Universal Prohibition of Interest-Based Transactions


http://www.flickr.com/photos/grandmaitre/5846058698/in/photostream/By Ali Shareef

The financial crisis of the past few years has resulted in some deep soul-searching as we struggled to understand why what seemed to be the bedrock of financial stability came crumbling down. First Wachovia, the nation’s number four bank holding company, then Fannie Mae and Freddie Mac, followed by Merrill Lynch. It did not stop there; the Feds bailed out American International Group (AIG) for $85 billion and Washington Mutual became the largest bank failure in history. As the nation searched for a solution to the recession which started in December 2007, politicians debated bailout plans, CEOs lined up for government handouts, and perhaps, just perhaps, as we beat around the proverbial bush, we overlooked the root of the problem: interest or usury itself.

Given the prevalence of interest-based transactions today, it may be bewildering to indict interest itself as a problem. It seems logical, at face value, that a lender should gain some benefit for his risk in providing a loan. However, history has demonstrated that even if this practice of interest was initiated with the best of human intentions, it degraded into the worst of unabashed exploitation of the poor. It became the age-old mechanism that was used since the beginning of time to bind those who don’t have to those who have.

This appetite for profit even at the expense of those most impoverished is nothing new and has existed well before our time. An appetite that was recognized from one end of the world to the other—from ancient China to the Middle East—and manifested itself in the prohibition of interest. A surprisingly large number of ancient civilizations were against the practice of charging interest on loans.

Undoubtedly, capitalists will rise up and denounce this as a step back for the progress of humanity and civilization. However, we must ask: are we really more civilized now than when we exercised restraint in our appetite to consume and take advantage of others?

The Old Testament says: “’If he has not exacted usury nor taken any increase, but has withdrawn his hand from iniquity … And executed true judgment between man and man; If he has walked in My statutes and kept My judgments faithfully — He is just; He shall surely live!’ says the Lord GOD.” (Ezekiel 18:7-9)

“If he has exacted usury or taken increase — Shall he then live? He shall not live! If he has done any of these abominations, he shall surely die; his blood shall be upon him.” (Ezekiel 18:13)

Although Jewish scholars differ as to the meaning of these injunctions, it is clear that the very nature of interest was considered reprehensible—to the point that people who practiced it were cursed.

Even in early Christian history, we find that charging interest was considered “detestable to God and man, damned by the sacred canons and contrary to Christian charity” by Pope Sixtus V.

Lateran III decreed that people who charged interests on loans would “receive neither the sacraments nor Christian burial.”

In Islam, the Qur’an is unequivocal about the evil of interest:

“Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, ‘Trade is [just] like interest.’ But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury]—those are the companions of the Fire; they will abide eternally therein. Allah destroys interest and gives increase for charities. And Allah does not like every sinning disbeliever.” (Qur’an 2:275-276)

This is a tenant that many Muslims still adhere to. During the early Islamic civilizations, a variety of banking principles were introduced that did not resort to interest. Many of these principles are still applied today and many Islamic banks were largely unaffected by the recent subprime woes.

As the recent financial meltdown indicated, an interest-based economy results in the economy being built on thin air. Banks counted on interest on loans from borrowers to meet their operational costs. However, with the spike in fuel prices and unemployment, borrowers were unable to meet their payments. Faced with decreased cash inflow, falling home prices, and rising foreclosures, banks became bankrupt. When the House of Representatives rejected the $700 billion bailout plan on September 29th 2008, the ensuing panic caused the Dow Jones to fall almost 778 point—the most ever for a single day since the Great Depression in 1929.

The reason why interest is so abhorrent is the preying of the lender on the borrower. The rich become richer and the poor become poorer. Who are the victims of the recent mortgage crises? Is it the Wall Street fat cats who sought millions in bonus even while the money for the bail-out was being coughed up by the Feds, or the struggling tax payers who must shoulder this burden?

For every dollar accepted by anyone in interest, inevitably there is someone who is struggling hand to mouth to pay that dollar in interest. Where does the bank get the money to pay depositors the returns on savings? People who are paying interest on their loans! A $100,000 loan at a fixed rate 15-year mortgage of 5.0 percent will accrue nearly $42,380 in interest—nearly half the loan itself!

Elimination of interest-based banking levels the playing field for the lender and the borrower alike. Islam is opposed to a guaranteed return for one of the parties at the expense of the other. One principle of Islamic banking entails that if a loss occurs, it is shared by both the lender and the borrower through a partnership. For example, if a person wants to start a business, the bank finances the startup costs and becomes a partner, thereby sharing in the profits from that business rather than charging interest on the loan. The person who started the business pays the original principal amount back in incremental payments. This lack of a guaranteed return forces lenders to be more aware of their lending practices, and decreases the lax lending practices that were one of the reasons for the financial failure. Another practice Islam especially prohibits is speculative investments such as futures—expected profit before the commodity is even available—which was another reason for the financial collapse.

