Has Islam really prohibited interest?
Interest or Ribâ: Which is Prohibited?
Is interest prohibited in Islam? This question is often repeated at different social gatherings because some people tend to argue that it is ribâ which has been prohibited by Islam and that ribâ is not equivalent to interest.
There is no doubt that what has been prohibited by both the Qurân and the hadîth is ribâ. The Qurán has prohibited it in four different revelations, the first of which (30:39) was in Makkah, and the other three (4:161, 3:130-2 and 2:275-81) were in Madinah. The last of these (2:275-81) came near the end of the Prophet’s life, peace and blessings of God be on him. It severely censured those who took ribâ, and declared them to be at war with God and His Prophet. It also established a clear distinction between trade and ribâ, and enjoined Muslims to forego all outstanding ribâ, enjoining them only to take the principle amount, and to remiss even this in case of the borrower’s hardship.
The Prophet, peace and blessings of God on him, also prohibited ribâ in the most unambiguous words, and condemned not only those who take it, but also those who give it, those who record the transaction, and those who act as witnesses to it. He even equated the willful taking of ribâ with committing adultery thirty-six times or being guilty of incest with one’s own mother.2
Since Ribâ has been censured severely by both the Quran and the Sunnah it is difficult to believe that it would be left so undefined that even after fourteen centuries some people would fail to understand its meaning clearly. Hence, it is necessary to go back to the classical sources of Islam to determine what the term ribâ really stands for.
Ribâ literally means increase, addition, expansion or growth.3 IT is, however not every increase or growth which has been prohibited by Islam. Profit also leads to an increase in the principal amount, but it has not been prohibited. So what has been prohibited?
The best person to answer this question is the Prophet himself, peace and blessings of God be on him. He prohibited the taking of even a small gift, service or favour as a condition for the loan.4 This answer of the Prophet equates ribâ with what is commonly understood to be interest. This meaning of ribâ has become reflected in the writings of all scholars in Muslim history. There is hardly any classical Qur’an commentary or Arabic dictionary which gives a different meaning. For example, al-Qurtubi (d.671AH/1070AC), indicates that “Muslims are agreed on the authority of their Prophet that the condition for an increase over the amount lent is ribâ, irrespective of whether it is a handful of fodder, as indicated by Ibn Mas’ud, or a particle of grain.”5 Ibn Manzur (d.711AH./1311AC) also clearly states in his authoritative dictionary of the Arabic language (lisan al-‘Arab) that “what is prohibited is the extra amount, benefit or advantage received on any loan”.6The term ribâ has, thus been understood from the earliest times to stand for the ‘premium’ that the borrower is requires to pay to the lender along with the principal amount as a condition for the loan or for an extension in its maturity.7 This is also the unanimous verdict of a number of international conferences of fuqaha’ held in modern times to discuss the question of ribâ, including the Mu’tamar al Fiqh al-Islami held in Paris in 1951 and in Cairo in 1965, and the OIC and the Rabitah Fiqh Committee meetings held in 1985 and 1986 in Cairo and Makkah resectively.8 In the presence of such an overwhelming consensus there is no room for arguing that interest is not prohibited in Islam? A few isolated opinions expressing a different view do not, therefore, create a dent in the consensus.
This gives rise to the question of what is it that confuses some people about its meaning. The reason may perhaps lie in the terms ribâ being used in the Shariah in two different senses, and the difficulty of some people in clearly understanding the meaning and implication of both. The first is ribâ al-nasi’ah and the other is ribâ al-fadl.
Ribâ al Nasiáh
The term nasi’ah comes from the root nasa’a (äÓA) which means to postpone, defer, or wait, and refers to the time that is allowed to the borrower to repay the loan in return for the ‘addition’ or the ‘premium’. Hence ribâ al-nasi’ah is equivalent to the interest charged on loans. It is in this sense that the term ribâ has been used in the Qur’an in verse 2:275, which states that “God has allowed trade and forbidden ribâ (interest).” This ribâ is termed as ribâ al-Qur’an (ribâ specified in the Qur’an) or ribâ al-duyun (ribâ on loans).
