Q. Could you please explain (and throw some light!) on the following:
1. As best as you can determine, what was the historic, commercial, and economic context (financial business practices) prevalent in the Meccan business community (during the early seventh century Arabia) that occasioned the prohibition of riba (usury).
2. Has a riba-free business model (financial blueprint) ever existed, and accordingly, implemented by a Muslim government during the classical period of Islam?
3. Does any Muslim country today provide 'riba-free' consumer and commercial banking based on this financial model?
4.Some Muslim money brokers (and money changers) in America (and even some Western bankers) have attempted to establish a sort of hybrid mortgage arrangement, with an 'interest-free' feature (lease to buy model), to Muslim consumers (for home and car ownership purposes), with a view to comply with Islamic regulations on riba. What are your views on these so-called 'halal' lending practices? And are they truly Islamic, according to traditional orthodoxy?
5.How you do equate today’s regulated, consumer interest practices (based on open, arms-length transactions between a willing buyer and seller) with the usurious practices of the early seventh century Arabia?
6.What advice do you have for a 'regular, tax-paying' and observant Muslim consumer, who wants to own a home and buy a car (on terms), like every other American citizen, and still be within the bounds of Islamic legal tenets?
A. The answer to the first question encapsulates the entire problem of Muslim approaches to the Qur'an. For other than the Qur'an, we have no reliable independent corroboration as to what were the social, economic, and cultural happenings during the Prophet's lifetime. The Muslims, with the best of intentions, have sought to seek evidence from the vast corpus of traditions -- but tradition and history are two totally different things. The scholars of tradition themselves recognized this fact, and as a result deemed that the overwhelming majority of hadith reports as "ahad" -- that which, in and of itself, does not provide certainty -- meaning that such reports are possibly wrong.
Western researchers, at the forefront perhaps Rippin, Wansbrough, etc., have taken this further and posited that the so-called "asbab al nuzul" (reasons and circumstances for the revelation of particular verses) are not in fact what they purport to be -- but were in many instances created by the scholars to add credibility and authority to the interpretation of certain verses. That being said, Fazlur Rahman's observation was that the Qur'an has not been read qua Qur'an, but always through the lenses of exegeses -- which means we are always assuming that the Qur'an is saying what some exegete tells us. The Qur'an, by its own statement, is in clear Arabic, a clear expression so that the people to whom it was revealed might understand it. It is well known that these people were in the seventh century (Common Era), and the Book was therefore couched in expressions, etc. that were known to them. After the first century Hijri, however, it would seem that the attempt to deem the Qur'an as a document whose rulings were permanent took hold. This clearly was not the assumption during the times of the first caliphs -- we know for example that Umar did not give the newly converted the stipends that were dictated for them by Qur'anic text. His view was, in a nutshell, that the circumstances had changed.
Another important point is that the Arabs of the Prophet's time were a simple people -- they lacked the sophisticated civilization of the Persians, Romans, and Egyptians, to name a few of the surrounding areas. This point is important when considering Qur'anic terminology. Muslim scholars, in trying to explain terminological usage, have taken to tracing the lexicological use of a word, and then using that as a foundation for elucidation. Now there is nothing wrong in this, but the terminological use of a word often evolves far beyond its basic lexicology. Riba is one such term -- the word means "addition of any sort". Based on this and on several hadith, many scholars have opined that "riba" means any addition to the principal. We do not deny this foundational usage. But in terminology the meaning changes completely; we know this from the Qur'anic usage of the word and from the tafsir of Tabari and Shawkani among others. Now while it is true that the reasons of revelation given by Tabari and Shawkani are merely traditions, the text of the Qur'an supports them, and in such a situation, we are forced to accept their reports as the most probable.
The Qur'an orders that we should not consume riba "several times over" (3:130). This expression is because, according to the mufassirs, when one borrowed money in the pre-Islamic period and promised to pay it within a year, he would be asked at the end of that period for the amount due by him. If he could not pay it, he would be given an extension of another year, but the amount owed by him would be doubled -- "da'f" means "to double", hence the verse 3:130. And if at the end of this second year, he could not pay, the amount owed would again be doubled, meaning that the amortization amount would have been, in many cases, exponentially several times greater than the principal loan amount. It is this practice which was known as "riba", and which may, in today's terms, be translated as usury or loan sharking.
