Prospects for International Transactions Without Riba

Riba is a delicate matter. In the final decree on this subject in Ayah 278 of Surah al-Baqarah, Allah has set abstention from riba as a condition for iman. The very next Ayah contains a declaration of total war from Allah and His Prophet (pbuh) on those Muslims who do not stay away from riba. The result of confrontation with the Almighty is a fore- gone conclusion. These factors put elimination of riba on the top of economic agenda for Muslims. It should be clear at the outset that primarily the matter has to be settled on the basis of iman rather than economic considerations. However, there is definitely an economic ease, too, for elimination of riba.

When Allah prohibited riba, He did not ask Muslims to shy away from economically gainful pursuits. Indeed He prescribed many forms of transactions beneficial for mankind. History is witness that Prophet’s companions and other Muslims traded and interacted with the rest of the world for centuries without riba becoming an issue. The same can be true even today provided that there is a will on our part. The challenge before us is to identify the functions being performed by riba at present and Islamic ways of performing the Islamically legitimate functions. Basically a riba-free system demands a different kind of thinking. At present, all costs — those attributed to time lag in deferred payment, default risk and foreign exchange risk — are all covered under die interest rate and premiums added to it. Such costs are not likely to disappear in an Islamic riba-free framework; the via media to address these will, however, be different.

The general approach in this paper is to identify the avenues through which riba creeps into existing international transactions. In most of the cases, the functions served by the transactions are Islamically legitimate. In some eases — exports, imports and direct foreign investment — the primary transactions too are okay without any further ado. Thus, our task essentially becomes one of singling out the role played by ribawi elements in existing international transactions and identifying their Islamic alternatives. A general message of this paper is that the emphasis should be on Islamically permissible forms of transactions. The task of singling out economically feasible Islamic alternatives should be left to economic forces freely working in a Sharp ah-consistent system.

Dr Sayyid Tahir

Source: Elimination of Riba, Khurshid Ahmad, Khalid Rahman and Zahed A. Valie. Repulished with permission.