The devastation of the financial markets today affects a larger number of people today than it did thousands of years ago. In today’s global economy, when the U.S. markets stumble, markets from Europe to Asia teeter in response. Interestingly, the prohibition of interest becomes more pertinent today than ever before.

In the face of the spiraling financial descent that we faced, and from which we have not yet fully recovered, it is not possible that a loving and merciful God would not provide guidance on how to conduct an aspect of humanity as important as commerce. He has warned us throughout history of the evils of our greed and has given us the knowledge to control it by prohibiting the use of interest. If we fail to recognize it and utilize it, then we have only ourselves to blame.

 

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26 Comments

  1. ZAI says:

    Do not agree w/ many aspects of this argument.

    #1. “interest or usury itself”
    Interest and usury are NOT the same things in the English language. If you want to define “riba” as both interest and usury that’s perfectly legit. But that must be made clear and concurrently must be made clear that they are different terms in English.

    The reason this is important is that there ARE Islamic scholars who make a distinction, although it is a minority opinion…so must be clear you are choosing the majority opinion.

    Before that statement is dismissed, please keep in mind that the Quranic verses banning riba were revealved immediately preceding the Prophet’s(S) death, which means there are also few if no hadith explaining exactly WHAT riba is. There is a riwaya of Hazrate Umar (R) stating exactly that, regretting that the verses were not explained. So the minority opinion and majority opinions are both based on ijtihad, qiyas, ‘aql, and ijma’.

    Further, there are Mazhabi differences in fiqh. Abu Hanifa, for example, ALLOWED interest dealings in non-Muslim lands if the financial institutions there were built on it and not doing so would harm the Muslims. In the US for example, given that education is prohibitively expensive for most people, it can be argued from the Hanafi fiqh that education loans would be allowed because to not take it would harm Muslims by rendering us an uneducated and economically disenfranchised community.

    2ndly, there is also a distinction in western financial law itself. Usury, which is excessive interest, and it’s forms, like loansharking, ARE illegal in the Western world…although admittedly this has become lax lately with some credit card rates and payday loan operations.

    In both cases if usury and interest have different definitions, the solutions to dealing with them are varied..and can be done “within the system” if only usury is the problem. Whereas if interest is also the problem nothing less than a total finanical revolution and a complete change of whatever we know as the modern way of life is required.

    I’m not defining the term myself, nor saying whether interest itself is good or not. I’m simply pointing out that within Islam itself and also in the West, there are distinctions.

    #2. “However, history has demonstrated that even if this practice of interest was initiated with the best of human intentions, it degraded into the worst of unabashed exploitation of the poor.”

    Brother ANYTHING in life which has a good intention can be corrupted. If this is the standard nothing will get done in life. Someone can start a charity which is corrupted for example. Just google “fraud” and “charity” and see the results pop up. I’m not saying whether interest is good or not, but this line of argument doesn’t work to prove the point.

    #3 “Undoubtedly, capitalists will rise up and denounce this as a step back for the progress of humanity and civilization. However, we must ask: are we really more civilized now than when we exercised restraint in our appetite to consume and take advantage of others?”

    Interest isn’t simply about exorbitant rates charged to the poor or about unreasonable amounts of material consumption.

    Corporations NEED interest for their day to day functioning. Interest serves a function in resource capitalization for instance. Anyone who works at a place of trade/business knows about the daily acquisition of “finacial paper”, which are day to day micro-loans corporations need to make trades/procure materials, settle debts, make payroll, etc. Corporations cannot FUNCTION at the level they do w/o these daily loans.

    That has ramifications. Say goodbye to your iPads, iPhones, Levi’s, Samsung, Dell, Toyota, pharmaceutical companies, large cutting-edge hospitals or whatever else if all interest is banned. Corporations cannot function anywhere near the level they do or be globalized w/o the existence of interest.

    “Financial Paper” loans are carried out millions if not billions of time PER DAY and it is IMPOSSIBLE for a bank to carefully examine and “invest” in each and every case. They can only do it based on the reputation of the corporate borrower backed up by minimization of risk by interest payments.

    No more clothes waiting for you at any store. w/o financial paper corporations will not waste money on materials, labor, etc. out of their own funds. They will move to a made-to-order model to much more certainly adhere to supply and demand.

    Your kid have cancer? Well..new drug therapy research, investing in sophisticated machines, etc. GONE. Research will be MUCH slower and hospitals will not spend as much of their money on newer therapies/machines.

    Smartphones..computers…etc.? Forget it. Modern day computing is globalized and depends on integrative models…like Apple and Google. If they cannot expand globally through capitalization, then your technology also becomes localized.

