Usury and Interest

Last Island · #1 Sunday, October 28, 2007

RIBA (USURY AND INTEREST)

Defining the Problem

Riba (Usury) is of two major kinds:

Riba An-Nasia - Interest on lent money
Riba Al-Fadl - Taking a superior thing of the same kind of goods by giving more of the same kind of goods of inferior quality, e.g, dates of superior quality for dates of inferior quality in great amounts.

The definition of Interest, the literal meaning of interest or Al-Riba as it is used in the arabic language means to excess or increase. 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. Riba has been described as a loan with the condition that the borrower will return to the lender more than and better than the quantity borrowed.

As Muslims, our main concern when it comes to financial transactions is to avoid Riba in any of its forms, despite the fact that the basic foundation of the world economics and finance today is that of riba and dealing in usury.

The Prophet (PBUH) has foretold us of a time when the spread of riba would be so overwhelming that it would be extremely difficult for the Muslim to avoid it. This situation calls for Muslims to be extra cautious before deciding on what money payment of financial methods to use in any personal or business transaction.

To make sure that we are safe from Riba, we have to learn which transactions lead to it.

INTERESTS IN PRE-ISLAMIC TIMES

HafizIbn hajr writes in his commentary of Sahih Bukhari (Fathul Bari), Vol. IV p.264:

Imam Malik reports on the authority of Zaid Ibn Aslam that in the period of ignorance (pre-Islamic times) interest was charged according to the following scheme. One person had a right to the property of another person. It may have been a general right because of the amount lent or the price of something purchased or in any other form. A time was set when the claim would be settled. When the appointed time arrived the creditor would ask the debtor if he wanted to settle the claim or pay interest with an extension of time. If the claim was settled then there was no increase in the payment. Otherwise the debtor would increase the amount payable and the creditor would extend the period further.

AUCTIONS

Sales and purchases made at auctions are valid transactions, so long as the conditions stipulated by sharee’ah are adhered to. This is the opinion of the majority of scholars, and one of the texts which they quote as evidence is the hadeeth of Anas ibn Maalik, who said that the Messenger of Allaah (PBUH) sold a rug (for spreading on the ground or putting on the back of a riding-beast) and a cup. He said, “Who will buy this rug and cup?” A man said, “I’ll take them for a dirham,” and the Prophet (PBUH) said, “Who will offer more than a dirham? Who will offer more than a dirham?” Another man gave him two dirhams, and bought the goods. (Reported by al-Tirmidhi, may Allaah have mercy on, in al-Sunan, 1139; he said, “This is a hasan hadeeth which we know only from the hadeeth of al-Akhdar ibn ‘Ajlaan…) The practical conclusion drawn from this by the scholars is that they see nothing wrong with selling war-booty or inherited goods to the highest bidder. This hadeeth was narrated by al-Mu’tamir ibn Sulaymaan and by more than one of the prominent people from al-Akhdar ibn ‘Ajlaan.

There follows a definition of this kind of sale, and some of the regulations that apply to it:

The contract: An auction is a commutative contract or exchange, based on a call issued vocally or in writing to invite interested parties to take part in the auction. The contract is concluded when the seller is satisfied.

The actual contract may vary according to whether it is the matter of selling or leasing, etc, and according to the nature of the auction – it may be voluntary, like the regular kind of auction held among individuals, or required by law, such as auctions ordered by a judge. Auctions required by law may be held by public and private institutions, and government bodies, as well as individuals.

Any procedures involved in the auction – such as paperwork, regulations and administrative and legal conditions – should not contradict the rules of Islamic sharee’ah.

Requiring a deposit from everyone who wants to come in is permissible according to sharee’ah, but it should be returned to anyone who does not buy anything, and should be counted as part of the purchase price for those who do buy. According to sharee’ah, there is nothing wrong with charging an entry fee to cover the costs of producing booklets listing regulations, etc., so long as it is not more than the actual cost.

Artificially inflating prices is haraam. This may take the following forms:

A person who has no intention of buying may inflate the price to tempt the buyer to offer more a person who has no intention of buying may pretend to like the product and to know a lot about it, and may praise it highly, to tempt the buyer to offer more the vendor, his agent or the auctioneer may make false claims about how much was paid for the product, in order to mislead the one who is thinking of buying modern forms of this forbidden inflation of prices include the use of audio-visual and written means to list fine qualities that do not exist in reality, or to raise the price so as to tempt the buyer and impel him to complete the transaction [Qaraaraat Majma’ al-Fiqh al-Islami,]

LIFE INSURANCE

Insurance of one’s life or possessions is haraam and is not permitted, because it involves gharar (buying/selling something where it is not known whether what is being bought/sold will actually be achieved/delivered, or in what specific quantity, thus putting one’s money at undue risk to being lost) and riba (usury, interest). Allaah has forbidden all transactions that are based on riba, and all transactions which involve deceit, as a mercy to this ummah, and to protect them from that which may harm them.
Allaah says (interpretation of the meaning): “whereas Allaah has permitted trading and forbidden Ribaa” [al-Baqarah 2:275]

And it was narrated in a SAHEEH report that the Prophet (PBUH) forbade deceit. And Allaah is the source of strength.

