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