    Again, I’m not saying whether interest is good or bad.
    But if we’re going to present an argument to people to eliminate it, we’d better tell them EXACTLY what it entails. Interest is NOT limited to individuals, whether rich or poor, taking out loans for personal reasons nor scams corporations/banks are running. The entire modern world is built on it’s existence.

    #4 “This is a tenant that many Muslims still adhere to. During the early Islamic civilizations, a variety of banking principles were introduced that did not resort to interest. Many of these principles are still applied today and many Islamic banks were largely unaffected by the recent subprime woes.”

    Bro, a lot of these Islamic innovations are scams. They’re interest by a different name and convoluted methods. As for the few that aren’t, they cannot substitute for interest in the modern economy…so are useless if we want to maintain many aspects of the modern world. Muslims have not come up with a REAL alternative as of yet.

    #5 “The reason why interest is so abhorrent is the preying of the lender on the borrower. The rich become richer and the poor become poorer. Who are the victims of the recent mortgage crises? Is it the Wall Street fat cats who sought millions in bonus even while the money for the bail-out was being coughed up by the Feds, or the struggling tax payers who must shoulder this burden?”

    Again, not ALL interest is about preying involving individual lenders and borrowers…therefore the question IS possible whether we can simply push for regulation of predatory practices, abuse, etc. WITHIN the system? If not then know that a LOT more is going to change with the banning of all interest than high credit card fees or mortgages.

    #6 “Elimination of interest-based banking levels the playing field for the lender and the borrower alike. Islam is opposed to a guaranteed return for one of the parties at the expense of the other. One principle of Islamic banking entails that if a loss occurs, it is shared by both the lender and the borrower through a partnership. For example, if a person wants to start a business, the bank finances the startup costs and becomes a partner, thereby sharing in the profits from that business rather than charging interest on the loan. The person who started the business pays the original principal amount back in incremental payments. This lack of a guaranteed return forces lenders to be more aware of their lending practices, and decreases the lax lending practices that were one of the reasons for the financial failure. Another practice Islam especially prohibits is speculative investments such as futures—expected profit before the commodity is even available—which was another reason for the financial collapse.”

    Speculative practices can be banned without banning interest. They should be. As for the rest, that’s all fine and dandy for some loans like the loans for small businesses…but how is there a risk/profit incentive in mortgages, school loans, car loans, etc.? The bank is not going to share in any profits because there AREN’T any. Whatever “profit” there would be is for the borrower who gets his/her education, a place to live or a car to drive.

    I have seen some Islamic “solutions” to these issues…whereby the bank “rents” the car or house to you, but these are ridiculous frankly and anyone can tell it’s just interest by another method/name. It’s all a nice boon for “Islamic” lenders who would have a gauranteed market…that’s all.

    I have simply not seen a REAL “Islamic” solution to these issues short of telling people: “well you should just accept your qadr. These things are for the rich and if you’re not then have sabr and look forward to akhirah”.

    Which is fine. As Muslims we DO believe in the qadr and should come to accept it. I just think people should be very clearly informed as to what to expect is all.

    Want interest eliminated? Then be prepared for a VERY different world where there is NO middle class. It will be STARKLY either rich or poor, much moreso than it even is today with the 99%/1%. Further the world will be much less progressive technologically, etc. It’s fine to want to eliminate interest for the greater moral/ethical good…but we’d better be prepared for everything that’s going to go with it and must be trained to live with much, much less unless you have the awesome luck to be born into a rich family.

    Not willing to take a loan even for education if you weren’t born rich and don’t have the luck to live in social democracies like France? Well be prepared for a hard, hard, life in the dunya then.

    Education determines SO many things in your life, from who you marry to where you live…even or especially amongst money obsessed Muslims…that you’d better be prepared for a life full of disappointments, hurt and hardship. You will have your reward with your lord…

    • Gibran says:

      Assalamualaikum

      Our religion is not decided by the opinions of scholars no matter how excellent they may be. Riba IS interest on a loan regardless of whether your opinion is different(and it shouldn’t be, for believing men and women when Allah and His Messenger have decided a matter, they don’t have “something else”).

