Suad Hamid Bafagih Relationship Manager Corporate Banking at Gulf African Bank
Riba is an Arabic word for Usury. Linguistically it means increase.
Riba was explicitly prohibited in the Quran. It was heavily practiced in the pre-Islamic times among the Arabs. The prohibition of usury was done gradually until finally made haram. Some people during the times of the prophet Muhammad PBUH tried to justify Riba to be same as trade and Allah revealed the verse below;
“That they say: ‘ Exchange is like usury’, but Allah hath permitted exchange and forbidden usury…’ “(Quran 2:275).
There are different types of usury but this article will discuss Riba al- Qard i.e. loan riba. In the current world, there are still people who believe that Riba is like trade. How are the two different? Islam encourages trade but prohibits Riba, why is it so?
Despite knowing that Riba is Haram and is considered one of the major sins of Islam, it is still treated as a lesser sin compared to murder and adultery. Muslims consume Riba and justify the consumption to be a necessity. Did you know that all Abrahamic faiths i.e. Judaism and Christianity at one point prohibited Usury? But now, consumption of Usury has become normal and it’s only Muslims that still treat it as a sin. The prohibitions of taking Riba are viewed as a restriction and the society feels that Muslims are disadvantaged through this prohibition. Whilst Muslims and society do not realize that the prevention of Riba is a blessing to society and not a hindrance.
One may wonder, how is trade better than Usury and both increase fortune? Trade is encouraged in Islam, there is an exchange; where one party acquires goods and services against money exchanged. It increases economic interdependence. This justifies the profit earned. With trade, there is a risk taken and there is no guarantee of an increase in wealth without a contingent liability and that makes it fair and just.
On the other hand, usury is where one earns more money by lending it. Money is a medium of exchange, its role is to facilitate trade but when it’s converted to be an item priced and traded then the concept of a fair economy is distorted. In trade, there are actual goods and services that are exchanged unlike in lending money, the lender creates money from nothing i.e. no real goods and services produced or exchanged. Usury takes away wealth from the real economy and allows the lender to have money which ought to be used in the production of more goods and services.
Why is Riba detested in Islam that Allah and His Prophet declared war to a person who consumes it? What harm does Usury bring to society?
It distorts the distribution of wealth, where the moneylender earns more money without capital contribution to society. The moneylender becomes wealthier since his wealth grows by the mere fact of lending it. Wealth circulates in a few people’s hands and makes the rich create more wealth and become richer while the poor are ripped off their work and wealth and become poorer. Usury creates greediness since the moneylender will continue wanting more money through lending while the poor struggles to pay the debts.
A good practical example is the foreign debts that keep on increasing in Africa. Most African countries are in debt crisis where the government debt to GDP ratios keep on rising. The interest keeps on compounding and the debt never gets settled. The lender gets wealthier and the African countries become poorer. This is the injustice created by Usury. Global wealth is concentrated in a very small percentage of the world’s population and this creates the economic instability we witness today.
As earlier mentioned, Muslims deal in usury transactions in one way or the other. Allah curses the one who consumes Riba, gives it, witnesses, and even the one who records the transactions. And they are all equal in sin. With that in mind, Muslims should strive to have alternative financing rather than giving in to interest-bearing financial solutions. There have been huge improvements in the last decade in the aspect of Islamic Finance where we see more Islamic banks, Takaful, and even Islamic capital markets coming up. We do agree, these institutions need improvement in their dealings and structure to ensure there is complete shari’ah compliance especially since the world’s entire financial system is based on usury. However, we do appreciate the effort and there is a need for Muslims to increase experts in this field and look for innovative solutions that will be fully Shari’ah-compliant In Sha Allah.
Do we loan money in Islam?
Loan in Islam falls under charity and it is not for an increase in wealth. Loans are called Qard in Arabic and are free of any interest. Qard Hasan is a benevolent loan in which the borrower is required to pay only the principal. This loan is meant to help the one in need and never to earn the lender wealth. The Quran constantly compares giving charity to charging usury.
“Allah will deprive usury of all blessings but will increase for deeds of charity.” (Qur’an 2:276)
A financial system can survive and thrive without usury but it cannot be sustainable with Riba. And we are living proof of that concept, the poverty level has increased significantly, inflation is high, a lot of wealth is in the hands of a very small population and the majority live in debts.
A financially weak and poor society is the source of many evils and usury is the main cause of this weakness in our current financial system. This is why war has been declared by Allah and His messenger to anyone who deals with usury.