BONDS THAT PRODUCE FIXED RETURNS

A bond is a certificate which, according to its terms, obliges the issuer to pay the bearer the face value plus the agreed amount of interest when it reaches maturity, or to pay other benefits, such as prizes awarded by drawing lots, or payment of a fixed amount, or any discount. The Islamic Fiqh Council has researched the matter of dealing in bonds and issued the following statement:

Bonds which represent a commitment to pay the face value plus interest, or conditional benefits, are haraam according to sharee’ah, whether one is buying, selling or handling them, because they are considered to be interest- based loans. This applies whether they are issued by private companies or by public bodies run by the state. The fact that they are forbidden is not affected by giving them other names such as “certificates”, “investment documents” or “savings”, or calling the interest “profit”, “commission” or “returns”.

Also forbidden are bonds that offer prizes, because these are loans made on the condition that the benefits or increase will go to the group loaning the money, or to one of them, who is not specified at the time of investment, in addition to the fact that this is based on the idea of gambling.

Another kind of forbidden bonds, which it is haraam to buy, sell or handle, is bonds or documents based on bidding for a specific project or activity from which the owners will not benefit in any definite way, but will only receive a share of the profits according to the number of bonds or documents that they own, and they will only receive this profit if the project is actually carried out. [Majma’ al-Fiqh al-Islami, p. 126]

CREDIT CARDS

Credit cards are the major pillar of consumerism. They are the prime example of something which encourages you to spend even if you don't have the money. In a nutshell, credit cards are good for the banks and bad for you as they also involve Riba.

By using credit cards to buy, you end up paying far more than the original price of an item because of impatience and inappropriate planning. Every year hundreds and thousands of people are declared unworthy of credit.

Some cite convenience as the reason in buying using these cards as opposed to dragging cash for purchases.

But this is a weak excuse to use this piece of plastic. Someone who has a personal financial plan in place already knows approximately how much they will need for groceries, for example. In this case, they can take an adequate amount of cash instead of the card.

As well, the added bonus of doing this is that you can stick to buying what you really planned to instead of wasting your time and money on useless items. This is actually a great way to control your money and spending habits.

Use debit cards instead of credit cards

One argument in favor or using credit cards is that it's just safer for when you are buying bigger items like a car or furniture. This is true. But there is an alternative to the credit card: the debit card.

These are issued in relation to how much money you actually have in your bank account. In a debit card, money goes out of your account as soon as you use it or within a day or two of the transaction in which the card was used. This way, then, you don't pay more than the actual price of the product.

A JUST SYSTEM

There is no doubt that a just system could only be designed by keeping the Islamic economic code at the heart of the system. This would only be possible when there will be a political will in the leadership. Muslim scholars and bankers have spent much time in designing many banking procedures and instruments according to Shariah that can expedite the transformation easily, but the question remains for the central governing system controlling the economy, the system may incorporate and accommodate the following :

The money creation should be the responsibility of the state.
The banks must invest only in equity investment.
The discounting should be explored such that it should serve as the driving force for the banks and the capital.
Riba (Interest) must be declared as crime in the society.

ISLAMIC TEXTUAL EVIDENCE ON RIBA

Narrated ‘Aun bin Abu Juhaifah, (RA): “My father bought a slave who practiced the profession of cupping, (My father broke the servants instruments of cupping). I asked my father why he had done so. He replied, "The Prophet forbade the acceptance of the price of a dog or blood, and also forbade the profession of tatooing, or getting tatooed and receiving or giving Riba (Usury), and cursed the picture makers." [Hadith - Sahih Bukhari, Volume 3, No. 299;.]

He speaks of in a dream related to the Prophet (SAW) that there is a river of blood and a man was in it, and another man was standing at its bank with stones in front of him, facing the man standing in the river. Whenever the man in the river wanted to come out , the other one threw a stone in his mouth and caused him to retreat back into his original position. The Prophet (PBUH) was told that these people in this river of blood were people who dealt in Riba (usury). [Hadith - Sahih Bukhari, 2.468, Narrated Samura bin Jundab, (RA).]

The Noble Qur'an

275. Those who eat Ribâ (usury) will not stand (on the Day of Resurrection) except like the standing of a person beaten by Shaitân (Satan) leading him to insanity. That is because they say: "Trading is only like Ribâ (usury)," whereas Allâh has permitted trading and forbidden Ribâ (usury). So whosoever receives an admonition from his Lord and stops eating Ribâ (usury) shall not be punished for the past; his case is for Allâh (to judge); but whoever returns [to Ribâ (usury)], such are the dwellers of the Fire - they will abide therein.

