CHAPTER-17
RIBA (USURY)
Riba literally means “increase in” or “addition to” a thing over and above its original size or amount. It signifies, according to Islam, any unlawful addition, by way of interest or usury, to a sum of money or goods lent by one person or body of persons to another.
At the time of emergence of Islam, the institution of interest existed in the Arabian society both in the transactions of money loans and barter transactions of commodities. Since it was deeply rooted in the economic life of the people, the injunctions of the Holy Qur’an on its prohibitions were gradually revealed, like those regarding prohibition of wine, so that the economic life of the people may not be abruptly disrupted.
Verses of the Qur’an
Following are the verses of the Qur’an which deal with Riba: 2(275-276), 2(278-279), 3(130), 4(160-161), 30(39). Some of these verses are reproduced for the benefit of the reader as under:
1. Those who devour usury (Riba) will not stand (on the Day of Resurrection) except as he stands whom the Satan by his touch has driven to madness. That is because they say: Trade is just like usury; whereas Allah has permitted trade and forbidden usury. So whoso ever receives admonition from his Lord and refrains (from taking usury), he shall keep that which he took in the past and his case is with Allah (for judgement). And as for him who returns (to usury), such are the dwellers of the Fire; they will abide therein. Allah destroys usury and gives increase to almsgiving. And Allah loves not the disbelievers and sinners. (2:275-276)
2. O you who believe! Fear Allah and give up what remains due to you from usury if you are truly believers. And if you do it not, then take notice of war from Allah and His messenger. And if you repent (and do not take usury), you will get your principal sum. Wrong not and you shall not be wronged. (2:278-279).
If put in the order of revelation, the above verses gradually prohibited interest. The first verse of the Holy Qur’an (30:39) which was revealed regarding interest compares it with Zakat and states that interest does not increase one’s wealth, in fact it decreases it, whereas Zakat increases it manifold. In the next verse (3:130), the believers are told not to devour compound usury doubling or quadrupling the sum of loan. In the next two verses (4:160-161), the Jews have been condemned and threatened with a painful doom for violating the prohibition of usury and for taking it. Then comes the famous para of the revealed book of Islam (verses 275, 276, 278 and 279 of chapter 2) which finally prohibited interest. It distinguishes between trade (Bai) and interest (Riba). It condemns usury and the usurer and praises the fruitfulness of charity. It absolutely prohibits charging of usury and commands the believers to give it up and get back only their principal amounts of loans. Finally, it warns them to take notice of war from Allah and Allah’s Messenger if they violate prohibition and revert back to usury.
Ahadith of Prophet Muhammad (PBUH) on Interest
In this section we are reproducing some of the well-known Ahadith of the Prophet of Islam which show that the Prophet has not only condemned ‘Riba’ (interest) in possibly the most serverest terms but has also identified it in money as well as in commodity transactions in very clear words. These Ahadith facilitate our understanding of the Islamic concept of ‘Riba’ and bring into focus its various aspects for our guidance. The relevant Ahadith are:
1. Abu Sayeed al-Khodri reported that the Messenger of Allah said: Gold for gold, silver for silver, wheat for wheat, barley for barley, date for date, salt for salt and like for like in hand to hand (transaction). Whoso gives more or takes more, then the taker and the giver are equal in taking interest therein. (Muslim)
2. Abu Sayeed al-Khodri reported that the Messenger of Allah said: Don’t sell gold for gold unless like for like and don’t increase something of it upon something, and don’t sell silver for silver unless like for like and don’t increase something of it upon something, and don’t sell the absent therefrom for the present. Agreed upon it. In a narration: Sell not gold for gold, nor silver for silver unless like for like. (Bukhari, Muslim)
3. Osamah-b-Zaid reported that the Messenger of Allah said: Usury is in promise. And in another narration he said: There is no usury in what is hand to hand. (Bukhari and Muslim)
4. Omar reported that the Messenger of Allah said: Gold for gold is interest unless in hand to hand (transaction); silver for silver is interest unless in hand to hand (transaction); wheat for wheat is interest unless in hand to hand (transaction), barley for barley is interest unless in hand to hand (transaction), and date for date is interest unless in hand to hand (transaction). (Bukhari, Muslim)
5. It is reported by Abu Saeed Khudri that the Holy Prophet said, “Sell not gold for gold and silver for silver but in equal quantity nor sell anything for the same thing in lesser quantity, nor sell anything present for that which is absent.” (Bukhari)
6. Abu Saeed says that one day Bilal came to the Holy Prophet with green variety of dates. The Holy Prophet enquired, “Wherefrom did you bring this?” Bilal replied, “We had dates of inferior quality; we therefore gave two ‘saa’ of that quality in exchange for one ‘saa’ of this (superior) quality with the object of presenting to the noble Prophet”. On hearing this the Holy Prophet exclaimed, “A Wa A Wa (expression of condemnation). This is clear interest. Do not do so (again), rather when you wish to acquire dates of superior quality, first sell the dates of inferior variety for money, and then purchase dates of superior quality”. (Bukhari)
7. Omar-b-Khattab reported: The last of what was revealed was the verse of usury, and the Messenger of Allah expired while he did not explain it to us. So give up usury and doubt. (Ibn Majah, Darimi)
8. Abdullah-b-Hanjalah (one washed by angels) reported that the Messenger of Allah said: A dirham of usury a man devours with knowledge is greater than 36 fornications. (Ahmad, Darqutni)
9. Ibn Mas’ud reported that the Messenger of Allah said: Though usury increases, its effect indeed turns towards decrease. (Ibn Majah)
10. Jaber reported that the Messenger of Allah cursed the devourer of usury, its payer, its scribe, and its two witnesses. And he said that they are equal (in sin). (Muslim)
11. It is reported that the Holy Prophet, on his last Pilgrimage and in his last address, said, “Every form of interest (‘Riba’) is cancelled; capital indeed is yours which you shall have, wrong not, and you shall not be wronged. God has given His injunctions that interest is totally forbidden. I first start with (the amount of) interest (which people owe) to ‘Abbas and declare it all cancelled”.
