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Riba (Interest) in Islam and Other Major Religions

Riba (Interest) in Islam and Other Major Religions

By Mohammad Nahid Imam | May 02, 2016

Riba (Interest) in Islam and Other Major Religions

Defining Riba

The Holy Qur'an did not give any definition for the term for the simple reason that it was well known to its immediate audience. It is like the prohibition of pork, liquor, gambling, adultery etc., which were imposed without giving any hard and fast definition because all these terms were well known and there was no ambiguity in their meaning. The case of riba was similar. It was not a term foreign to Arabs. They all used the term in their mutual transactions. Not only Arabs but all the previous societies used to practice it in their financial dealings and nobody had any confusion about its exact sense. In the verse of Surah An-Nisaa the Holy Qur'an has reproached the Jews for their taking riba whist it was prohibited for them. Here this practice is termed as riba in the same manner as it is termed in Surah Al-Imran or Surah Al-Baqarah. It means that the practice of riba prohibited for Muslims was the same as was prohibited for the Jews.

Riba in Different Languages

In Arabic – Riba

In Hebrew – Ribbit

In Portuguese and Spanish – Usura

In Greek – Tokos

In Urdu and Bangle – Sud

In English – Usury

In French – Usure

Usury in Hinduism and Buddhism

The oldest references to usury are found in religious manuscripts of India, dating back to 2000-1400 BC where the 'usurer' is associated with any interest lender.

In the Hindu Sutra (700-100 BC) as well as in the Buddhist Jatakas(600-400 BC) there are many references to the payment of interest, along with expressions of disdain for the practice.

Special law was made which forbade the higher class of Brahmans (Priests) and Kshatriyas (warriors) from lending at interest.                                      

Usury in Christianity

Old Testament

The Old Testament mentions three types of verses that deal with usury.

1. One forbids usury in general, without reference to Jewish or non-Jewish

Do not ill-treat an alien or oppress him, for you were aliens in Egypt. Do not take advantage of a widow or an orphan... If you lend money to one of my people among you who is needy, do not be like a money lender, charge him no interest”(Exodus 22:21-25).

2. Another forbids Jews taking usury from poor non-Jews living with them

If one of your countrymen becomes poor and is unable to support himself among you, do not take interest of any kind from him but fear your God that your countryman may continue to live among you. You must not lend him money at interest or sell him food at a profit” (Leviticus, 25:35-37)

3. Third set of verses forbids the Jews to take usury from other Jews, but allow them to take usury from others such as: Deuteronomy 23:19-20

New Testament

The New Testament shows that Prophet Jesus (peace be upon him) not only prohibited interest, but asked his followers not to take back even the principal of the loan, and to lend not only to friends but even to enemies.

Under this prohibition any Christian who dealt in interest was considered as a heretic during the Middle-Ages and was punished by the Church by not allowing his body to be buried among the tombs of Christians.

Matthew 5:42 - "Give to the one who asks you, and do not turn away from the one who wants to borrow from you."

Luke 6:34-35 - "And if you lend to those from whom you expect repayment, what credit is that to you? Even sinners lend to sinners, expecting to be repaid in full. But love your enemies, do good to them, and lend to them without expecting to get anything back. Then your reward will be great, and you will be children of the Most High, because he is kind to the ungrateful and wicked."

Luke 6:38 - "Give, and it will be given to you. A good measure, pressed down, shaken together and running over, will be poured into your lap. For with the measure you use, it will be measured to you. "

Deuteronomy 23:19 - “Do not charge your brother interest, whether on money or food or anything else that may earn interest.”

Leviticus 25:36 - “Do not take interest of any kind  from him, but fear your God, so that your countryman may continue to live among you.”

Exodus 22:25 - “If you lend money to one of my people among you who is needy, do not be like a moneylender; charge him no interest”

Riba in Islam

The prohibition of riba covered in a number of verses in the Qur'an. The first verse in Surat Al-Room:39 reads:

That which you give in usury for increase through the property of (other) people, will have no increase with Allah: but which you give for charity, seeking the Countenance of Allah, (will increase): it is these who will get a recompense multiplied.”

In this verse the Qur’an does not prohibit riba explicitly, but implicitly mentions that riba cannot bring any increase and introduce it as useless.

The Second verse from Surah Nisa’:161 speak about the Jews who were instructed not to take usury but they did. The verse reads:

“…they took usury, though they were forbidden, and that they devoured men’s weal wrongfully;-We have prepared for those among them who reject faith a grievous punishment”.