276. Allâh will destroy Ribâ (usury) and will give increase for Sadaqât (deeds of charity, alms, etc.) And Allâh likes not the disbelievers, sinners.

277. Truly those who believe, and do deeds of righteousness, and perform As-Salât (Iqâmat-as-Salât), and give Zakât, they will have their reward with their Lord. On them shall be no fear, nor shall they grieve.

278. O you who believe! Be afraid of Allâh and give up what remains (due to you) from Ribâ (usury) (from now onward), if you are (really) believers.

279. And if you do not do it, then take a notice of war from Allâh and His Messenger but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums).

280. And if the debtor is in a hard time (has no money), then grant him time till it is easy for him to repay, but if you remit it by way of charity, that is better for you if you did but know.

281. And be afraid of the Day when you shall be brought back to Allâh. Then every person shall be paid what he earned, and they shall not be dealt with unjustly. (Al-Baqarah 275-281) O you who believe! Eat not Ribâ (usury) doubled and multiplied, but fear Allâh that you may be successful. (Al-Imran 3:130)

Hadith - Mishkat-ul-Masabih

· Hazrat Jabir (RA). has reported that the Messenger of Allah (PBUH) cursed the devourer of usury, its payer, its scribe and its two witnesses. He also said that they were equal (in sin).

· Hazrat Abu Hurairah (RA). reported that the Prophet (PBUH) said : A time will certainly come over the people when none will remain who will not devour usury. If he does not devour it, its vapour will overtake him.
[Ahmed,Abu Dawood,Nisai,Ibn Majah]

· Hazrat Abu Hurairah radiyallahu anhu reported that the Messenger of Allah (PBUH) said: I came across some people in the night in which I was taken to the heavens. Their stomachs were like houses wherein there were serpents, which could be seen from the front of the stomachs. I asked :O Gabriel! Who are these people? He replied these are those who devoured usury. [Ahmed,Ibn Majah]

Hazrat Al-Khudri radiyallahu anhu reported that the Prophet (PBUH) said: Gold in exchange for gold, silver in exchange for silver, wheat in exchange for wheat, barley in exchange for barley, dates in exchange for dates, salt in exchange for salt is in the same category and (should be exchanged) hand to hand, so whoever adds or demands increase he has practiced usury. The giver and taker are the same.

Imam Abu Hanifah has ruled that if the measurement system (volumetric or in compounds) is the same and the two items are in the same category, then they should be sold in the same amount and direct not in credit otherwise interest will be found.

Imam Shaf’ee says that if the items are valuable and could be considered food then there is the chance of interest.

Imam Malik says that if the items are valuable and are edible then interest is a subject.

·Giving and taking interest is Islamically unlawful.

· A person who takes interest does not gain anything in reality but through the explanation of the Qur'an verse. In reality the money through Ribâ just goes to waste and the person does not even realize it, and a person who gives money in the path of Allah, in whatever form it may be, actually gains although in reality it may seem as though he is losing out.

· Every person should take all necessary precautions in their financial and social dealings. If a person neglects in keeping a watchful eye on financial dealings, this negligence will slowly spread to other aspects of religion, having a very detrimental effect.

· Interest is hazardous and should be abstained from in all manners. If anybody has a case they wish to solve then they should contact a knowledgeable person in this deen of Islam and present their problem as well as in all cases every individual should continue to seek Allah’s forgiveness and guidance.

· In order to own a credit card and avoid paying Ribâ, you must make payment on purchases before the statement comes in, i.e. send the credit card company the check for payment as soon as you make the purchase. If you are too tempted and unable to purchase things without immediately paying for them (and thereby will be charged interest), don't use them or don't even have them. Fear your Lord!

· As a reminder to us all, Allah (SWT) has told us in the Qur'ân [2:279] if we don’t give up interest, we must take notice of a war from Allah!

Are you ready to go into battle against Allah (SWT)?
Will you and your army of feeble credit cards be sufficient to do battle with Allah (SWT)?
How can you justify doing something that’s Haram?

How could anybody even take the time out to think about a matter in which Allah has declared war on the user and his Beloved Prophet (PBUH) has cursed him? As sensible people we can understand that what our Creator has chosen for us is for our own prosperity and benefit.

Islam has encouraged men to earn their own provision and provide for their families. The condition is that the earning has to be according to the Shari’ah. These rules can be found under the heading of trade in the books of jurisprudence. Interest is amongst those conditions which all dealings must be free from.

If we consider Allah's Guidance to be essential for success in the Hereafter, then the struggle to stay away from interest despite the prevailing system is our way of achieving Allah's pleasure. I agree that it is difficult. But Allah promises Jannah in the life to come which is everlasting.

The example of this world compared to the world to come, as the Prophet (peace and blessings be upon him) said, is like a drop of water to an ocean.

Remember... Allah, subhana watala, sees everything we do!

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