RIBA USURY/INTEREST Programme in Islamic Finance & Law Regent Business School

1. RIBA USURY/INTEREST Programme in Islamic Finance & Law Regent Business School Lecturer: ProfessorMohsin Ebrahim October 2011

2. Introduction – What is Riba? • The literal translation of the Arabic word riba is increase, addition or growth • Riba is usually termed as usury • The premium that is to be paid by the debtor to the creditor together with the principal amount as an extension of the loan or for an extension of its maturity • Interest • In the Islamic terminology interest means effortless profit or that profit which comes free from compensation or that extra earning obtained that is free of exchange

3. Scope of Presentation • Interest in Religious Scriptures • Why the prohibition? • Condemnation – Islamic Textual Evidence • Two types of Riba • Charity versus Riba(Usury/Interest) • Conclusion • Something for us to ponder upon

4. Interest in Religious Scriptures • Hinduism • In Vedic texts of Ancient India (2,000-1,400 BC) the “usurer” (kusidin) is mentioned several times and interpreted as any lender at interest. • More frequent and detailed references to interest payment are to be found in the later Sutra texts (700-100 BC), as well as the Buddhist Jatakas (600-400 BC) • It is during this latter period that the first sentiments of contempt for usury are exressed. • Vasishtha, a well known Hindu law-maker of that time, made a special law which forbade the higher castes of Brahmanas (priests) and Kshatriyas (warriors) from being usurers or lenders at interest • In the Jatakas, usury is referred to in a demeaning manner: “hypocritical ascetics are accused of practising it”

5. cont./ Interest in Religious Scriptures • Hinduism • By the second century C.E. usury implied in the Laws of Manu of that time: “Stipulated interest beyond the legal rate being against (the law), cannot be recovered: they call that a usurious way (of lending)” (Jain, 1929: 3-10) • This dilution of the concept of usury seems to have continued through the remaining course of Indian history so that today, while it is still condemned in principle, usury refers only to interest charged above the prevailing socially accepted range and is no longer prohibited or controlled in any significant way

6. cont./ Interest in Religious Scriptures • Judaism • "If you lend money to any of My people who are poor among you, you shall not be like a moneylender to him; you shall not charge him interest” (Exodus 22:25) • To a foreigner you may charge interest, but to your brother you shall not charge interest, that the LORD your God may bless you in all to which you set your hand in the land which you are entering to possess” (Deuteronomy 23:19,20)

7. cont./ Interest in Religious Scriptures • Christianity • “So you ought to have deposited my money with the bankers, and at my coming I would have received back my own with interest” (Matthew 25:27)

8. Why the Prohibition? • Economic stagnation • Dependence on interest discourages people from working/trading to earn money and the value of work/trade is reduced • Such people won’t bother to take the trouble of running a business or risking money in trade/industry

9. cont./ Why the Prohibition? • Moral laxity • Acceptance of Usury discourages people from doing good to one another and lend out of good will • A society which encourages interest on lending will require needy people to pay back more than he borrowed, which is often a source of huge burden

10. cont./ Why the Prohibition? • Social instability • If interest is allowed, the rich (who are most likely to be lender) will exploit the poor (borrower) • As a result, the rich becomes richer and the poor becomes poorer • This generates envy and hatred among the poor toward the rich • Resulting in social disorders, conflicts and at times breeds revolutions

11. Condemnation – Islamic Textual Evidence • TheNobleQur’an • "O you who believe, devour not usury, doubling and quadrupling, the sum lent. Fear Allah and observe your duty to Him, that you may really prosper" (Al [Imran, 3:130) • "They say 'trade is just like interest' whereas Allah has permitted trade and forbidden interest" (Al-Baqarah, 2:275) • “O you who believe, give up what remains of your demand for usury if you are indeed believers. If you do it not, take notice of a war from Allah and his Messenger” (Al-Baqarah, 2:278-279)

12. cont./ Condemnation – Islamic Textual Evidence • Sunnah/Hadith • SayyidunaJabir  has reported that the Messenger of Allah  cursed the devourer of usury, its payer, its scribe and its two witnesses. He also said that they were equal (in sin) (Sahih Muslim) • SayyidunaMuhammad  said, “Ribahas seventy segments, the least serious being equivalent to a man committing adultery with his own mother (SunanIbnMajah)

13. Two Types of Riba • Riba al-Nasi’ah(Difference in time) • The term nasi'ah means to postpone, defer, or wait • It refers to the time that is allowed for the borrower to repay the loan in return for the addition or the premium • The prohibition of Riba al-Nasi’ahessentially implies that the fixing in advance of a positive return on a loan as a reward for waiting is not permitted by Islam • It makes no difference whether the return is a fixed or variable percent of the principle or an absolute amount to be paid in advance or on maturity, or a gift or service to be received as a condition for the loan

14. cont./Two Types of Riba • Riba al-Fadl (difference in weight, volume, quantity) • Taking a superior thing of the same kind of goods by giving more of the same kind of goods of inferior quality, eg., dates of superior quality for dates of inferior quality in great amounts • Abu Sa'id  said that Bilal  brought to the Prophet  some barni dates and when the Prophet  him how the dates had been obtained, Bilal replied, 'I had some inferior dates so I sold two sa`s for a sa`. On this the Prophet said, 'Ah! The very essence of riba, the very essence of riba. Do not do so, but if you wish to buy, sell your dates in a separate transaction, then buy with the proceeds' (Sahih Muslim)

15. Charity versus Riba(Usury/Interest) • “Allah will deprive usury of all blessing, but will give increase for deeds of charity: for He loves not creatures ungrateful and wicked. • Those who believe, and do deeds of righteousness, and establish regular prayers and regular charity, will have their reward with their 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 you are indeed believers. • If you do it not, take notice of war from Allah and His Messenger. But if ye turn back, you shall have your capital sums: Deal not unjustly, and ye shall not be dealt with unjustly. • If the debtor is In a difficulty, grant him time till it is easy for him to repay. but if ye remit it by way of charity, that is best for you if ye only knew” (Al-Baqarah, 2: 276-280)

16. Conclusion • Shari[ah (Divine Law) prohibits all types of interest bearing transaction • Riba is not the same as trade • Positive outcome in any interest bearing transaction is predetermined • In a business transaction there is the chance of making a profit or facing a loss • The question often posed is whether the interest as charged in the modern banking and financial institutions is riba? • The majority view of the experts, scholars remains that the interest as employed in the modern banking and financial institutions is ribawhich is forbidden in Islam. 

17. Something for us to ponder upon • Sayyiduna Muhammad  said: “There will come a time when you will not find a single person in all of humankind who will not be consuming riba. And if anyone claims that he is not consuming riba, then surely the vapour of riba will reach him (SunanAbiDawud). In another text mention is made that the dust of riba will reach him.”