Misconceptions about Riba!

[faisal4pro]

Evolving a precise definition of Riba has haunted the Muslim mind for centuries. The French scholar Maxime Rodinson in his Islam and Capitalism published in 1966 traces the ambiguity prevailing in the Islamic world about the nature and scope of Riba so emphatically and categorically prohibited in the Holy Quàan.

He goes on to claim that the failure of Muslim thinkers and religious scholars to identify the precise contours of Islamic economic system which would truly reflect the Quàanic precepts and principles stems from the confusion in the Muslim Ummah about the meanings and structure of Riba. Since the middle of the twentieth century, a vast majority of religious scholars and economists in the Islamic world has come to equate Riba with “interest” or more precisely the “bank interest”
The Sharia experts hold almost a unanimous view that interest-based banking is violative of Quàanic teachings and as such it must be demolished and replaced with interest-free financial institutions, dealing only in interest-free transactions. It has never occurred to the religious scholars that by equating Riba with interest, they were indulging in gross misinterpretation of the Quàanic verses on prohibition of Riba. This misinterpretation being colossal in nature and having serious consequences for the Islamic societies at large can be identified as corruption of Riba.

Due to lack of basic understanding of the nature and functions of interest, the religious scholars propagate its elimination, being completely unaware of the fact that as “price of capital” interest cannot be eliminated from the economic system. If interest is abolished by an ordinance, the entire economic system comes to the ground. Hence by stretching the concept of Riba to undesirable and unobtainable limits, the Ulema are undermining the universality of Quàan’s fundamental precepts.
According to Abdullah Yousuf Ali, Riba is “any increase sought through illegal means such as usury, bribery, profiteering, fraudulent trading, etc”. He then adds; “All unlawful grasping of wealth at other people’s expense is condemned. Economic selfishness and many kinds of sharp practices, individual, national and international, come under this ban”. His definition specifically includes profiteering of all kinds but excludes economic credit, the creation of modern banking and finance. Riba in simple term refers to all earnings and assets gotten through corrupt means.

Western societies have well-developed financial institutions operating on the basis of “interest”. At the same time, these societies have been successful in eliminating corruption and rent-seeking. By Quàanic standards on elimination of Riba, these societies are closer to the Islamic spirit of justice and equality rather than the Islamic societies which are desperately trying to abolish interest but have allowed corruption to flourish unchecked and unrestrained. In other words, the opportunity cost of corrupting “Riba” by equating it with interest has been unbearable as the entire socio-economic structure of Islamic world has been corroded by corruption which is ubiquitous and universal.

In terms of contemporary paradigm of “Clash of Civilisations” offered by Samauel P. Huntington, it is virtually a clash between the relatively corruption-free western societies and corruption-infested Islamic world.

Diagnosis of the diseases from which the Islamic societies suffer would not include the banking system based on interest but the loan default or non-performing loans, embezzlements and leakages from the banking and the non-banking institutions.

Interest is not the source of inflation, unemployment, inequalities and so on as is commonly claimed by Islamic scholars.

Actually it is “corruption” which is the real source of inequalities, poverty, inflation, unemployment, underdevelopment and other economic maladies. This is because corruption of Riba has led to Riba of corruption.

The writer is a former Joint Chief Economist, Planning Commission of Pakistan.