Islamic Perspectives

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What is Riba?

By: Dr. Ahmad Shafaat

(January 2005)


Contents

Introduction

Part I – RIBA IN THE QUR`AN

I - The Qur`an And The Authentic Ahadith Do Not Define Riba

II - Riba In Pre-Islamic Arabia

III - Riba In The Qur`an – A Detailed Examination of Relevant Verses [PDF Document]

IV - Riba In The Qur`an – A Closer Examination of Some Relevant Issues

V- Usury/Interest In Other Societies

Part II – RIBA IN THE HADITH

VI -Ahadith About Husn al-Qada`

VII- Ahadith About Riba – An Overview

VIII -Ahadith About Riba – An Examination Of Their Transmission (Naql)

IX- Ahadith About Riba – Making Sense Of Them

Conclusion

Introduction

We can hardly doubt that in the Qur`an riba is some kind of increase in the amount of a loan. But what is its precise nature? The commonly held traditional view is that riba is simply interest, that is, any increase in the loan required by the lender as a condition for advancing the loan. But many commonly held views, when they are scrutinized in the light of three primary sources of Islam – the Qur`an, authentic ahadith, and reason -- turn out to be either fundamentally flawed or harmful oversimplifications. Is the commonly accepted definition of riba one of the exceptions? Unfortunately, not. It turns out that this definition is a harmful oversimplification.

Before examining the matter in detail, we set before the reader four indications from the Qur`an, authentic ahadith, and reason that show that the common view of riba might not be completely faithful to the sources of Islam and therefore needs to be carefully re-examined.

First, in the Holy Qur`an we read:

O you who believe! Be mindful of God and give up what remains of al-riba if you are believers. If you do not do so, then receive a declaration of war from God and his Messenger. But if you repent, you shall have your capital sums (ru`us al-amwal). You do not deal unjustly and you are not dealt with unjustly (2:278-279)

Here God is giving the lender the right to receive the original amount of loan. Indeed, not returning the principal sum to the lender is described in these verses as injustice (zulm). But what if the loan was an investment loan for a business that incurred a loss? According to the commonly held view, in this case the lender does not get back the whole capital sum. This suggests one or both of the following two conclusions: a) The Qur`an is not talking about every type of loan; in particular, it is not talking about investment loans; b) The Qur`an does not agree with the common view that for an investment loan the loss is to be shared. In either case, there seems to be something wrong about the common understanding of riba.

Second, in the Hadith we find traditions that talk about what has been called riba al-fadl. This arises when a quantity of any one of five or six commodities is either bartered for a different quantity of the same type of commodity (possibly differing in quality) or the exchange is not done on the spot. These six commodities are: gold, silver, dates, wheat, barley, and salt. (For riba al-fadl, gold and silver are treated in some ahadith as the same type of commodity.) Thus if one sa‘ of dates of high quality are exchanged on the spot with two sa‘s of poor quality dates, then this is riba al-fadl and is prohibited. Similarly, if 50 grams of gold jewellery with intricate work requiring hours of labor is exchanged on the spot for 40 grams of simple gold, then this is riba al-fadl. Although this concept is found in some "sahih" ahadith, there are other equally "sahih" ahadith that state the opposite. For example the following hadith, agreed upon by Bukhari and Muslim, clearly states that riba cannot exist in on-the-spot transactions:

It is reported from Usamah bin Zayd that the Messenger of God said: "There is no riba in what is hand to hand (on the spot)".

Thus some sahih ahadith tell us that on-the-spot exchange of two commodities of the same type is riba if the quantities exchanged are unequal while some other sahih ahadith say that that is not possible. We shall see later (Chapter VII) that the contradiction cannot be resolved by appeal to the concept of abrogation or by any other similar device. Hence, as recognized by scholars like Imam Shafi’i, the contradiction is real. This raises a distinct possibility that the concept of riba al-fadl on hand-to-hand exchanges is an error introduced into Islam after the Prophet, which in turn raises the possibility that the concept of riba itself was misunderstood by some early Muslims and their misunderstanding somehow got firmly established as a part of Islam.