Here the Qur’an shows how usury can result in sinful behaviour that deserves punishment.

The third verse from Surah Al-Imran:130 reads:

 “O ye who believe! Devour not usury, doubled and multiplied; but fear Allah. That you may (really) prosper.”

Here prohibition has been announced clearly for a kind of multiplied usury that was very popular in societies.

Finally, in the verses 275-277 of Surat Al-Baqarah, the strongest prohibition of usury has been announced:

“Those who devour usury will not stand except as stand one whom the Satan by his touch hath driven to madness. That is because they say: Trade is like usury, but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (the offence) are companions of Fire: they will abide therein (for ever). Allah will deprive usury of all blessing, but will give increase for deeds of charity; For He loved not any ungrateful and wicked. Those who believe, and do deeds of righteousness, and establish regular prayers and regular charity, will have their reward with Lord: On them shall be no fear, nor shall they grieve. O ye who believe! Fear Allah, and give up what remains of your demand for usury, if ye are indeed believers. If ye do it not, take notice of war from Allah and His Messenger. But if ye repent, ye shall have your capital sums: Deal not unjustly, and ye shall not be dealt with unjustly.”

Different stages of Riba in the Qur’an

There are four stages of riba in the Qur'an:

First Stage (30:39)

  • Compares riba with zakat & charity
  • Praises zakat & charity and criticises the practice of riba

Second Stage (4:160-161)

  • Consider the practice as an iniquity (zulm)

Third Stage (3:130)

  • Prohibits the practice of charging double and multiple interest (riba)

Fourth Stage (2:275-281)

  • Conclusively prohibits all forms of interest (riba)
  • Define it as any excess over the principal of the loan

 


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6 Comments

Robert Hannah 3 years ago
N/A

Thank you for the useful references regarding usury. As regards Christianity, it would be helpful to update the discussion with Christian thinking as it has evolved since the middle ages. Otherwise, the reader is left with the erroneous impression that Christianity prohibits interest.
The Catholic Church’s position has evolved to approve the payment of interest (see the Catholic Encyclopedia, 1912); Martin Luther and Calvin saw the necessity of interest based finance in business.
The following reference is useful:
Jeffery Tucker, Catholics and “Usury”: A Tragic History; Crisis Magazine (a Catholic publication) November 16, 2011 http://www.crisismagazine.com/2011/catho...

Within Islam, it would also be fair to acknowledge the lively debate which goes on between conservatives and modernists over the meaning of riba. Is all interest prohibited, or is the prophet really talking about dealing fairly and opposing exploitation? I subscribe to the latter view. (edited)


Consultant Solicitor, N/A

Thank you Robert, for further clarity on Christian thinking on interest.
When it comes to Islam, I think the view is quite clear: interest literally means any "excess" (https://www.islamicmarkets.com/education/...), so anything in addition to the principal is seen as riba. There is a small minority view that only large excess is seen as riba, but this is firmly rejected by majority of scholars. The following is a good example of this: https://www.islamicmarkets.com/publicatio...

Best wishes.


N/A

Thank you for your reply. I did run across your last reference, Taqi Usmani's judgment on interest in Pakistan. Usmani is a rather hard line traditionalist as I understand, and he does argue his judgment in a clear and meticulous fashion. However he does rely on the antiquarian view that money is not a commodity and so should not earn a return - in his para. 135 - 149. He quotes the Islamic philosopher Al Ghazzali, but the argument can be attributed to Aristotle, and also permeates the thinking of the Christian scholastics of the middle ages (such as Aquinas). I don't want to belabor all this too much, but this view has been superseded by the recognition that money has time value and an opportunity cost. This is because it is very fungible with real capital, which earns a return - so markets will price out an interest rate on money balances. Islamic bankers realize all this as they price out the required returns and payments on Islamic mortgages, leasing, and deposits.
Lastly, I will reference a short paper by Abdur Rab, a scholar of Islam (not an Islamic scholar), who argues the case for riba as excess interest rather well, supported by Islamic references.
https://www.academia.edu/4822162/Reform_...