The prohibition or ribâ al-nasi’ah essentially implies that the fixing in advance of a positive rate of return on a loan as a reward for waiting is not permitted by the Shari’ah. It makes no difference whether the rate of return is small or big, or a fixed or variable per cent of the principal, or an absolute amount to be paid in advance or on maturity, or a gift or service to be received as a condition for the loan. The point in question is the predetermined positiveness of the return. It is important to note that, according to the Shari’ah, the waiting involved in the repayment of a loan does not by itself justify a positive reward.
There is no room even for arguing that the prohibition applies only to the consumption loans and not to business loans. This is because the borrowing during the Prophets’ times was not for consumption purposes but rather for financing long distance trade. Accordingly, the late Shaykh Abû Zahrah, one of the most prominent Islamic scholars of this century, has rightly pointed out that:
There is absolutely no evidence to support that the ribâ of al-jâhiliyyah [re-Islamic days] was on consumption and not on development loans. In fact the loans for which a research scholar finds support in history are production loans. The circumstance of the Arabs, the position of Makkah and the trade of Quraysh, all lend support to the assertion that the loans were for production and not consumption purposes.9
Even Professor Abraham Udovitch, Ex-Xhairman of the Department of Near Eastern Studies at the Princeton University, has clarified that “Any assertion that the medieval credit was for consumption only and not for production, is just untenable with reference to the medieval Near east.” 10
There is, thus, absolutely no difference of opinion among all schools of Muslim jurisprudence the ribâ al-nasi’ah stand for interest and, is harâm or prohibited. Then nature of the prohibition is strict, absolute and unambiguous. However, if the return on the principal can either be positive or negative, depending on the final outcome of the business, which is not known in advance, it is allowed provided that it is shared in accordance with the principles laid down in the Shari’ah.
While Islam has prohibited interest on loans and allowed trade, it has not allowed everything in trade. This is because it wishes to eliminate not merely the injustice that is intrinsic in the institution of interest on loans, but also that which is inherent in all forms of dishonest and unjust exchanges in business transactions. Anything that is unjustifiably received as ‘extra’ by one of the two counterparties to a trade transaction is ribâ al-fadl, which may be defined in the words of Ibn al-‘Arabî as “all excess over what is justified by the counter-value.” 12
The prohibition of ribâ al-fadl is intended to ensure justice, to remove all forms if exploitation through ‘unfair’ exchanges, and to close all back-doors to ribâ because, according to the unanimously accepted legal maxims of Islamic jurisprudence, anything that serves as a means to the unlawful is also unlawful. Since people may be exploited or cheated in several different ways, the Prophet warned that a Muslim could indulge in ribâ in seventy (= several) different ways. 13 This is the reason why the Prophet, peace and blessings of God on him, said: “Leave what creates doubt in your mind in favour of what does not create doubt”, 14 and Caliph ‘Umar was inspired to say: “Abstain not only from ribâ but also from ribâh.”15Ribâh is from rayb which literally means “doubt’ or ‘suspicion’ and refers to income which has the sembance of ribâ or which raises doubts in the mind about its rightfulness. It covers all income derived from injustice to, or exploitation of, others.
The Prophet, peace and blessings of God be on him, has indicated, by way of example, at least four different ways of indulging in ribâ al-fadl. The first of these is the exploitation that may take place in trade through the use of unfair means even though trade is by itself allowed. He equated with ribâ even the cheating of an unsophisticated entrant into the market (ghabn al-mustarsil) and the rigging of prices in an auction with the help of an agent (al-najash).16 Analogically one may conclude that the extra money earned through such exploitation and deception falls within the ambit of ribâ al-fadl.