12. Abu Hurairah reported that the Holy Prophet said: A time will certainly come over people when none will remain who will not devour usury. If he does not devour it, its vapour will overtake him. (Ahmad, Abu Daud, Nisai, Ibn Majah)
Types of Riba at the Advent of Islam
On the basis of practice prevailing at the time of emergence of Islam and keeping in view the Ahadith of Prophet Muhammad (PBUH), the Muslim jurists have classified ‘Riba’ into two types, namely: Riba-an-Nasia and Riba-al-Fadl. The former is in cash loans whereas the latter is in barter transactions. Islam has abolished both types of Riba.
Riba-an-Nasia means interest charged on money loans. An example of Riba-an-Nasia is as follows: In times of ignorance, if a debtor owed some loan to his creditor, but had no means to repay it within the fixed time, he would request the creditor to extend time. The creditor stipulated certain increase or addition in his principal on the consideration of which he would agree to extend the time of payment. This increase in principal is Riba-an-Nasia. It, according to jurists, contains the following three elements:
(a) Excess or surplus over and above the loan capital.
(b) Determination of this surplus in relation to time; and
(c) Bargain to be conditional on the payment of a predetermined surplus.
Riba-al-Fadl is the name of the interest which is charged in barter transactions of commodities. It lies in the payment of an addition by the debtor to the creditor in the exchange of commodities of the same kind i.e. wheat for wheat or barley for barley or dates for dates. etc. According to Ahadith reproduced in the relevant section, to sell wheat for wheat, dates for dates, barley for barley and like for like is ‘Riba’ except when sold from hand to hand and in equal quantity.
What is Riba?
The Qur’an and Hadith have used the term Riba which has been translated as ‘usury’ or ‘interest’. We do not find definition of this term in the Qur’an or in the Traditions of the Prophet of Islam. Hadrat Umar is reported to have remarked:” The last of what was revealed was the verse of usury, the messenger of Allah expired before he could explain it to us. So give up usury and doubt.” This situation has left the commentators of the Qur’an, the scholars of Islam, the economists and thinkers with a vide latitude to define the term Riba. So these people have indulged in vast range of guesses and conjectures to define this term using their discretion in whatever way they want. Resultantly they have not yet been able to reach an agreement on the definition of Riba, a definition which should cover all legal and economic situations.
However, if we read the verses of the Qur’an and Ahadith of the Prophet between the lines, we can easily understand the meaning of Riba.
The Verse No. 278 of chapter 2 of the Holy Qur’an commands to give up ‘Riba’ while the next verse numbering 279 allows the lenders to take back their principal amount of loan and nothing more. It means that ‘Riba’ is the amount which is charged by the lender from his debtor in addition to the capital lent by him. It is this amount which has been declared unlawful by the Qur’an. Thus, according to the Qur’an, every increase obtained in addition to the principal amount of loan is ‘riba’ irrespective of the fact how much rate of interest is charged and for what purpose the loan is advanced.
Prophet Muhammad, in his Ahadith, has explained and clarified that element of ‘Riba’ is found not only in cash loans or money transactions but also in all forms of barter transactions in which one person receives an excess over and above the commodity exchanged. From the address of the Prophet delivered during his last pilgrimage, we can easily derive the definition of riba. The Prophet is reported to have said: “Every form of ‘riba’ is cancelled; principal indeed is yours which ye shall have; wrong not and you shall not be wronged. God has given His injunctions that interest is totally forbidden. I first start with interest (which people owe) to Abbas and declare it all cancelled.” Thus every form of riba has been cancelled by the Prophet and the lenders are allowed to recover their principal amount of loan only, which means that every addition to principal amount lent is ‘riba’ without reference to rate of interest charged and without reference to the purpose for which loan is given.
Some liberal scholars hold that Islam has prohibited usury only which is charged at exorbitant rate of interest by the money lenders from the poor on consumption loans contracted by the latter for their personal needs. However, this view is erroneous in the opinion of majority of the contemporary Muslim scholars who hold that ‘Riba’ covers all forms of usury and interest on loans irrespective of the purpose for which loan is contracted, irrespective of the parties to the loan and also irrespective of the rate of interest and the period involved.