Third, the common understanding of riba leads to the prohibition of certain lending arrangements, for which there seems to be no moral or logical basis. For example, consider the following two situations:

A rich man loans to a working man, with limited income and having a family to support, $100,000 to buy a house. The loan is to be paid by monthly payments of $850 over 15 years. This is equivalent to lending the money at 6% annual rate of interest compounded monthly. The house is in the name of the borrower and would remain in his possession unless a monthly payment remains unpaid for a certain agreed number of months, in which case the rich man will take possession of the house.

The same rich man himself buys a house with $100,000 and rents it to the working man for a monthly rent of $1000. The rent can be reduced to $850 if the tenant takes the responsibility for repairs. If the rent remains unpaid for a certain agreed number of months the tenant can be evicted from the house and can be sued for the unpaid rent and any damage done to the property..

The main difference between the two situations is this: In the first situation the house will belong to the working man after 15 years and even before that he can sell it to pay off the outstanding loan and keep any additional amount for himself and his family. In contrast, in the second situation, although paying every month the same amount of $850, the working man will have nothing after 15 years or even after 40 years. The only choice he has is to vacate the house, after giving an advance notice, and leave the house in the possession of the rich landlord.

Now the common understanding of riba leads us to prohibit the first situation, while the second arrangement is universally accepted by Muslims. But is there any moral or rational reason for this?

Fourth, a great majority of fuqaha of vaious background agree that the price of an item can be increased in case of deferred payment. Thus, a person A, having a small manufacturing busines, wants to buy machinery costing $50,000 but wants to pay after one year. Another person B orders the machinery and upon delivery immediately sells to A for $55,100 to be paid in one year. In his thinking B charged $100 for his service and 5000 for deferring the payment for one year. This is considered halal by most fuqaha. But now suppose that B gives a loan of $50,000 to A for cash purchase of the machinery on condition that one year later A will give to B $50,000+$5000. This arrangement is considered haram, so much so that it will put B at war with God Most High and his Messenger (salla allah ‘alayh wa sallam) and, according to a hadith, is tantamount to committing adultery with one’s mother. But does that make sense? Is the difference between the two arrangements so significant that one arrangement is perfectly acceptable while the other is one of the major sins in Islam?

Hoping that the above four indications will allow the reader to see at least the possibility that the common understanding of riba may not correctly represent the Qur`an, the authentic ahadith, and reason we now proceed to examine the concept in the light of these three sources.

Our examination is divided into two parts. The first part, consisting of Chapters I-V, is concerned with the Qur`anic understanding of riba. It examines in detail the Qur`anic verses about riba and those traditions and ahadith that are directly relevant to the Qur`anic understanding.

In Chapter I, we show that the Qur`an does not define riba but assumes a meaning of the word that was current among the Arabs before the time of the Prophet. In Chapter II, we look at the meaning of the term among the pre-Islamic Arabs. In Chapter III, the Qur`anic statements about riba are examined and it is shown that they are consistent with the pre-Islamic sense of riba in Arabia but not with the commonly held traditional sense. Chapter IV, which may be omitted in a first reading, examines some issues relevant to our discussion of the Qur`anic verses about riba. Chapter V concludes the first part of the book with a brief outline of how various pre-Islamic societies treated usury or interest. It is shown that by and large these societies did not prohibit interest but tried to control its negative consequences and the Qur`an, as in other matters, continues, completes, and perfects this pre-Islamic tradition.

The second part of the book, consisting of Chapters VI – IX, is concerned specifically with ahadith. Chapter VI deals with ahadith that allow and even encourage a voluntary increase in the amount borrowed. Chapter VII is an overview of the ahadith specifically concerned with riba. The last two chapters (VIII and IX) concentrate on ahadith about riba al-fadl. They show, through an examination of naql (transmission) and an analysis in the light of ‘aql (reason) that the idea of riba al-fadl, which is absent from the Qur`an and also from pre-Islamic or non-Islamic cultures or religions, is the result of some gross misunderstanding of what the Holy Prophet might have actually said.