      Prophet Mohammad (salalahualayhbiwasalam) cursed the one who deals with Riba. From Jabir (ra): The Prophet (salalahualayhiwasalam) cursed the receiver and the payer of riba, the one who records it and the two witnesses to the transaction and said: “They are all alike [in guilt].” [Sahih al-Muslim, Sahih Al-Bukhari, Tirmidhi, Ibn Majah, Bahiqi and Musnad Ahmad]

      Al-Saba al-Mubiqat (السَبعَ الموبِقاتِ): Narrated Abu Huraira: The Prophet said, “Avoid the seven great destructive sins.” The people enquire, “O Allah’s Apostle! What are they? “He said, “To join others in worship along with Allah, to practice sorcery, to kill the life which Allah has forbidden except for a just cause, (according to Islamic law), to eat up Riba (usury), to eat up an orphan’s wealth, to give back to the enemy and fleeing from the battlefield at the time of fighting, and to accuse, chaste women, who never even think of anything touching chastity and are good believers. [Sahih al-Bukhari, Sahih al-Muslim]
      http://www.qtafsir.com/index.php?option=com_content&task=view&id=2565&Itemid=64
      9:31
      They have taken their scholars and monks as lords besides Allah , and [also] the Messiah, the son of Mary. And they were not commanded except to worship one God; there is no deity except Him. Exalted is He above whatever they associate with Him.
      Imam Ahmad, At-Tirmidhi and Ibn Jarir At-Tabari recorded a Hadith via several chains of narration, from `Adi bin Hatim, may Allah be pleased with him, who became Christian during the time of Jahiliyyah. When the call of the Messenger of Allah reached his area, `Adi ran away to Ash-Sham, and his sister and several of his people were captured. The Messenger of Allah freed his sister and gave her gifts. So she went to her brother and encouraged him to become Muslim and to go to the Messenger of Allah . `Adi, who was one of the chiefs of his people (the tribe of Tai’) and whose father, Hatim At-Ta’i, was known for his generosity, went to Al-Madinah. When the people announced his arrival, `Adi went to the Messenger of Allah wearing a silver cross around his neck. The Messenger of Allah recited this Ayah;

      ﴿اتَّخَذُواْ أَحْبَـرَهُمْ وَرُهْبَـنَهُمْ أَرْبَاباً مِّن دُونِ اللَّهِ﴾

      (They took their rabbis and their monks to be their lords besides Allah). `Adi commented, “I said, `They did not worship them.”’ The Prophet said,

      «بَلَى إِنَّهُمْ حَرَّمُوا عَلَيْهِمُ الْحَلَالَ وَأَحَلُّوا لَهُمُ الْحَرَامَ فَاتَّبَعُوهُمْ فَذَلِكَ عِبَادَتُهُمْ إِيَّاهُم»

      (Yes they did. They (rabbis and monks) prohibited the allowed for them (Christians and Jews) and allowed the prohibited, and they obeyed them. This is how they worshipped them.)

      “3:186 You will surely be tested in your possessions and in yourselves.”

      If you’re not ashamed, do whatever you want.

      2:275 Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, “Trade is [just] like interest.” But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah . But whoever returns to [dealing in interest or usury] – those are the companions of the Fire; they will abide eternally therein.

      • Douglas Kelly says:

        “The Qur’anic prohibition of taking “al-Riba” is clear and categorical. To my knowledge, nobody disputes this. But the controversy arises over the distinction between al-Riba and interest…

        In order to give an answer whether Riba and interest are one and the same, one has to understand the meaning of al-Riba in its correct historical perspective…the use of the definite article “al” before “Riba” is indicative of the fact that Riba refers to that practice of taking in increase of the amount due from the debtor which was prevalent amongst the Arabs and was familiar to them at the time of the revelation of the Qur’an.

        …a number of jurists of great repute tried to define Riba of the Jahiliyyah. According to Mujahid: (d. 104H) “Riba of the Jahiliyyah, which God has forbidden, was that if a person owed a loan to another person he would say to him, ‘I would give you so much if you grant me extension of time.’ Imam Malik (d. 119H) says: “In the Jahiliyyah, the Riba was that when a person gave a loan for a specified period and that period expired, the lender would ask the debtor whether he would return the debt or increase the amount? If he made the payment it would be accepted, otherwise the amount of the debt would be increased and the debtor allowed an extension.””

        M.A. Manan “Islamic Economics Theory and Practice” Sh. Muhammad Ashraf Publishers, Lahore 1970, 1991 ISBN 969-432-162-X

    • Hunain says:

      Mashallah this is an excellent comment – brother you’ve hit all the issues squarely on the head. Unfortunately most people’s view of interest is very limitrd

    • Umar says:

      Brother Zai, your argument at first site seems logical and reasonable. But upon further analysis, one realizes that your argument is not based on the Qur’an and Sunnah. Most of your argument seems to be based protecting the “modern” economic system. But this modern economic system is the same economic system that has created the 99% vs. the 1%. An economic system where in the past 40 years the CEO went from making 45 times the wage of an average worker to over 250 times. An economic system that was built on the backs of slaves. An economic system that was built on the foundation of colonial exploitation which is still going on today – simply look at what is going on in the Congo where they get the resources to make those iPhones and iPads you were talking about. An economic system that is slowly destroying the environment. and we can go on with many more examples.

