Prohibition of Interest

It is commonly known and acknowledged that Islam has strictly prohibited interest. It disapproves both giving and charging interest. The Arabic word used in the Qur’an for interest is riba which has been condemned in the strongest possible terms. Riba is often translated as usury but its literal meanings are an excess, addition or growth. Islamic jurists have classified usury into two types:

• Usury of debts (riba al diyun)
• Usury of trade (riba al bai’)

The usury of debts was an established practice amongst Arabs during the prc-Islamic period. It is also known as usury of delay (riba al nasia). It may arise in two situations: first, as an excess over and above the amount of principal loan which is incorporated as an obligatory condition of giving loan. In this situation it is called riba al diyun. In the second situation, an excess amount is imposed over and above the amount of the principal loan if the borrower fails to pay the principal on the due date. Thus, more time is allowed for payment in return of the excess amount. If the bor rower fails to pay again, a further axccss amount over the principal (usually the double of the first excess) is imposed and so on. This kind of usury may occur through debt or trade. This is what is known as riba al nasia.

Riba al bai’ is also known as riba al fadl. It was also practised by the Arabs in the pre-Islamic period and was prohibited by the Prophet Muhammad (pbuh). Following tradition of the Prophet (pbuh) is cited as an evidence thereof:

It is related that Abu S’aid al Khudri said:

“The Prophet (pbuh) said: Gold for gold, silver for silver, wheat for wheat, barley for barley and dates for dates, the like for like, hand to hand (immediately). Whoever increases or asks for an increase hath (practised) usury, the receiver and giver alike (are guilty).”

It is the considered opinion of the experts of Islamic jurisprudence that interest charged by commercial banks “is identical with the excess stipulated as an obligatory condition in the contract, which is one of the two types of usury prohibited by the Islamic Shari‘ah.

Keeping in line with the above tradition, the Islamic Fiqh Academy established by the Organisation of Islamic Conference (OIC) in its second session held in Jeddah, Saudi Arabia, during Rabi Thani 10-16, 1410 H (December 22-28, 1985) declared that “any increase or profit on a loan, which has matured, in return for an extension of the maturity date, in case the borrower is unable to pay, and the increase or the profit on the loan at the inception of the loan agreement, are both forms of usury (riba) which is prohibited under the Shari‘ah.”

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