Shakir Said Khan 3808 Shahid Ali Khan 3732 MBA

Essentials of Islamic Finance

Q.What is the economic, social and moral rationale of the prohibition of riba or interest? Islam is a religion that advocates a complete way of life. For Muslims, Islam provides guidelines and doctrinal rules regarding interactions with each other and dealing with different issues. As per this encompassing doctrine, Islam has many rulings regarding the practices of economics and trade. One such ruling is prohibiting the practice of partaking in interest which is termed as Riba. The socio-economic reforms brought about by the Quran, such as prohibiting the exploitation of the poor, the weak and slaves (Esposito 2005, p. 29) are one the most striking features of Islam as a religion, which aims to bring about equality. The moral philosophy of Islam does not allow for socio-economic injustice, and it advocates for an equitable wealth distribution amongst individuals. There exist many reasons for the prohibition of Riba. They include: its utilization as a form of injustice and exploitation, and its role in leading to an unequal distribution of wealth and cases of abject poverty in societies. Quran prohibits its followers from Riba (Usury) and has couple of stern verses to dissuade the people from brining in the concept of Usury in their economic & social life. At another place Allah says: O ye who believe! Fear God, and give up what remains of your demand for usury, if ye are indeed believers. - Quran Verse 2:278 (Chapter Al-Baqara)Verses like such (if ye are indeed believers.) further highlights the gravity of offence by exhorting people to obey if they indeed think themselves as Muslims. Quran not only put a stop on Usury but it also encourages leniency towards debt-ridden as way to social upliftment. More just on fairer application of this approach of the Quran with respect to the reasons if applied to the economic spheres is the demand for social justice [21]. This could be considered the real reason for the prohibition of interest. Gambling and alcohol are also prohibited in Islam. In the case of the prohibition of wine and gambling, it was mentioned that In them is great sin and some profit for men, but their sin is greater than their profit.[22] This is the general approach of the Quran with regard to reason.Therefore, it can be iterated that there

Shakir Said Khan 3808 Shahid Ali Khan 3732 MBA

exists a moral prescriptive, which is backed by rational arguments of justice, equity and sound economics, in the prohibition of Riba. And, as highlighted by the example of Islamic banking, the rationale for the prohibition of Riba remains highly relevant in contemporary Islamic financial systems Moral: Acceptance of Usury discourages people from doing good to one another and lend out of good will. A society which encourages interest on lending will require needy people to pay back more than he borrowed, which quite often is a source of huge burden. Social: If interest is allowed, the rich (who are most likely to be lender) will exploit the poor (borrower). As a result, the rich becomes richer and the poor becomes poorer. This generates greed and hatred among the poor toward the rich, resulting in social disorders, conflicts and at times breeds revolutions & movements.

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