      As for you education arguments, some of the oldest universities in the world are in Muslims lands such as in Timbuktu in Mali. Yet those people got an education without taking out interest based loans.

      So yes a radical change needs to happen within the structure of the western economic system, as they say a “systemic change”. without that, the economic path that we are on is only going to lead to our destruction. Look no further than the current climate change impact on the world. Although iPads, cars etc are nice to have and I have them as well, the ultimate goal of life is not about iPads but Jannah.

      • ZAI says:

        Brother Umar,
        I think you, and others, have misread my comments. I am NOT supporting the modern capitalist system. What I AM doing is appealing for accuracy and full disclosure.

        Let me sum it up succinctly:

        1. If we are going to advocate eliminating interest, we need to get across how PERVASIVE it is. It’s not simply a matter of alleviating the debts of the poor or gluttonous material consumption.

        Our Prophet said “…it’s dust will cover them”, and he spoke the truth.

        In the short term eliminating this system will lead to massive hoarding, food shortages, shortages of basic necessities, cash savings turning into junk, arresting of technological or industrial progress, a huge section of the now middle class sliding into poverty in terms of standard of living…like snow off of a roof..etc. etc.

        In short it’s going to be a bad couple of years, if not decades. It’s not going to be “alhamdulillah, we eliminated interest” and then watch the money, candycanes and gumdrops fall from the sky.

        People need to be PREPARED for that. If we’re going to advocate this, then we have to be totally honest about what people should expect and they need to be prepared mentally and spiritually FOR it.

        2. In the long term, an non-interest based economy will be MUCH more constricted/contracted and less productive than an interest based one. That is simply a fact.

        Much less upward social mobility, much less expansion of business/trade, much less consumption or even availability of products to consume..in short much less. It will be morally and ethically superior…but not economically if the goal is to maintain a comfortable standard of living in this dunya.

        So again..people need to be TOLD that, especially the middle class who will experience the most change in their lives. We cannot yank out the carpet from under tham and expect social harmony. We cannot sell them a false utopia through slogans. It will lead to resentment and disappointment, which will lead to more social unrest.

        People need to be mentally and spiritually prepared. As you yourself stated:

        “Although iPads, cars etc are nice to have and I have them as well, the ultimate goal of life is not about iPads but Jannah.”

        I totally agree! But you have to TELL people that and then prepare them to live with it. We cannot sell false utopias to people, things that neither the Quran nor Sunnah promise in THIS Dunyawi life.

        In short tell them the truth and prepare them to live with it! That is the gist of my comment.
        I never stated whether I was for or against interest and infact stated throughout my comment that I was not making that judgement. FYI I accept and believe the majority opinion that riba is both interest and usury, both being haraam.

        Yes…on ONE issue I will have to respectfully disagree with you and others here. I totally stand by Imam Abu Hanifah’s position in certain circumstances…

        Therefore when it comes to AMERICAN Muslims, I think a rukhsa to take loans and get educated is permissable. With the rampant Islamophobia here and the educational/tax system not going to change any time soon I think it would be ill-advised for Muslim Americans to willingly become an uneducated or economically disenfranchised community.

        I would not extend that for instance to European social democracies or rich Gulf Arab states where education is free. Nor would I extend it to unnecessary “luxuries” like a nice house, a nice car, etc.

        But definitely so for education in the United States. I think it is imperative for Muslim Americans to strengthen ourselves here given the context and/or atmosphere we find ourselves in.

        I think Abu Hanifa’s position is very wise and well thought out on this point and that is my personal opinion. Others are free to disagree on that point.

        • Khairul says:

          Salaam Br Zia,

          Thanks for the clarification above–I really appreciated it and agree with your position that what is required is a deeper understanding of the many ways that interest-based transactions currently support, not just the financial and banking system, but the ‘real economy’ of companies and goods production and service provision. As you mentioned, this isn’t the same as supporting the legality of interest-based transactions–but we need to understand more explicitly how entangled our current modes of production and lifestyle is to the interest-based system and what will be lost should the system be made interest-free overnight.

          Perhaps we also need to consider/imagine/plan/propose for what a phased approach to eliminating interest-based transactions would be, beginning with robust interest-free alternatives (some real-life examples are given in the comments but where they are absent, as I’m sure some currently transactions will never have Shariah-compliant alternatives, what we will be giving up). That would help to convert the vitriol we have today into a plan for action–which could hopefully win converts to a systemic evolution of the financial system beyond the setting up of isolated Islamic banks.

          And another wondering in my head (and I am not a specialist in this by all means): the current interest-based financial system is very much based on the time value of money, which governs how corporations assess their borrowings/investments/risk premium. I wonder how much that is based on the fact that we have moved from a gold-based monetary system to fiat money and the associated introduction of runaway money printing and inflation. Within a system which drives inflation, it seems only logical that corporations try to protect themselves from a loss in real value of wealth by gaining through interest on their investments.