Many Qur'anic rules were set on Biblical precedents. In terms of riba, it is no different. The loans covered in the Bible only deal with personal usage and consumption. Business loans are not discussed. This fact is important, for it explains why the Qur'an put a pervasive ban on interest transactions. The Jewish community at the time of the Prophet forbade the taking of interest among Jews, although they allowed it from others. Such a practice was understandable since a person would only resort to the taking of a loan in cases of personal difficulty. The issuance of a loan was therefore an act of kindness, wherein giving without the intention of earthly gain is the ideal. It is for this reason the Qur'an states too that when a person is in straitened circumstances, he should be given a deferred date of amortization.
Loans for trade are apparently not covered by the Qur'anic injunctions since the legists, at quite an early stage, started talking about the additions that were done on the spot (riba al fadl), and those that were done after a period had elapsed (riba al nasi'a). The simplicity of the Arabian economy at the time of the Prophet does not allow us to assume that there was any advanced state of economic theory that was developed in the Hijaz. It would seem that inflation was relatively static, and given that fiat currency was not in use, one could assume that a certain quantity of gold would not lose any measurable buying power within a year. It would be totally unrealistic to assume that there were actuaries and calculations of inflation, etc. among them.
Now in today's society, we know that $100.00 today will, based on actuarial calculations, lose a certain percentage of its buying power a year from now, and any exception to this would be quite rare. Therefore, if a Muslim were to lend $100.00 and be reimbursed that amount at the end of the year, he would have lost on his act of loaning. For his debtor to insist on paying back only $100.00 would be an act of oppression, and according to the Qur'an God hates the oppressors (3:140). How do we solve this? The answer is quite simple -- we rely on the figures of the actuarial scholars, and at a minimum, pay back the amount that would reflect the exact buying power of the amount loaned a year ago. This obviously manifests itself in the expression of a certain percentage of interest. Now when an institution makes the lending of money one of its commercial enterprises, knowing fully well that it only lends money to those who are living above certain means, then it certainly has the right to charge for the services of its employees and expect a return that reflects the cost of the service it has rendered to the borrower. And when such transactions are done according to rules and regulations set by the government, and the interest paid are not deemed to be usurious, then there can be no Islamic prohibition.
Under Ottoman law, anything over 15% was deemed illegal, which means that the Muslims at one stage did realize that there was a difference between a legal addition to principal and an illegal one. The hadith about gold for gold, silver for silver, etc. can only be taken to either represent traditions for which we have no proof of provenance from the Prophet, when the state of affairs were at a very primitive level. Certainly no one in his right mind would argue that an ounce of raw gold is equal to an ounce of raw gold that has been made into a work of art. But this is exactly what many jurists state. They have no knowledge of economics, but by some warped reading of the Qur'an seek to impose their views on the innocent masses. To the best of my knowledge, no so-called Islamic state has ever had a non-riba economy as it is impossible today. It is for this reason that inflation is calculable in all countries of the world, even though certain Muslim-owned banks try to pay interest or collect it under different names.
A service charge or a reward given for usage of capital are all additions, and following the lexical use are within the domain of supposedly haram riba. The modern theories posited by some Muslims regarding lease to buy, etc. seem to be subterfuges designed to mislead only the most blind. I am not an economist, but it would seem to me that unless you can prove that by leasing to own, etc., I end up paying the same as I would pay if I were to issue payment in full at the beginning of the transaction, then the transaction is not riba-free. There is absolutely nothing wrong with Muslims taking bank and coop loans to purchase houses in the land of their residence. It seems self-defeating that a Muslim should feel that his/her religion forbids him/her from purchasing a house and forever live as a tenant. It is possible that some of the "Muslim" finance projects and Islamic Housing programs may be better than the normal mortgage-interest loans. Certainly we encourage every Muslim to check these out. Moreover, keep in mind that in the U.S. for example, the Income Tax Code allows deductions on home mortgage payments which may significantly reduce one's income tax liability. There are no such tax deductions (that we are aware of) on the "halal" loans or "lease to buy" programs which the Islamic institutions offer, so Muslims need to make the determination for themselves after analysis as to which route they wish to take.
