INTRODUCTION

When the poor are permanently poor, and the rich, permanently rich, that is oppression! All
around the world today that economic oppression exists, and is constantly increasing - the
poor grow poorer and the rich, richer. Riba is the cause. It is centered in the West, but also
present around the world, is constantly sucking the wealth of mankind and impoverishing the
masses through Riba. Their ultimate objective is to utterly enslave all of mankind in a new
sophisticated slavery. Political, legislative, judicial and legal systems, the media etc., are all
created by the oppressor, and all function to preserve the system of economic oppression.

The objective of this assignment is to analyze what exactly riba is all about from the
perspective of especially Quran, Sunnah and from the perspectives of other great Muslim
scholars. One of the main objectives is to identify the negative impacts of Riba on the society
as well as the economy as a whole. Another motive is to differentiate between Islamic and
Conventional banks because Riba nowadays is mainly related to banking and finance, and we
Muslims normally engage in Riba through the banks intentionally or unintentionally. We are
also intending that the reader should clearly understand the difference between Riba and
Trade.

THE DIFFERENCE BETWEEN RIBA AND TRADE

Riba is different from trade, though, the difference may be very fine. Fine as it may, one is to
be distinguished from the other since the Quran itself declared such distinction, attributing
one with prosperity and blessings, and the other with wrath and war.

The jurists hold that, unlike bay’ (trade), riba implies that money is loaned for self-generating
or self-expanding value which is not a form of sale. For them, this growth increase of money
is inequitable. In bay’ there is purchase and sale which is a lawful economic activity, a
productive movement, something is exchanged for something, such as goods for money or
simply goods for goods. In money-lender’s capital, which is loan, there is no such legal or
moral relationship mediating any commodity except that here capital is loaned for an increase
in itself. It is the capacity of money to increase its own value without the economic activity of
sale. This the point where the Quran so clearly states when it refutes the theory of money
lenders that riba is similar to bay’.

Riba is of its very nature invalid exchange because one party receives an increase without
giving to the other party an equivalent return. This unearned increment is the root of injustice
and exploitation because it enriches the class of money lenders who accumulate wealth by
impoverishing others.1

Abu al ala Maududi gave four fundamental differences between trade and Riba, that is

1. In trade the purchaser and vendor exchange on the basis of equality, for the purchaser
derive profit from that which he has purchased from the vendor, while the latter gets
profit in consideration of labour and time which he spends in procuring that
commodity for the purchaser. In interest transactions there is no division of profits
between the two parties on the basis of equality. The creditor gets for himself a
definite amount of money for his loan, but all the debtor gets is certainly the time to
use the money, whilst time does not necessarily procure him profit.
2. In trade, however great a profit the vendor might demand from the purchaser, he does
so only once. In interest dealings, the creditor does not cease to demand his interest (as
long as the principal is not returned).
3. In trade, the moment the commodity is exchanged for its price, the transaction comes
to an end. The purchaser does not give anything after that transaction to the vendor. In
hire transactions, whether of house, land, or other material, the original remains intact
and is returned to the owner afterwards. It is only for the usufruct of it that the hirer

1 Abd. Al Mun’im Mahmud al Qusi, “Riba, Islamic law and Interest”, Temple University,
1982, p.121
 has to pay rent to the owner. In the case of interest, the debtor actually spends the
amount borrowed from the creditor and has to return the same amount with some
addition to it by way of interest.
4. In trade, professions and crafts, a person benefits after undergoing labour, hardship, or
by his skill or art. In interest transactions he only lends out his surplus amount and
becomes, without any personal labour or hardship, a prominent partner in the earnings
of his debtor.2

It should be clear from the above discussion that Riba is different from bay’. The Quran in
unambiguous terms puts bay’ against the concept of Riba. Allowing the former while
prohibiting the latter.

PROHIBITION OF RIBA IN THE HOLY QURAN

In several verses of the Holy Qur’an, Allah(swt) has mentioned the consequences of
riba. The Qur’an did not declare the prohibition of riba in the early stage of revelation, rather
we find that the complete prohibition of interest came sequentially.