          Ws.

    • Kirana says:

      All of these issues, can be resolved in a more transparent financial system than one resting on interest. Need to pay payroll and bankroll/simplify small, day-to-day transactions? This is a service the banks provide, therefore this effort and overhead should be quotable and chargeable as a service charge, rather than be funded from interest which is not related to the service at all.

      The case is similar for insurance schemes, where the conventional company makes its profit through premiums for as long as you’re fortunate enough not to have an accident or otherwise claim the insurance, pitting the company against the insured. yes, the premiums pay for salaries and effort to administer the insurance, but this can equally be more directly and transparently charged as the fund management fee, which is a payment exactly for the services rendered.

      please do not confuse the necessary activities that happened to be funded by the money raked in by interest charges, with whether interest is the best and most appropriate means to acquire the funds in the first place. and please do not be confused between banning interest, and banning all lending.

      fraud is when a system creates injustice because someone cheats within it, i.e. the system is *not* working as intended because of human failings. it is an example of a good system when it works as intended, and you need safeguards to *prevent it from being broken*, meaning all you need to do is to preserve its good functioning. but if the system even when *working as intended* creates a bias towards injustice that will accumulate over time, and needs to be “fixed” to *reverse or reduce accumulated injustices every now and then*, this is not a system that should be accepted, let alone encouraged unless absolutely unavoidable to prevent an even greater evil. please understand the difference between the two.

  2. Hasan says:

    Indeed, the Muslim community in the West has to start bringing it’s own institutions for interest free lending directly to the people. Countless synagogues and Jewish groups have free loan organizations where people can borrow money to cover emergency expenses, rent, tuition, etc completely interest free. It’s a small and narrow step, but any step towards Allah, is a step towards good and will have baraka in it.

  3. Mustafa says:

    The concept of interest and its disastrous effects socially, politically and economically are well explained in this simple articulate movie – I want the Earth and 5%. http://www.youtube.com/watch?feature=player_embedded&v=iZ-4ElQ1ktE

    This movie is based on a story written by Larry Hanningan. I hope the minority muslims who differentiate Usury and Interest and convinced that they invariably mean Riba. Many a times a white man who understands modernity is able to communicate the nature of modern oppression to our Muslim Brethren.

    A recent article in forbes Magazine (http://www.forbes.com/sites/bruceupbin/2011/10/22/the-147-companies-that-control-everything/) shows how a top few institutions control 80% of world economy. Most of these institutions are banking related. Many of them are far more powerful than several nations of the world. They have a simple agenda of maximising wealth with various interest based instruments. Other people/companies who contribute to world trade – products and services are at their mercy. People don’t realise the largest corporations of the world pale in front of these institutions. This disproportion power and wealth is solely due to interest or continuos economic oppression the entire society.

    The opinion of majority of muslims is that Interest in any form is Haram but most wonder how it can work in modern times. One needs to study current interest free models to enhance conviction in Allah’s commands. Toyota which nearly closed down after the WWII due to interest problems is one good example. The management vowed never to take loans since and they turned around successfully and are now the top automobile manufacturers in the world. Today they have huge cash reserves in billions of dollars whereas GM, Ford , VW, Fiat etc., the stalwarts of Western manufacturing dominance have fumbled so many times and have survived with Govt bailouts. It is a lesson that business can grow sans debt financing if technics and technology are subservient to Just principles. There are many such stories in our neighbourhood if one cares to look for inspiration.

    The existing paths of economic development are all interest based. However as Muslims we have to tread the roads less travelled which perhaps appear difficult but which have the Mercy and Justice of our creator.

    May Allah ease our paths and help us prosper sans interest.

    • Gibran says:

      Assalamualaikum wa rahmatullahi wa barakatuh

      If they’ve already rejected Allah’s prohibitions on riba, distorted definitions and enslaved themselves to scholars who hold opinions they prefer, what good is telling them the harms of interest?

      • Mustafa says:

        Wa-AliKum Salam Brother !

        I am of the firm believer that the common man is good but ignorant. Most people have not rejected Allah’s prohibitions but are victims of circumstances created by the powerful people.

        People in power find collective bargaining extremely difficult and therefore propagate policies which divide people. From the way British divided and ruled the world ( Most troubled spots of the world Palestine, Afghanistan, Kashmir are still continuation of British legacy) to the current breakdown of family structure in west its a continuation of power politics and continuos rise of individuality and individual dignity. Politics and Banking are hand in glove in giving more and more prominence to self actualization ( all happiness is self centred) and breaking collective spirit ( Wall Street Occupation). The west society is a product of these forces and the Occupy WallStreet movement is a result of economic ( read interest since the giant corporations are founded on interest) oppression in west.

