiliyah. What t ype of Riba is applicable here? Riba al- fadl – because in sales t he sour ce of unj ust ified excess is disparit y.
I bn Rushd wrot e: “ As for usury in sales, t he ulam a are in agreem ent t hat it is of t wo t ypes: deferred paym ent ( nasiah) and disparit y ( t afadul) – except what has been t ransm it t ed from I bn ‘Abbas, who report ed t hat t he Prophet , m ay t he peace and blessing of Allah be upon him , said: “ There is no usury except in deferred paym ent .” The m aj orit y of t he fuqaha, however, have concluded t hat usury does exist in t hese t wo t ypes because t his has been affirm ed in ot her st at em ent s from him , m ay t he peace and blessings of Allah be upon him .” “ The four sect ions t o which t he law of usur y m ay be reduced are ( 1) t hings in w hich neit her dispar it y nor defer m ent is perm it t ed; ( 2) t hings in w hich disparit y is perm it t ed but deferm ent is not ; ( 3) t hings in which bot h are perm it t ed; and ( 4) what const it ut es a single genus.” Thus every t ransact ion has it s condit ions relat ing t o it s nat ure. You cannot t ake t he condit ions of one t ype of t ransact ion and t ry t o apply t hem t o t he ot her, wit hout corr upt ing t he t ransact ion. To add unj ust ified condit ions ( also excess) t o a t ransact ion is Riba.
Since dayn is in it self a deferm ent , t he use of dayn is rest rict ed t o privat e t ransact ions and it is pr ohibit ed as a general m eans of paym ent ( m oney) . While dayn per se is Halal, it is not Halal t o use it as m oney. Dayn is a privat e cont ract bet ween t wo individuals and m ust rem ain privat e and bet w een t hem . The t ransfer of dayn fr om one person t o anot her can be done I slam ically, but only by t he elim inat ion of t he first dayn and t he creat ion of a new one. The dayn cannot circulat e independent ly from what it represent s. The owner m ust t ake possession of t he goods and liquidat e t he dayn. Dayn cannot be used in an exchange and it cannot be used as a m eans of paym ent . I t is specifically forbidden t o use dayn t o pay Zakat .
4 . Th e M isu n de r st a n din g of Riba 4 .1 . Re ligiou s r e for m ism a n d ca pit a lism
Capit alism overrides religion rat her t han int eract ing wit h it . I t s suprem acy in present societ y is so absolut e t hat expressions like t axat ion and int erest rat es com m and m or e cert aint y t han t he exist ence of Allah. Religions in t he process have had t o bend t heir supposedly capricious law s in order t o subm it t o t he rat ionale of t he banking or der. Com ing out of revolut ions, wars and econom ic disast ers, capit alism has m anaged t o im pose it s st ruct ures all over t he w orld. I t s success is so t ot al t hat it has m anaged t o elim inat e any int ellect ual resist ance. The disappearance of t he kings ( represent ing t he link t o t radit ional law) and t he arr ival of dem ocr acy provided t he fert ile grounds for t his m assive re- shaping of t he world wit hin a capit alist rat ionale.
The full ext ent of t his accom plishm ent t ransfor m ed t he previously unt ouchable dom ain of r eligion. Capit alism ’s rat ionale ent ered int o t he j udgm ent of religion t o t he degree t hat capit alism w as accept ed as an ‘endowm ent of God’: a self- evident evolut ion of hum an societ y, j ust like t he locom ot ive or t he radio. The key t o t his effort was t he adapt at ion of t he t radit ional pr ohibit ion of usury t hr ough a car eful redefinit ion of t he t erm . This ‘conversion’ t o capit alism was com plet ed in christ ianit y during t he com plex process of Reform or Prot est ant ism . The principal result s of t he conversion wer e t he ‘christ ianisat ion of banking’ and t he reduct ion of Canon Law t o personal purit an m oralit y. Muslim s also had t heir own ‘prot est ant ’ reform . Our reform ers adopt ed t he sam e pat t ern; t he adopt ion of purit an m oralit y cant ered part icularly on sexual behaviour, and t he ‘I slam isat ion of banking’.