Another way of being guilty of indulging in ribâ al-fadl is by accepting a reward in return for making recommendation in favour of a person. This implies that the performance of an apparently charitable act with the intention of making money surreptitiously is also prohibited. The rationale behind this may be that such money-motivated recommendation might give benefit to a person who does not deserve and, thereby, indirectly deprive others who are more deserving.17
A third way of indulging in ribâ al-fadl is through barter transactions because of the difficulty of measuring the counter-values precisely in such transactions. The Prophet, peace and blessings of God be on him, therefore encouraged barter in a monetized economy and required that the commodity to be exchanged on the basis of barter be sold against cash and the proceedings used to buy the needed commodity.
This leads to the fourth way of indulging in ribâ al-fadl which has received the maximum attention of the fuqaha’. A number of authentic ahadith stipulate that if the same genus of commodity is exchanged against each other than the same weight of the commodities should be exchanged (sawa’an bi sawa’in and mithlan bi mithlin or equal for equal and like for like) hand-to-hand (yadan bi yadin). If the commodities exchanged are different, it does not matter if there is difference in weight and quantity, provided that the exchange takes place hand to hand. One of the implications of this requirement is the elimination of the backdoor to ribâ (which is referred to in fiqh as sadd al-dharî’ah). Another implication of these ahadith, as understood by the fuqahâ’, is the prohibition of futures transactions in foreign exchange. However, whether hedging, which is one way of managing the risks involved in exchange rates fluctuations, is possible within the constraints of the Sharî’ah is a question which need the attention of the fuqahâ.
Ribâ al-nasî’ah and ribâ al-fadl are, thus, essentially counterparts of the verse “God has allowed trade and prohibited ribâ “(2:275). While ribâ al-nasiah relates to loans and is prohibited in the second part of the verse, ribâ al-fadl relates to trade and is implied in the first part. Because trade is allowed in principle, it does not mean that everything is allowed in trade. Since the injustice inflicted through ribâ may also be perpetuated through transactions in commodities and currencies, ribâ al-fadl refers uncertainty and speculation. It demands a fair knowledge of the prevailing prices and the quality of goods being purchased or sold on the part of both the buyer and the seller. It necessitates the elimination of cheating in prices or quality, and in measures or weights. All business practices which lead to the exploitation of the buyer or the seller must be effectively eliminated.18
While ribâ al-nasî’ah can be defined in a few words, ribâ al-fadl, interspersing a vast array of business transactions and practices, is not so easy to specify. This what may have prompted ‘Umar, the Second Caliph, to say: “The Prophet, peace and blessings of God be on him, was taken without elaborating it to us.”19 The attempt to justify ribâ al-nasî’ah or the interest on loans on the basis of this saying of ‘Umar is absolutely fallacious because the reaction of ‘Umar, by way of caution, was to give up not only ribâ but also ribâh.
It is true that the Prophet specified only a few ways of indulging in ribâ al-fadl and did not indicate all the different ways, as one may have desired. However this was not necessary and not even feasible. Form of injustice and exploitation in trade and exchange of currencies have changed over the centuries and it was not possible for anyone to foresee and specify them all 1400 years ago. The Qur’ân and the Sunnah are there to provide the principles on the basis of which the Ummah can do so. This is the ongoing challenge to all Muslims – to examine their economic practices continually in the light of Islamic teachings and to eliminate all shades of injustice. This is a more difficult task than eliminating ribâ al-nasî’ah. It requires a total commitment and an overall restructuring of the entire economy within the Islamic framework to ensure justice. This was, and is, the unique contribution of Islam. While ribâ al-nasî’ah was well-known in the Jâhiliyyah, the concept of ribâ al-fadl was introduced by Islam and reflects the stamp of its own unflinching emphasis on socio-economic justice.
The principal reason why the Qur’ân has delivered such a harsh verdict against interest is that Islam wishes to establish an economic system where all forms of exploitation are eliminated, and particularly the injustice perpetuated in the form of the financier being assured of a positive return without doing any work or sharing in the risk, while the entrepreneur, in spite of his management and hard work, is not assured of such a positive return. Islam wishes to establish justice between the financier and the entrepreneur.