In the Qur’an Allah(swt) says:

“That which ye lay out for increase through the property of (other) people, will have
no increase with Allah: But that which ye lay out for charity, seeking the countenance
of Allah (will increase): it is these who will get a recompense multiplied”. (30:39)

“That they took riba (usury), through they were forbidden and that they devoured
men’s substance wrongfully – We have prepared for those among men who reject faith
a grievous punishment.” (4:161)

“O ye who believe! Devour not usury doubled and multiplied; but fear Allah, that ye
may (really) prosper.” (3:140)

“Those who devour usury will not stand except as stands one whom the evil one by
his touch hath driven to madness. That is because they say: ‘Trade is like usury.’ But
Allah hath permitted trade and forbidden usury. Those who after receiving direction
from their Lord, desist, shall be pardoned for the past; their case is for Allah (to

2 Abu al A’la al Maududi “The meaning of the Quran”, volume 1, p.p 201-205.
 judge). But those who repeat (the offence) are companions of the fire, they will abide
therein (forever)” (2:275)

“O you who have attained faith! Remain conscious of God, and give up all
outstanding gains from Usury, if you are (truly) believers” (2: 278)

Abdullah Yusuf Ali3 in his commentary on the Holy Qur’an mentioned that usury is
condemned and prohibited in the strongest possible terms. There can be no question about the
prohibition. Owing to the fact that interest occupies a central position in modern economic
life, and specially since interest is the very life blood of the existing financial institutions, a
number of Muslim countries have been inclined to interpret it in a manner which is radically
different form the understanding of Muslim scholars throughout the last fourteen centuries
and is also sharply in conflict with the categorical statements of the Prophet
Muhammad(saw).

The Riba which is prohibited in the Quran is called Riba al Duyun, Riba al Jahili or Riba al
Nasiyyah. Some of the followers of the Prophet consider it as the only Riba which is
prohibited in Islam. They depend on the saying related to Abbas after Usama bin Zaid which
reads to the effect “There is no Riba except Riba al Nasiyyah”.

Ibn al Qayyum al Jawziyyah, calls this type of Riba as Riba al Jaliyy(obvious riba),
distinguishing from another type which he calls Riba al Kafiyy(concealed riba). He says that
both of them were practised by the pagan Arabs who use to defer the due date in exchange for
an increment added to the principal. The longer the period of the loan, the more one received
in return, until the principal is doubled or multiplied.4

PROHIBITION OF RIBA IN THE SUNNAH

3 Ali, Abdullah Yusuf., The Meaning if the holy Qur’an , Commentary no.324-326, Amana
Corporation, Brentwood, Maryland, USA, 1992, p.115.

4 Ibn Qayyim al Jawziyyah, “I’lam al Muwaqqi in an’ Rabbal Alamin”, 1st Edition, Al
Maktabah al Tiarriyah al Kubra, Cairo, Vol 11, pg 99
Everyone who has something to do with riba, whether he is one of the main parties involved
or is a middleman or facilitator, has been cursed. The companion Jabir (may Allah be pleased
with him) reported:

“The Messenger of Allah cursed the one who accepted riba, the one who paid it, the one who
recorded it, and the two witnesses to it.” He said: “They are all alike.” (Sahih Muslim)

‘Aun ibn Hanifa reported from his father that the Prophet (peace be upon him) had
condemned both the receiver of interest and its payer. (Bukhari)

Based on this, it is not permitted to do work that involves writing riba-based contracts and
conditions, paying or receiving riba, depositing it or guarding it. Generally speaking, it is
Haraam (prohibited) to be directly or indirectly involved with riba in any way, shape, or form.

It is also reported that the Prophet (peace be upon him) said: “Avoid the seven sins that doom
a person to Hell.” They said, “O Messenger of Allah, what are they?” He said:

“Associating others in worship with Allaah (shirk); witchcraft; killing a soul whom Allah has
forbidden killing, unless that is done lawfully; consuming riba; consuming the property of
orphans; running away from the battlefield; slandering innocent chaste believing women.”
(Sahih Bukhari and Sahih Muslim)

The ugliness of this major sin can also be seen in the following words of the Prophet (peace
be upon him):

“There are seventy-three types of riba, the least of which is as abhorrent as a man having
intercourse with his own mother and worst of which is [violating] a Muslim’s honour and
sanctity.” (Al-Hakim)

Samurah ibn Jundub (may Allah be pleased with him) reported that the Prophet (peace be
upon him) saw in his dream a man standing in a river of blood. On the riverbank stood a man
who had with him stones. Each time the man in the river wanted to come out, the man with
the stones would throw a stone into his mouth which drives him back to his position. The
Prophet (may Allah be pleased with him) asked about this man in the river at which he was
informed he was a man that dealt with riba. (Sahih al- Bukhari)