        Islam promotes collective spirit. That is the reason why praying in Mosque is far better than at home. Collective Spirit has to extend to economic cooperation. Allah should give us courage and unity to bring back dignity to the Muslim Ummah in the light of the Koran.

        Perhaps the West will then start looking up to us and appreciate the will of Allah.

        May Allah guide us.

    • Abdullah says:

      Assalam-o-Alaikum brother we are starting a campaign against Riba…and trying to promote and start Mudarabah Finance system instead of loans for which we are collecting data and research of mudarabah benefits, its applied results and how Ribah is shaking the world horrendously…MASHALLAH you have given some awesome links ,can you plz share some more knowledge or sources and references if you have on the subject on my Email(m_abdullah_aslam@yahoo.com)…that would be really great INSHALLAH…JazakALLAH khayr for Inshallah who ever will see it from our website a Sadaqa e Jaria would be for you too…InshALLAH

  4. Anonymous says:

    Great article on the detrimental aspects of interest. Still, why is it that no one can give a decent course of action to take here in the U.S.A. about what to do instead of interest? To start a small business, you pretty much need loans. It’s the unfortunate reality. Perhaps addressing some courses of action would help strengthen this article’s message.

    • Mustafa says:

      Peace and Mercy of Allah !

      I live in India and would like to share some experiences of small business – interest free.

      One of my friends a doctor from India who did his post grad in New Jersey worked in US and returned back. He wanted to start a small 25 bed hospital with an outlay of 6 million INR. He had only 1.5 Million. He was part of the Islamic centre and an active speaker. Many of joined hands and invested in his venture with small investments of 0.5 million INR ( 6000 USD ). Since he was the primary driver ( his business plan , effort , expertise) in the business he was given a majority shareholding and others received shares at a premium. Al-hamdulliah after 7 years his annual margins are in excess of the initial capital and all the smaller shareholders have contributed to his success legally, financial structuring, local statutory compliance’s etc., as per their domain knowledge.

      In our Islamic centre we have had couple of more similar stories where entrepreneur energy is supported by cooperative financing along along with expertise ( which is extremely important for the new entrepreneur). This is model which has worked.

      A while ago in Sydney in conversation with the Taxi driver a Greek Christian he mentioned a similar story. Australia being a country of immigrants is very competitive. The Greeks have a common centre for culture wherein economic cooperation is big. Any Greek who enters this group can expect small financing to start business or help in terms of emergencies.

      Cooperation and Trust in Islamic Centres based on Islamic principles can perhaps help in US too.

  5. Muhammad says:

    I would like someone to answer how you get an education without a rich family or student loans. Or how you support a family with an hourly job and no education. If someone could answer this I would love to hear it.

    • Gibran says:

      Assalamualaikum wa rahmatullahi wa barakatuh

      http://quran.com/65/2-3

      Whoever has taqwa of Allah, He makes for him a way out-and provides for him from where he does not reckon.

      The number one thing of course is dua.

      • Muhammad says:

        Wa alaykum salaam wa rahmatullahi wa barakatuh,

        I was looking for something a little more specific. We of course make du’a and believe in Allah’s ayaat. I kind of thought this part would be assumed in my question. It is a serious predicament that many Muslims are finding themselves in. It would be beneficial to a lot of people if there was a formula for this.

        • Gibran says:

          Assalamualaikum wa rahmatullahi wa barakatuh

          In that case, then within the qadr of Allah one looks for whatever halal methods there are of paying for education and getting a job. Certainly haram options of getting rizq may be far more appealing.
          http://quran.com/29/2-3

    • Kirana says:

      the practical problem today in the East is a lack of absolute funds to cover everyone’s need, whereas in the West it is merely the lack of infrastructure. so in your case you may need to resort to a scholar’s advice to determine the priorities.

      however do not confuse the current situation with the universal conclusion that there can never be an interest-free solution that can possibly be devised for someone to obtain education. this is false. there is a reason why you are funneled into interest loans systematically, and that reason is to bind your future earnings to a financial institution’s profit ledger. whereas the society and the government gains from an educated populace, this has been enough reason for many governments, religious or secular, to fund or subsidise further education to the qualified without asking for money out of you afterwards. there is no actual need for someone to profit from a venture which ultimately benefits the society such as education, just as there is no need for you to have a different police force, army, firemen etc. service level depending on how much you personally are able to pay. were the society so inclined or interested, there would be government grants, zakat funds, waqaf education funds, interest-free loans, mutual investment loans, etc.

      in a particular situation, it may be that you are genuinely forced into something you would rather not have to do, but i hope you don’t assume that this is because islam does not provide a solution. it does – it is the society you live in that does not want to allow it for you, or if it is ambivalent, nobody has made the initiative to create the infrastructure yet.