Under these circumstances it is difficult to see how anyone could justify interest in an Islamic society. The difficulty to understand the prohibition comes from lack of appreciation of the whole complex of Islamic values, and particularly its uncompromising emphasis on socio-economic justice and equitable distribution of income and wealth. Any attempt to treat the prohibition of ribâ as an isolated religious injunction and not as an integral part of the Islamic economic order with its overall ethos, goals and values is bound to create confusion.
1 Narrated by Muslim from Jâbir and also by al-Tirmidhî and Ahmad. For the full texts and complete references to the ahâdith quoted in this paper, see Chapra 1985, pp. 236-40
2 The first hadîh is narrated by Ahmad and Al-Dâraqutnî from Abdallah ibn Hanzalah, while the second is narrated by Ibn Mâjah and al-Bayhaqî (Shu’ab al-Îmân) from Ibn ‘Abbâs.
3 See the word Ribâ in Ibn Manzur’s Lisan al-‘Arab; 1968; al-Zabidi’s Taj al-Arus; and Raghib al-Isfahani’s al-Mufradat. The same meaning is also unanimously indicated in all classical Qur’an commentaries.
4 The Prophet, peace and blessings of God be on him, said: “If a man extends a loan to some one he should not accept a gift”(Bukhari in his Tarikh and Ibn Taymiyyah in al-Muntaqa). In another hadith the Prophet said:”When one person grants a loan to another and the borrower offers him a dish [of food] or a ride on his camel, he should not accept unless the two of them have been previosly accustomed to the exchange of such favours mutually”(Sunnan al-Bayhaqi, Kitab al-Buyu, Bab Kullu qardin jarra manfa’atan fa huwa ribân). Is it possible to conceive a lower rate of interest than a plate of food or a ride in one’s car?.
5 Tafsir al-Qurtubi, 1967, Vol.3, p.241.
6 Ibn Manzur, 1968, p.304. See also the commentary on verse 2:275 in Tafsir al-Kabir of Fakhruddin al-Razi, Akham al Qur’an of Abu Bakr al-Jassas, and Akham al-Quran of Ibn al-‘Arabi.
7 See, al-Jaziri, Vol. 2, p.245
8 See al-Sanhuri, 1953, Vol.3, pp.241-2 and al-Qaradawi, 1994, pp.129-42. See also Abdel Hamid al-Ghazali, 1990, pp.35-60, for verdicts about ribâ geven from 1900-89.
9 Abû Zahrah, 1970, pp.53-4.
10 Udovitch, 1970, p.86.
12 Ibn al-‘Arabî, Ahkâm al-Qur’an, 1957, p.242.
13 Reported byIbn Mâjah and al-Bayhaqî – (Shu’ab al-Îmân) from Abû Hurayrah.
14 Cited by Ibn Kathîr in his commentary on verse 2:275.
15 Reported by Ibn Mâjah and al-Dârimî from ‘Umar ibn al-Khattâb.
16 The first hadîth is reported by al-Bayhaqî and al-Suytî (al-Jâmi’al Saghîr) from Anas ibn Mâlik. The second hadîth is reported from Abdallah ibn Abî Awfâ by al-‘Asqalanî in his commentary on al-Bukhârî and by also al-Bayhaqî in his Sunan from Anas ibn Mâlik.
17 Reported from Abû Umâmah by Bulûgh al-Marâm on the authority of Ahmad and Abu Dâwûd.
18 Several types of sales have been prohibited in the Shariah with the objective of safeguarding the right of both buyers and sellers. Examples are: najash (rigging and collusion), ghabn al-mustarsil (chaeting of an unsophisticated entrant into the market), bay’al-hâdir li al-bâdî and talaqqî al-rukbân (both implying monopsonistic or monopolistic collusion or exploitation to munâbadhah, mulâmasah and muzâbanah (sales involving uncertainty and speculation or gambling). See, for example, al-Jaziri, Vol.2, pp. 273-8 and 283-91).
19 Reported by Ibn Mâjah from ‘Umar ibn al-Khattâb.