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Market Ethics and the Charging of Interest (Riba)

In general, it can be said that in every ethical situation Islamic juridical tradition seeks to address and accommodate the demands of justice and public good. Perhaps one of the most difficult issues to test the Islamic concern for fairness in business dealings was its early prohibition of business transactions that called for charging interest (riba). Often translated by "usury", this term in its Qur`anic meaning, refers to using money to buy the use of money. Muslims have struggled with the problem of interest ever since the Qur`an categorically denounced it, and have not achieved agreement among themselves. Some jurists have interpreted the Qur`anic prohibition to permit exceptions as cases required in different contexts. There have been a number of rulings issued at different times in the history of Islamic jurisprudence making a distinction between `usury' (riba) and `interest' to circumvent the categorical prohibition. Other scholars believe that there is a difference between Muslim and non-Muslim financial institutions, allowing Muslims to receive interest from the latter institutions while prohibiting it from the former.

This lack of unanimity reflects a common but misleading practice among Muslims: sweeping larger questions about the nature of divine revelation under the rug when it comes to addressing interest and usury and other major ethical problems exacerbated by the introduction of laissez faire economics. This uncritical approach to the normative sources has deep roots in the theology of revelation in Islam. Briefly stated, there are two major trends about the meaning and relevance of revelation for Muslims. According to one, Islamic revelation in its present form was `created' in time and space. As such, it reflects historical circumstances of that original divine command. According to the other view, revelation was `uncreated' and hence its current form is not conditioned by place and time. Most devout Muslims reject any hints that the interpretation of revelation reflects cultural or historical variables. In the wake of both quantitative and qualitative change in the modern Muslim economies, the question arises as to how far traditional readings of the revelation are relevant in assessing the negative and positive limits governing the present economic system? It is this critical theological question with drastic ramifications for the overall status of normative tradition that is usually swept under the rug.

Rather than peek further under this rug, I will consider some of this historical and theological issues connected with the institution of riba. At the time that the Prophet emerged inMecca, transactions with a fixed time limit and payment of interest (riba), as well as speculations of all kinds, formed an essential element in the highly developed regional system of trade in Arabia. A debtor who could not repay the capital (money or goods) with the accumulated interest at the time it became due was given an extension of time in which to pay, but at the same time the sum due was doubled. The practice was prevalent during the early part of the Prophet's mission inMecca before he migrated to Medina in 622 CE, where he denounced it. Like other social reforms the Prophet introduced into his growing community, the prohibition against interest was introduced in stages in the Qur`an. It began with a caution: "O believers, devour not usury (riba) doubled and redoubled, and fear you God." Later, , the prohibition was proclaimed in no uncertain terms:

Those who devour usury (riba) shall only rise as one whom Satan strikes with his touch; that is because they say: `selling is like usury.' God has permitted selling and forbidden usury…God blots out usury, but freewill offerings He augments with interest. God does not love any guilty unbeliever… O believers, be aware of your duties, and give up usury that is outstanding, if you are believers. But if you do not, then beware that God and His prophet shall war with you. If you repent, you shall have your principal, without doing an injustice or suffering an injustice. If any one is in difficulty let there be a delay till he is able to pay, but it is better for you to give freewill offerings if you are wise.

It is important to note that instructions about usury are connected to the message about "freewill offerings" (sadaqat), encouraging people to "spend in the path of God." The Qur`an compares and contrasts two practices: usury earned without giving anything in return, and charity given without taking anything in return. Measured in risk-benefit terms, the evil effects of usury surpass by far the good effects of charity. The Qur`an indicates that the practice of usury leads to the concentration of wealth in few hands, giving these people power over the less fortunate in society: "And they accepted usury even though they had been forbidden to do so; and they devoured and misappropriated the goods and monies of others in their greed." The practice is seen to lead to social unrest and corruption because the rich become richer as a result of reckless profiteering, whereas the poor remain poor: "That which you entrust to commercial organizations with a view to making profit will not be increased by God; nor will it increase your sustenance…Corruption appears on land and sea because of the evil that human hands have done…". Clearly, the Qur`an regards usury a practice of unbelievers. It requires, as a test of belief, that it be abandoned. The Prophetic traditions which elaborate the Qur`anic passages declare that taking interest on loans is one of the gravest of sins. All who take part in transactions involving interest are cursed, and the guilty are threatened with hell. Various kinds of punishment are described.

The Qur`anic denunciations of usury were occasioned by the needs of a developing community faced with socio-economic imbalances. But such denunciations were not consistently absolute. The Qur`an sometimes softens its position on a matter of interpersonal justice it has fulminated against just before, recognizing the human conditions that prompt such behavior. At other times, the Prophet, as its interpreter, moderated the Qur`anic stance by providing exceptions to the overall prohibition. The case of usury points to this confrontation between revelation and social inertia in the early community. In spite of all the deterrent threats voiced in the Qur`an, some jurists foresaw that transactions involving interest would prevail. In pre-modern judicial decisions, gold and silver were generally regarded as items capable of riba. A number of traditions show that the severe prohibition of usury was moderated by reference to the changed circumstances of a transaction involving specific items and the way they exchanged hands in active trade. In general, Muslim jurists developed cases to permit exceptions to the categorical prohibition in the Qur`an. The cases were reported in the traditions that were open to various interpretations. There were monetary transactions that led to principles that now govern when and where interest may be accepted. For instance, some Muslims practiced money exchange during the Prophet's life time. They asked the Prophet if this was alright. The Prophet said: "If it is from hand to hand (yadan bi-yadin, that is, immediately), there is no harm in it; but if it is delayed (nasa'an) it is not right." Some jurists extrapolated these traditions to maintain the view that riba consists only in the increase of original amount of a loan in a business agreement with a fixed period (dayn); others opined that there is no riba if the transfer of ownership takes place immediately. In other words, interest was to be permitted if transfer of ownership took place at once.

Adapted from the book: "The Issue of Riba in Islamic Faith and Law" by: "Dr. Abdulaziz Sachedina"

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