I am aware that my answer is extremely short in terms of the full scope of the material covered by the questions, but the points raised allow for the extrapolation of several of the finer points that are appropriate to the inquiries. In conclusion, again I need to stress a point made by Fazlur Rahman -- the rulings of the Qur'an are not all permanent -- the philosophy of the Qur'an is what a Muslim must understand. If we assume that today we must live by the laws of seventh century Arabia, then we would have defeated the very purpose of the Qur'an and why Muhammad was the last Prophet, for the Qur'an came to be that final message which, with our intellects now at an imago stage, we can understand and interpret, mutatis mutandis, to make our life on this earth worthwhile and productive in every sense. And Allah's guidance, free from un-Qur'anic refraction, is the best of guidance.
Webmaster’s note: And [remember:] whatever you may give out in usury so that it might increase through [other] people’s possessions will bring [you] no increase in the sight of God whereas all that you give out in charity, seeking God’s countenance, [will be blessed by Him:] for it is they, they [who thus seek His countenance] that shall have their recompense multiplied!(Q30:39)
Muhammad Asad's related commentary: This is the earliest mention of the term and concept of riba in the chronology of Qur'anic revelation. In its general, linguistic sense, this term denotes an "addition" to or an "increase" of a thing over and above its original size or amount; in the terminology of the Qur'an, it signifies any unlawful addition, by way of interest, to a sum of money or goods lent by one person or body of persons to another. Considering the problem in terms of the economic conditions prevailing at or before their time, most of the early Muslim jurists identified this "unlawful addition" with profits obtained through any kind of interest-bearing loans irrespective of the rate of interest and the economic motivation involved. With all this - as is evidenced by the voluminous juridical literature on this subject - Islamic scholars have not yet been able to reach an absolute agreement on the definition of riba: a definition, that is, which would cover all conceivable legal situations and positively respond to all the exigencies of a variable economic environment. In the words of Ibn Kathir (in his commentary on 2:275), "the subject of riba is one of the most difficult subjects for many of the scholars (ahl al-ilm)". It should be borne in mind that the passage condemning and prohibiting riba in legal terms (2:275-281) was the last revelation received by the Prophet, who died a few days later (cf. note 268 on 2:281); hence, the Companions had no opportunity to ask him about the shar'i implications of the relevant injunction - so much so that even Umar ibn al-Khattab is reliably reported to have said: "The last [of the Qur'an] that was revealed was the passage [lit. "the verse"] on riba; and, behold, the Apostle of God passed away without [lit., "before"] having explained its meaning to us" (Ibn Hanbal, on the authority of Sa'id ibn al-Musayyab). Nevertheless, the severity with which the Qur'an condemns riba and those who practice it furnishes - especially when viewed against the background of mankind's economic experiences during the intervening centuries - a sufficiently clear indication of its nature and its social as well as moral implications. Roughly speaking, the opprobrium of riba (in the sense in which this term is used in the Qur'an and in many sayings of the Prophet) attaches to profits obtained through interest-bearing loans involving an exploitation of the economically weak by the strong and resourceful: an exploitation characterized by the fact that the lender, while retaining full ownership of the capital loaned and having no legal concern with the purpose for which it is to be used or with the manner of its use, remains contractually assured of gain irrespective of any losses which the borrower may suffer in consequence of this transaction. With this definition in mind, we realize that the question as to what kinds of financial transactions fall within the category of riba is, in the last resort, a moral one, closely connected with the socio-economic motivation underlying the mutual relationship of borrower and lender; and, stated in purely economic terms, it is a question as to how profits and risks may be equitably shared by both partners to a loan transaction. It is, of course, impossible to answer this double question in a rigid, once-for-all manner: our answers must necessarily vary in accordance with the changes to which man's social and technological development - and, thus, his economic environment - is subject. Hence, while the Qur'anic condemnation of the concept and practice of riba is unequivocal and final, every successive Muslim generation is faced with the challenge of giving new dimensions and a fresh economic meaning to this term which, for want of a better word, may be rendered as "usury". In the present instance (which, as I have mentioned, is the earliest in the history of the Qur'an), no clear-cut prohibition is as yet laid down; but the prohibition appearing in 2:275 ff. is already foreshadowed by the reference to the immoral hope of increasing one's own substance "through [other] people's possessions", i.e., through the exploitation of others.
Since this Q&A was posted, we have received feedback that the so-called halal / shari'a compliant loans are eligible for U.S. tax deductions. We encourage Muslims to check all of the options available to them and choose the mortgage that they deem is best. (August 1, 2008)
Posted July 18, 2001