What we call m odernism in I slam is sim ilar t o what Prot est ant ism is t o t he christ ian world. The t wo phenom ena share t he sam e m ould and t he sam e accom plishm ent w it h regard t o capit alism . At t he cent re of t his issue was a redefinit ion of t he m eaning of usury t hat would allow banking t o be accept ed as part of t he religion. Two t hings were required for banking t o be religiously accept ed: 1] Accept ance of t he int erest charged on t heir loans, eit her explicit ly or by disguise. 2] Accept ance of fract ional reserve banking, t hat is, t he syst em of t he creat ion of prom issor y not es as subst it ut es for specie ( originally, gold and silver) . Canon Law , as inherit ed from scholast ic writ ers and t he fat hers of t he christ ian church, regarded t he m at t er of usury as being alm ost ident ical t o int erest . This int erpret at ion was already a depart ure from t he m ost com prehensive Arist ot elian ‘paradigm ’ t hat dem anded t hat t he value and t he count er- value m ust be ident ical. The Arist ot elian view was gradually abandoned in favour of a sim pler and m ore pract ical definit ion of ‘usur y as int erest ’. Finally t he Prot est ant revolut ion redefined usury from being any int erest ( independent of t he am ount ) t o only ‘excessive int erest ’. The Prot est ant int erpr et at ion consent ed t hat any int erest t hat was in accordance wit h t he m ar ket rat e was perm issible, and only t he int erest t hat was in ‘excessive’ disparit y t o t he m arket was consider ed usury. But in pract ice, wit hout an upper lim it beyond which people can agree t hat usury is t aking place, t he definit ion has proved point less.
The Arist ot elian definit ion offers very close parallels t o t he I slam ic view. Qadi Abu Bakr ibn al- ‘Arabi defines usury as: “ Any unj ust ified increm ent bet ween t he value of t he goods given and t he count er- value.” The general idea is t hat alt hough individuals have subj ect ive and dist inct appreciat ions of goods, in a j ust t ransact ion t here m ust be equivalence in t heir single ( obj ect ive as opposed t o subj ect ive) exchange value. Econom ist s like Bent ham argued against t he
Arist ot elian view on t he basis of t he preference of subj ect ive value ( which was seen as t he real value) . From t he point of view of t he subj ect ive value t he Arist ot elian ‘j ust exchange’ does not m ake sense since all t he exchanges are by t hat definit ion non- equivalent . This is because from a subj ect ive perspect ive t he part ies involved in t he exchange always expect a higher ‘ut ilit y’ ( subj ect ive value) from t he goods received t han from t he ones given. Thus, fr om a ut ilit ar ian perspect ive, “ t rade is as inequit able as usury” , which is like saying “ t rade is t he sam e as usury” . And Allah t he Exalt ed has warned us of t he people who say “ t rade is t he sam e as usury” ( Qur’an 2: 274) .
Aft er Bent ham ’s ut ilit arianism , all int erest in what ever form was considered perm issible. The econom ic t hinking t hat followed was grounded upon Bent ham ’s ‘perm issibilit y of usury’. Furt herm ore, from t his ut ilit ar ian perspect ive not only is usur y accept ed but t he or iginal idea of equivalence is no longer relevant and is t herefore ignored. This explains t he incapabilit y of econom ist s t o underst and t he I slam ic definit ion of Riba, w hich is based on t he int rinsic equivalence of a j ust t ransact ion. I t leaves econom ist s in pure perplexit y when it com es t o underst anding t he I slam ic sense of equivalence, as expressed in sent ences such as “ gold for gold, hand t o hand, equal for equal.” The ‘perplexit y about equivalence’ is a fact or com m on t o all econom ist s. I n I slam t he word for usury is Riba. The m eaning of Riba in t he Shari’ah has a m ore det ailed and com prehensive m eaning t han t he in christ ian Canon Law. Arist ot elian equivalence is expanded and exem plified in t he Shari’ah. The Shari’ah offers a com plet e underst anding of t he com m ercial t ransact ion, and by default of Riba. This expanded underst anding includes a det ailed explanat ion of t he m eaning of excess in it s t wo for m s: dispar it y and deferm ent . By cont rast t he under st anding of usury in t he chr ist ian world is m ore or less defined by int erest only. I slam ic Law is m ore com prehensive and clearer. For exam ple, in cert ain t ransact ions in which it is not j ust ified, t he int roduct ion of an art ificial ( unj ust ified) deferm ent is seen as an excess, and t herefor e a cause of Riba. This form of usury has escaped all t he christ ian scholars of t he past . This gap in t he christ ian underst anding was t o have im port ant consequences in how usury would event ually penet rat e in t he christ ian world t hrough t he m eans of banking and part icularly t he use of prom issory not es ( in t hem selves a m eans of deferm ent ) . We want t o em phasise t he crit ical im port ance of Riba an- nasiah as a m eans of recognising a significant form of Riba which escaped christ ian scholars.