Riba and Trade
The Holy Qur’an says: Those who devour usury (Riba) will not stand (on the Day of Resurrection) except as he stands whom the Satan by his touch has driven to madness. That is because they says: Trade is just like usury; whereas Allah has permitted trade and forbidden usury ….. (2:275). What is the difference between trade and usury? Why does God permit trade and forbid usury?
It is because trade and usury are absolutely different. In trade one earns profit as a result of initiative, enterprise, efficiency and hard work. But the interest is not earned through hard work or any value creating process. It is not the reward of labour but is in fact unearned income. Moreover interest is fixed whereas profit fluctuates. In case of trade there is risk of loss also, but in case of interest the lender gets his fixed amount irrespective of the fact whether the debtor earns profit or sustains loss. God has forbidden interest but has permitted trade.
Riba and Zakat
The Holy Qur’an says: “Allah destroys usury and gives increase to almsgiving” –(2:276). In another verse the Qur’an mentions the benefit of Zakat over usury in these words; “That which you give in usury so that it may increase on other peoples’ wealth has no increase with Allah; but that which you give in Zakat, seeking Allah’s pleasure, (indeed causes blessing) and such people will have manifold increase” –(30-39). The meaning of this verse has perhaps become more clear in this modern age of industrial and economic growth than they were in the age when it was revealed.
Interest discourages economic growth and ruins national prosperity and also individual’s well-being by causing many distortions in national economy such as inflation, unemployment, uneven distribution of wealth and recession. Zakat, on the other hand, helps economic growth and national prosperity in two ways. Firstly it discourages hoarding of wealth and encourages its circulation. The hoarder of wealth knows that if he keeps his wealth idle then the Zakat would gradually consume it. So he would perforce bring his wealth into circulation by spending or investing it. Thus the investment and consumption both would have multiplier effect on the growth of national income. Secondly, Zakat is collected from the rich who are few and returned to the poor who are many, and this process ultimately increases aggregate demand of the consumer goods in the society as the poor people after having purchasing power in their hands start demanding more such goods. The industrialists would produce more in order to meet the increasing demand. Thus increase in demand and supply would lead to industrialization, business activity, expansion of employment and growth of national income.
Why Riba is prohibited?
As we have already discussed, interest has not only been prohibited and declared unlawful by Islam but has also been strongly condemned as a criminal offence in this world and a major sin liable to punishment in the Hereafter. According to al-Qur’an, charging of interest amounts to declaration of war against God and God’s Messenger; while according to the Sunnah it is a criminal and sinful act worse than adultery. But no reason for its prohibition has been provided either in the Qur’an or by the Sunnah of the Prophet. This has left the scholars and jurists to find out reasons and explain as to why interest has been prohibited. Regarding reasons of prohibition of interest, views differ widely. However, they are unanimous on one single point at least that the prohibition is due to moral, social and economic harms of interest.
Let us briefly underline some of the very harmful effects of interest and decide for ourselves why it has been prohibited.
1. Riba or usury inculcates miserliness, selfishness, callousness, indifference, inhumanity, greed and worship of wealth. It destroys the spirit of sympathy, mutual help and cooperation, and thus effects adversely the feelings of love, brotherhood and unity among the community. We find around us that the usurers are generally miser, selfish and hard-hearted Shylocks, devoid of milk of human kindness, who exploit the misery of the poor and charge their pound of flesh without feeling any moral compunction for the sufferings of the borrowers.
2. Interest breeds idleness and promotes unearned income. Instead of undertaking business ventures and using their business acumen, skill, knowledge and entrepreneurship, people having money start lending it on interest and thus living like parasites. Such easily gained money is generally wasted on vices like gambling, horse-racing, betting, drinking and adultery, and in expenditure on luxurious living, marriage ceremonies and festivities.
3. Interest causes many economic evils as well. It leads to hoarding of money adversely effecting its circulation among larger sections of society. It also causes establishment of monopolies, cartels and concentration of wealth in few hands. Thus distribution of wealth in the community becomes uneven and gulf between the rich and the poor widens. The community is divided sharply into two camps-haves and have-nots, whose conflicting interest badly effect peace and harmony in the society. Moreover, due to interest, economic distortions like recession, depression, inflation, unemployment, etc. are also caused.
4. Capital investment is withheld from those enterprises which cannot yield profit equal to the prevailing rate of interest, even though such projects may be very vital for the country and nations. The flow of all financial resources in the country turns in the direction of those enterprises which carry the prospect of a profit margin equal to or more than the current rate of interest, even though such enterprises may have little or no social value.
5. Interest charged on international loans has aggregated debt-servicing problem of the debtor countries. It has not only impeded the economic development of the poor nations, but has also resulted into transfer of resources from the poor to the rich nations. Moreover, it is adversely effecting the relations between the rich and the poor states and thus harming the cause of international security and peace.
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