Some of the arguments used in this book have been voiced by some modernist Muslims. This, however, should not be interpreted to mean that this book or its author is "modernist". Nothing would be further from the truth than such a judgment. The modernist agenda is to bring Islam as close to the "successful" and popular trends of this age as is possible. In contrast, my agenda, at least in my conscious mind – and I hope in every nook and corner of my subconscious mind – is to bring modern and traditional Muslim ideas as close to the Qur`an, authentic ahadith, and reason as possible.

This book accepts some modernist ideas while refutes some others just as it accepts some traditionalist arguments and refutes some others. The most detailed and considered case for traditional understanding of riba was made in 1999 (14 Ramadan 1420) in an 1100-page judgment by the Shari'ah Appellate Bench of the Supreme Court of Pakistan. A part of this judgment, written by Mufti Muhammad Taqi Usmani, deals with the Qur`an and the Hadith. This book considers all the main points made in Usmani’s document and responds to them, either supporting them or refuting them.

An important principle in the use of ahadith

Some ahadith have a legal import in that they prohibit something, thus making it haram or command something, thus making it fard or wajib. For these ahadith we will use the following principle: If a historical analysis of the asanid and contents of such a hadith raises reasonable doubts about the reliability of the hadith, then we can disregard it as a source of binding laws.

The basis for this principle is that God would not make something haram or fard through his Holy Prophet without ensuring that the law reaches us with reasonable certainty. At the very least the Holy Prophet would make the law known to a large number of Companions who would then make it known to even a larger number of Successors and so on. It is not conceivable that the Holy Prophet would make something haram or fard by telling it to only one or two Companions, unless he at the same time instructed them to make it known to other Companions. Our scholars sometimes base far reaching laws on the basis of ahadith that were known to very few people in the first few centuries, that is, gharib or ahad ahadith. This procedure is not reasonable. Even ordinary law-givers promulgate laws in a public way so that a large number of people hear them. In ancient times a town crier would go around and read the king’s decree in public squares. The point can be illustrated by another example: if a professor wants his students to do some homework for credit, he would not tell it only to one or two students. He would either himself announce it to the whole class or make sure that the students to whom he mentioned the assignment would let the other students know about it. If the knowledge of the assignment remained limited to a very few students for weeks, then the assignment cannot be binding on the class. Similarly, we should expect that the Holy Prophet, especially considering the importance of his message for all humanity, would make sure that his prohibitions and commandments would be known to a large number of Companions, who would then make sure that they would be known to a large number of Successors.

A consequence of the above principle is that if a hadith has a very few narrators in the first few generations, then we cannot regard it as a basis of binding law. Similar is the case with a hadith missing from most of the second- and third-century books such as Muwatta, Bukhari, Muslim, Abu Da`ud, Tirmidhi, Nasa`i. For, the absence of the hadith from most of these books means that either their compilers did not know about it or they did not accept it as reliable and in either case there is a reasonable probability that the hadith is either not authentic or it was not meant to give a binding law for the ummah.

A note on transliteration of Arabic words

Long vowels are indicated in italics or bold, e.g. hadith or ahruf. If a word itself is in italics or bold -- (Arabic words except the most well-known ones will be written in italics) -- the long vowels are indicated by the ordinary font, e.g. hadith or ahruf. Also, note that underlining instead of dotting is used to distinguish between related letters (d and d, h and h, s and s, z and z), sahih, riyad, zuhr. When s and h or t and h occur together and represent different letters, they will be sometimes separated by – in order to avoid confusion with the letters represented by th and sh; e.g. as-hal (easier). However, if one or both of the letters has underlining, then no separation will be required, as, e.g., Ishaq or mushaf, athar, Buthan. Finally, once a word has been transliterated with proper diacritical indicators, such indicators may be omitted subsequently. Diacritical indicators may also be omitted from well-known words like Allah, Muhammad, Qur`an, or Hadith.

The above system of transliteration was devised to cause minimum disruption when computer files are converted for various purposes.

A note on dates

H is used for Hijrah and CE for Common Era. If neither H nor CE is mentioned, it is understood that the date is according to the Hijrah calendar. When both dates are mentioned, the Hijrah date is written first and both H and CE may be omitted. Some of the dates given in connection with early history of Islam are only estimates.


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