4 .2 Th e I sla m ic Re for m e r s
I n Egypt , during t he lat t er part of t he XI X cent ury, a group of pseudo- scholars st art ed t heir own I slam ic ver sion of a Prot est ant refor m at ion. Am ong ot her t hings t hey t ried t o change t he definit ion of Riba in order t o accom m odat e t he banking pract ices of t heir day. From Muham m ad ‘Abduh t o t he m odern pro- banking scholars t here runs an un- int errupt ed school of t eachers and st udent s, one w hich has added new elem ent s t o t he original I slam ic definit ion, and subt ract ed exist ing elem ent s. This school we call m odernism . Their final accom plishm ent was t he creat ion of t he I slam ic Bank. The inspirat ion behind t he m odernist m ovem ent is said t o have been Jam al- ud- Din al Afghani ( 1839- 1897) , while it s brain was Muham m ad ‘Abduh ( 1845- 1905) , and t he one who propagat ed it was Rashid Reda ( 1865- 1935) . I t first appeared as a rej ect ion of West ern colonialism , but it s em ot ional rej ect ion of t he West w as accom panied by an indiscrim inat e and equally int ensive adm ir at ion of t he West . Because of his posit ion as Grand Muft i of Egypt – a posit ion grant ed t o him in 1899 by Lord Crom er, Br it ish Gover nor of Egypt – Muham m ad ‘Abduh w as t he m ost dam aging of all. His fir st Fat wa as Grand Muft i st at ed: “ I nt erest in saving funds is allowed” . He wrot e ( 5 Decem ber 1903) :
“ The st ipulat ed usury is not perm issible in any case; whereas t he Post Office invest s m onies t aken from t he people, which are not t aken as loans based on need, so it would be possible t o apply t he invest m ent of such m onies on t he rules of a part nership in com m enda.” * [ * com m enda is sim ilar t o Qirad]
( Al- Manar, vol. VI , part 18, p. 717) I t is im port ant t o not e t hat while he denounced Riba he accept ed t he banks. This is a key m ot if of all post erior m odernist scholars. Wit h t his j udgm ent he opened t he door t o t he accept ance of banking in I slam ic Law. Alt hough he never for m ulat ed t he idea of an I slam ic Bank – he did not see it as necessar y t o call it I slam ic – he est ablished t he basis on which lat er m odernist scholars w ould const ruct t his far- fet ched form ulat ion. The basis was re- int erpret ing int erest as a t ype of profit , such as in Shirkat or Qirad. This crit ical reint erpret at ion was achieved by t he int roduct ion of a set of art ificial definit ions and decept ive schem es. Muham m ad Rashid Reda was t he founder of t he m agazine Al- Manar, which was dist ribut ed all around t he Muslim World. He part icipat ed in t he sam e const it ut ionalist and ant i- Osm anli circles as Al- Afghani and ‘Abduh. He opposed t he t radit ional Madhhabs t o im pose his ow n opinions. He also bit t erly opposed Sufism . His opinions on t he West and Riba are clearly exposed in his writ ing: “ There is not hing in our religion which is incom pat ible wit h t he current civilisat ion, especially t hose aspect s regarded as useful by all civilised nat ions, except wit h regard t o a few quest ions of usury [ Riba] and I am ready t o sanct ion [ from t he point of view of t he Shari’ah] everyt hing t hat t he experience of t he Europeans before us shows t o be needed for t he progress of t he st at e in t erm s of t he t rue I slam . But I m ust not confine m yself t o a school of law, only t he Qur'an and t he aut hent ic Hadit h.” ( Al- Manar, vol. XI I , p. 239) The expression “ except wit h regard t o a few quest ions of usury [ Riba] ” m eant t hat , for exam ple, he saw not hing wrong w it h t aking up a life insurance policy ( Al- Manar, vol. XXVI I , p. 346, also vol. VI I , p. 384- 8, and vol. VI I I , p. 588) . He also decried t he t radit ional j urist s’ m isuse of Qiyas t o ext end t o t he area of prohibit ion on t aking int erest on capit al and suggest s t hat t he t aking of int er est on m onies left in t he bank or post office does not com e under t he prohibit ed usury. ( Al- Manar, vol.
VI I , p. 28) . Rashid Reda creat ed a new classificat ion of Riba t hat has becom e param ount for all m odernist scholars ever since. Reda m ade a dist inct ion in t he legal t r eat m ent of what he called t he “ Riba of t he Qur’an” and t he “ Riba of t he Sunna” . Reda m aint ained t hat t he prim ary form of Riba was t he one prohibit ed by t he Qur’an, and t hat t his prohibit ion is t o be m aint ained at all t im es. The t ext s of t he Sunna, on t he ot her hand, prohibit a light er or secondary t ype of Riba – according t o him – w hich is generally prohibit ed but m ay be perm it t ed in case of necessit y ( darurah) .
He essent ially deprived Riba an- nasiah of it s t rue m eaning and reduced it t o som et hing else. First , he m aint ained t hat t he Riba prohibit ed in t he Qur’an was t he Riba known as ‘Riba al- j ahiliyah’ ( when a person did not pay his due aft er t he st ipulat ed t im e, t he seller would increase t he price) which he wrongly equat ed wit h Riba an- nasiah. Second, he incorrect ly assum ed t hat Riba an- nasiah r eferr ed only t o loans, and also t hat it was only Haram when it involved com pound int erest , and t herefore t hat single int erest was excluded from t he prohibit ion. He t her efore concluded t hat sim ple int erest charged or paid by banks was not prohibit ed by t he provisions of t he Qur’an at all, nor by t he Sunna.