Consultant Solicitor, N/A

On your point "that money has time value and an opportunity cost", the events of the last decade have shown that this relationship between money, interest and capital has broken down. This is perfectly captured in an article earlier this year by Paul Mason (http://blogs.channel4.com/paul-mason-blo...):

"... there’s too much capital for capitalism to function and its depressing the baseline return on money to zero. With interest rates slashed close to zero, all central banks can do is continue with unconventional policies: namely printing money to buy the debts of governments and “communicating” – ie promising not to raise interest rates. Problem is, some of the effects of QE are only temporary. Boosting asset prices runs out of steam. The impact on growth is temporary. And inflation is falling close to zero. So the central banks have to push real interest rates negative. About a quarter of the world economy now enjoys what you might call Central Bank anti-capitalism: policy set so that one pound automatically becomes 90p over time."

The origins of this crisis can be found in the idea of charging something for nothing, i.e. interest, and risk-transfer by the use of credit derivatives. And to deal with this crisis, central banks have printed trillion of dollars of money (QE), which has laid the foundation for the next crisis.

Another important example, highlighting the destructive nature of interest is captured by the CFA Institute: "a farmer... has to decide between two farming methods, financed solely by debt, using the net present value (NPV) as decision criterion. The first is a high intensive farming technique that produces a net cash flow of £150 per annum but causes land desertification after 15 years. The second is a sustainable alternative which produces a perpetual income of £100 per annum by managing land to regenerate indefinitely. When interest rates rise from 5% to 10%, the farmer decides to use the highly intensive farming technique because it has higher NPV even though it leads to land desertification. So the decision based on NPV analysis runs against ecological sustainability." The article goes on to say: "the conflict between discounting and sustainability is worsened when interest-based monetary loans, instead of equity-like profit sharing arrangements, are used for financing. That is because interest on loans must be paid regardless of the outcome of the venture, whereas with an equity arrangement profits may only be shared when there is profit." (https://meic.cfainstitute.org/2012/03/21...).


N/A

Mr. Rashid,
This has become a wide ranging and interesting discussion. First of all, I want to say that I respect and appreciate your point of view, and also appreciate the courteous and respectful tone of the discussants to the articles on Islamic Banker.
Let me respond to the points raised in Paul Mason’s article and Usman Hayat’s blog, and in your own comments
1.On time value and opportunity cost … – I don’t think the relationship has broken down. I myself, and most if not all people have time preference, and capital still earns a positive return. I can still get a rather low but positive 1.6% on my 5 year guaranteed investment certificates, and in the stock market, earnings yields, dividend yields, and return on equity are all comfortably positive. It is quite true that central banks have used QE to push short rates negative in some markets, and that we are in uncharted territory in terms of monetary policy. I have a good economist friend who believes current policy settings are wrong, that interest rates should be left to find their own level.
2.“Interest is charging something for nothing…” This argument is often used by Islamic scholars to justify the idea that all interest is riba. Modern finance recognizes the fact that the components of interest - time value, tenor (term of the investment), illiquidity, and credit risk are factors that require compensation through a return to the investor. I won’t get into the expectations theory of the term structure here!
3.Paul Mason refers to “central bank anti-capitalism … “. I have to laugh at this remark – I’m a retired central banker (Canada) and have met or read quite a few central bank colleagues around the world. They tend to be the most pro-capitalist policy makers – preferring freer markets, entrepreneurship, and government fiscal prudence.
4.Paul Mason’s article on Mark Carney has a doom and gloom tone. However in my 68 years I have never seen a meeting of policy makers who come away saying “everything is fine!” The conclusion of the article is that de-globalization is a major risk; I would agree. However I do not see this having much to do with interest or Islamic finance – unless perhaps it is Islamic finance’s healthy aversion to excessive debt and financial leverage.
5.The banks’ traditional business models are not broken. They have been moving to generate more income through fees for a generation or so, and continue to generate a lot of revenue through interest margins. They have passed a lot of the decline in interest rates through – mortgages rates here are the lowest in memory. I think policy makers are not pushing the banks to contract their interest margins more, so as to allow them to rebuild capital after the debacle of 2007-08, and to meet Basel III capital requirements.
6.The farmer’s narrative, as discussed by Mr. El Diwany and Usman Hayat (CFA), is an interesting case, and I have responded on the meic blog site in more detail. In a nutshell, that argument against interest is that it forces the farmer to extract maximum short-term unsustainable profits from his land, thereby degrading it. My response is that it is better to promote sustainable agriculture directly by fostering better environmental practices, rather than hoping that equity financed agriculture will do so. Lastly, I would submit that rather than building a parallel financial system, Muslims could make a more useful contribution by joining the debate on social and ethical issues such as agricultural sustainability and the appropriate rate of social discount. Mr. El Diwany’s book is a good step in that direction (edited)


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