During the Israa’ (the ascension), the Prophet (peace be upon him) passed by a group of
people, whose stomaches were like that of houses. In these houses were snakes that could be
seen from the outside. So the prophet asked Jibreel (Angel Gabriel) about them at which he
said: “They are the ones who deal with riba.” (Ahmad)
The prohibition of riba does not just apply to deals between the rich and poor. It is a general
prohibition that applies to every person and every situation. Indeed how many rich people and
big businessmen have gone bankrupt because of riba! The least harm that riba does is to
destroy the barakah (blessing) of the money, even if a person’s wealth is great. The Prophet
(may Allah be pleased with him) said:

“Even if riba is much, it will end up being a small amount.” (Al-Hakim)

This does not refer to whether the ratio of interest is high or low; all riba is haraam
(prohibited), and the one who deals with it will be raised up on the Day of Resurrection like
the one who stands beaten by Satan as per the verse cited earlier.

Sayings of the Companions-

Imam Adh-Dhahabi in his book, “The Major Sins” narrates some of the statements of the
companions of the Prophet (peace be upon him) concerning riba:

‘Abdur-Rahman ibn ‘Abdullah ibn Mas ‘ood (may Allah be pleased with him) reported his
father as saying: “When zina (adultery and fornication) and riba appear in a place, Allah
orders its destruction.”

Abu Bakr (may Allah be pleased with him) said: “The one who takes and the one who gives
riba will go to the fire.”

TYPES OF RIBA

Riba al-Nasiah

This form of Riba is called as Riba Al-Qur’an. The word ‘nasi’ah’ is derived from the word
‘nasa’a’, which means to postpone, to defer or to wait. Technically, Riba An-nasi’ah means
bringing to the lender a fixed increment after an interval of time, or extension of time over the
fixed period and increase of credit over the principal. In simple terms, it can be explained as
the time that is allowed for the borrower to repay the loan in return for an “addition” or a
“premium”. Therefore, it means the interest paid on (or gained by) loans as practiced by
conventional banks today. This form of Riba is prohibited in the Qur’an in 30:39, 4:160-1,
3:130 and 2:275-2815. The hadith of the Prophet (may peace be upon him) states (translation);
“Narrated from Jabir said that Allah’s messenger (may peace be upon him) cursed the
accepter of interest and its payer, and one who records it, and the two witnesses, and he said:
They all are equally guilty.” (Muslim, also in Thirmidhi and Musnad Ahmad). This type of riba

5 See Muhammed Asad. The message of the Quran( dar al Andalus, 1980) the
commentary on verse275, note no. 262,p,61.
was quite widespread and well-known during the time of the Prophet (peace be upon him) and was
practiced in a variety of ways:

1. The creditor would lend money to a debtor for a fixed period of time. When the time
had expired and the debtor was unable to pay the debt, he was allowed more time to
repay it on the condition that he would repay more than the principal.

2. The creditor would lend a debtor money for a fixed period of time at a determined rate
of interest to be paid monthly. When the time had elapsed the debtor returned the
principal to the creditor.

3. The creditor would lend a borrower money for a fixed period of time at a determined
rate of interest to be paid together with the principal on the expiration of the time.

Note how the first point is what many Muslims today fall for – the much-publicised “interest-
free” offers. These offers are a pure form of riba nasai. If the full loan amount is not repaid
within the specified term, interest is then charged on the full loan amount.

Similarly, charging late fees for overdue payments falls under riba nasai. Therefore, it is
prohibited (Haraam) to charge an excess fee for late payments. If a person knows that they
will be forced to pay an extra amount of money for an overdue invoice, they should ensure
prompt payment to avoid paying an amount which constitutes riba. Credit cards which allow
for an interest free period falls in under this category.

What must be remembered is that the contract taken out for such loans remains an Islamically
void contract, because of the stipulation of riba within it, and the ease through which interest
will be paid, hence making the Muslim liable for the punishment for their sin.