  6. Gibran says:

    Assalamualaikum wa rahmatullahi wa barakatuh

    “What constitute Riba
    The prohibition of Riba in Islamic Shariah is so vocal and direct that none really succeeded in convincing Muslim
    jamat to undo that prohibition. The Prophet (pbuh) said in his last sermon “God has judged that there shall be no
    riba”. However, people played with the word “Riba” itself in an attempt to confuse the ummah on “What
    constitute Riba”. They argued that despite all the Nus (text) prohibiting Riba, there is none that explains what
    “Riba” actually is. The purpose and intentions of this argument usually is to make the Hukm of Riba look trivial
    or at least create enough doubt in minds of common Muslims who are not aware of details, and then claim that
    there is different of opinion amongst scholar.
    Their arguments themselves are trivial, and remind us of mindset of Bani Isreal when they asked questions to
    Moses (as) when they were asked to sacrifice the cow. Instead of sacrificing the cow they laughed at the
    Commandment and kept asking “what color should it be?”, “what age should it be?” and ask Allah to give us
    more details, until Allah swt specified all details and they sacrificed, but even then they did it unwillingly66
    .
    Now, if someone does not really want to understand Riba and refrain from it, then even if Allah swt discusses
    with the person directly, it will not be enough for him. Everything else is mentioned in the Quran and explained
    to us by the Prophet (pbuh).
    We will not be discussing the details of their argument, but will summarize various arguments that exist in terms
    of what constitute Riba.”
    http://learndeen.com/docs/research/Riba%20in%20Islam%20v0-4.pdf

  7. Mohamed Ali says:

    Bismillah,

    As-salaam 3alaykum wa ra7matullahi wa barakatuhu,

    i just do give a comment for those who do not have much time to read those long answers and debate-orientated comments.

    Riba’ is haram according quran. Riba’ is not an interest but it could be part of an interest. If a bank gives a loan to you – like 100 dollars – then you have to pay 100 dollars back plus the interest for the service the bank has rendered. If you do pay more than the service the bank has rendered to you than it would be not justified and it would be a Riba´. The amount for the service of the bank has to be very small ..

    The financial system of IMF is based on Riba´ – it is the reason for economic problems, poverty, unemployment..wars etc.

    I do hope it was a short and brief comment..

    wa salam

  8. Douglas Kelly says:

    JazakAllahu khayr for your outstanding article. You said in one page what I needed two separate parts to convey: http://www.suhaibwebb.com/society/economics/we-don%E2%80%99t-go-to-bars-why-do-we-go-to-banks/

    Thank you for elevating the discourse on this critical aspect of our lives in this dunya.

    As the Fed lowers rates to near zero, I wonder if it is not the hand of Allah (swt) making them think it’s their own idea! “They plot and plan, and Allah too plans; but Allah is the best of planners.” (8:30)

  9. confused says:

    Despite all the wonderful comments and the details described in the article itself – I am still confused as to what is an alternative to interest (assuming interest = usury = riba, and these are all prohibited).

    I got a student loan for my education, as my family couldn’t possibly afford to pay for my sister and I in college. After graduating I got a job in the financial industry (which is obviously based on riba/interest/usury). Ofcourse as a good muslim I had the option to turn down the job, but realistically…what were my other options? I had a looming student loan to pay off. I married my husband the same year, and he also works in the financial industry. Together, we were able to purchase our first home within a few years of getting our jobs. Of course we had the option to not buy a house, and continue renting. But the company we were renting from was obviously also involved in riba-related activities in some way or other.

    We also own two cars…one is leased, one is financed. Considering that we were only able to afford a house far off in the suburbs, although public transportation was an option if we had 2 and a half hours of commute-time each way- a total of 5 hours each day commuting, because we are prohibited to pay interest on our vehicles.

    And now I am in graduate school…my undergraduate loan finally paid off. But I now receive a grant from a corporation that is built on the principles of riba/interest/usury. Ofcourse I had the option to refuse the grant and not go for grad school at all.

    But really…realistically…do we have a choice? I really truly hope someone can give me an answer.

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  11. also confused says:

    Nobody is offering alternatives to interest-financed education in the West, especially to students in graduate degree programs. For students who don’t come from extremely affluent families, the debt presents major issues. Loan debts can range from 100k (very ideal and unlikely) to 500k. I can’t understand how it’s possible to avoid interest. Islamic banks don’t finance education, scholarships won’t make much of a difference for the vast majority of people (there isn’t enough money anyways), and there isn’t an infrastructure in the West for Muslims even though we’re the most affluent group in America. Does this mean for most students we can only attend graduate programs after working for a near decade out of college? I’m looking at all the options, but there really aren’t any. The Queens first revealed words was “iqra’” but that’s not seeming possible without interest-based loans…

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