Riba al-Fadl

Islam promotes justice not only through elimination of exploitation resulting from interest but
also through provisions of rulings on any form of dishonest and unjust exchanges in
transactions. These types of unjust or exploitive activities are encompassed in Riba Al-Fadl,
also called Riba Al-Sunnah or Riba Al-Kahfi. In Islamic Shari’ah, it refers to the Riba
encountered in hand-to-hand purchases and sale of commodities. Abu sa’id Al-Khudri (Allah
be pleased with him) reported Allah’s messenger (may peace be upon him) as saying: Gold is
to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, salt
by salt and like by like, payment being made hand to hand( ribawi properties). He who made
an addition to it, or asked for an addition, in fact dealt in usury. The receiver and the giver are
equally guilty.”6 (Muslim, also in Thirmidhi)
Although there are only six commodities mentioned in this hadith, a vast majority of scholars
are of the opinion that it is of general application and is not confined to the six commodities
mentioned. In another hadith it is narrated :“Abu Sa’id reported: Bilal (Allah be pleased with
him) came with fine quality of dates. Allah’s messenger (may peace be upon him) asked him:
Where did you buy them? Bilal replied: I had inferior quality of dates and I exchanged two
Saas (of inferior quality) with one sa (of fine quality) as food for Allah’s messenger (may
peace be upon him). Whereupon Allah’s messenger (may peace be upon him) said: Woe! It is
in fact usury; therefore, don’t do that! But, when you wish to buy dates (of superior quality),
sell (the inferior quality) in a separate bargain and then buy (the superior quality).”
(Muslim, also in Musnad Ahmad). It is considered Riba by way of excess over and above the
quantity of the commodity advanced by the lender to the borrower. These types of barter
transactions were very common during the pre-Islamic era. People would exchange goods for
goods, and it was the practice of the poor to borrow a certain quantity of cereals from the rich
in the village with an assurance to repay them with a larger amount later.
According to Yusuf Saleem he says that when ribawi properties are exchanged against each
other two conditions should be met, that is- on the spot and equality.7

The differnce between Riba al Nasiah and Riba al Fadl

1) Riba al Nasiah is prohibited by both the Quran and Sunnah while Riba al Fadl is
prohibited by the Sunnah only.

2) Riba al Nasiah may happen in cases of loan where the parties are the lender and the
borrower while Riba al Fadl may happen in a sale contract where the parties are the
seller and the buyer.

3) In cases of debt it is possible that the debtor voluntarily returns an additional amount
to the creditor while in exchange of ribawi commodities against each other, any
addition by any of the parties is prohibited.

6 Abdul Hamid Siidiqui, translation of sahih muslim (Beirut, Dar ul Arabiyah, 1972) Book
10, Hadith no-3854

7 An introduction to the theoretical foundations of Islamic transactions by Yusuf Saleem,

Ilmia publishers 2009.pg 118
 4) Riba al Nasiah arises in relation to time while Riba al Fadl may also arise in a spot
transaction

5) Riba al Nasiah is considered bad in itself while Riba al Fadl is considered bad for the
sake of others as it leads to Riba al Nasiah.8

RATIONALE FOR THE PROHIBITION OF RIBA

M. Umer Chapra who has done a work on "Prohibition of Interest: Does it make sense?” says
that:

“... economic instability seems to have become exacerbated over the last three decades as a
result of turbulence in the financial markets. One of the important reasons for this, according
to Milton Friedman, a Nobel laureate, is the erratic behaviour of interest rates. [referring to
Friedman, Milton, "The Yo-Yo U.S. Economy", Newsweek, 15 February, 1982, p.72.]”

In this assignment we examine the major arguments or rationales given in

support of prohibition of interest and whether there has been any change or
refinement in these arguments over the past few decades. We have selected two
sources who take a conventional position on the issue: Yusuf al-Qaradawi and
Sayyid Abul Ala Mawdudi. The reason for selecting these two polemical sources
are as following: (a) While many others have written about prohibition of interest
in a scattered manner, these two authors have enumerated a list of arguments
against interest. (b) Modern Islamic banking/finance movement has been deeply
influenced by the contemporary Islamic movements, in which these two authors
are held in the highest regard. According to Yusuf Qaradawi says-

1) Unfair exchange (taking something from a party without giving him something in return);
2) moral argument: Undermining of charitable attitude among people;\
3) social argument: Lenders are usually wealthy and borrowers are generally poor, a disparity
leading to exploitation and undermining of human kindness and charity

According to Mawdudu-

1) The main reason why Islam abolishes interest is that it is oppression (zulm) involving
exploitation. … The second reason why interest has been abolished is that it transfers wealth
from … Khurshid Ahmad, pp. 253-254]
2) interest as a contributing factor to income inequality

8 An introduction to the theoretical foundations of Islamic transactions by Yusuf Saleem,

Ilmia publishers 2009.pg 120