Channel: Jamal Badawi
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In the name in the Name of God, the benevolent the Merciful, the creator Sustainer of the universe, peace and blessings upon His servants Mr. Mohammed forever mean, I greet you with a greeting that is common greeting in Islam assalamu Aleikum, which means peace beyond you. Today we have our 13th program in our series dealing with the economic system of Islam. We'll be continuing our discussion of the topic of prohibition of interest in Islam. I'm your host hammer Rashid and I have joining me as usual Dr. Jamal battery of St. Mary's University for the tamale assembly.
It is customary whenever we begin a new episode of Islamic focus, we always take a few minutes to summarize the main points that we touched on in our previous program. Can I ask you perhaps just to summarize the main points when we began this discussion of prohibition of interest in Islam? Okay, what the previous program was a continuation of the broad topic of production and productivity in Islam. And after having gone through so many programs indicating Muslim attitude towards science and technology.
We touched on some of the specific measures in an in an ideal economic system in Islam, where there is a great deal of incentive or inducement for productivity. And we said that this could be done in a variety of ways. We give three examples or at least mentioned three. One is the question of land use. And we indicated again, how Islam encourages reformation of land use of it and making
the as a condition for keeping this land to make it productive and useful for the community at large. Secondly, we discussed also the or began discussing, I should say, the provision of interest in Islam as one of the things which induced productivity rather than curtail it really. But to start at first by saying that it is a mess to consider interest as a precondition for having any advanced economic system. And we started looking at it first from the Muslim Islamic law point of view. That is how it is clearly and unequivocally forbidden to the Muslim in the Quran is the word of God as believed by Muslim and the prophetic tradition. We indicated that Islam was not the only face which
prohibited interest or usury as the old name used to be.
We also indicated that this prohibition is not restricted only to excessive interest, but any interest small or large. spermidine indicated again, what the Quran indicates as the false comparison or analogy people make between trade and interest and indicated again, why these are not exactly the same thing. And finally, we said that the prohibition is not only in the matter of
consumption loans, but even production loans. Because this kind of interest was known already. When these verses were revealed in the graph, not only consumer loans, but productive notes.
We wanted to begin today's program, I could perhaps ask you to give us some information on the types of interests that were prevalent in pre Islamic days. What Muslim jurists and historian divide them into two broad categories. One category of, of interests dealing, quote, unquote, that was prominent among the
Slavic days, is called a nasty rubber and the car, which means basically, as explained by Ahmed and Rosie, is somebody lending you an amount of money for a given term? And then when the time comes, and you're not able to feel he says, All right, I will delay your loan for another year, but you have to pay me X amount extra 10%, more 15% or whatever other amount. A similar reform also excuse that in buying and selling, like I sell you one item, and Sarah it's worth $1,000. Now, you don't pay it in the specified time. Then I come back and say all right, you can delay your payment for a few more months, but you have to pay me 10% extra.
This one or this type of interest is clearly and unequivocally there is no question at all about it's being prohibited in Islam. The second major category they call it
About a viewer or something which relate to the exchange of commodities or buying and selling that specific type. And even there, we find sub categories. But without getting into technicalities, perhaps the most objectionable type, which gets very analogous to the first absolutely prohibited is the case where you exchange one commodity for the other. In other words I gave you, for example, so many bushels of wheat now, and asked you to return it back to me, after a certain period of time, but you have to return more. Assuming again, we're talking about the same quality as I give you 10 questions, but you have to give me 11 versions.
Now, this has led to a little bit of confusion in the minds of some jurors, some of them said that does not seem as clear cut case, as the lending of money, as some even referred to as saying of the Prophet where it seemed to emphasize more on the first type of usury or interest, but not this one.
So some, but not too many few, including Abner bass, one of the early jurists said that it is not exactly or clearly forbidden as the first one.
However, the great majority of Muslim jurists feel that there is not much substantive difference really, between the two.
Because as the Prophet indicated in one thing, narrated in Bukhari and Muslim, when you talk about exchange of commodities, he indicated and insisted that it should be equal. And anyone who asks for more, is really committing Riba or really asking for what is equivalent to interest that's which is forbidden, and Islam.
The other reason why I feel that the majority opinion seem to be really more than justified
is that if you open the door and say this is permissible, and this is not permissible, people will find a backdoor around the law. For example, if you want to avoid distressed interest, and you want to borrow $1,000, from me, all I can do to beat the system is to buy two ounces of gold. Let's say for this $1,000, I'll give you two ounces of God and Sarah, here is my loan to you. But when you paid back, you paid two and a half ounces.
It's just playing tricks really, instead of lending you money, I'm giving you gold, but asking for more gold later on. That's why the property exchange must be of the same amount if it's the same type of quality, or else, it's just a backdoor. Of course, this assumes talking about things which are of the same quality, the question perhaps may arise, if you want to exchange some commodity of different quality, I have a better grade of wheat, you have a lesser
grade of wheat. And when we exchange this commodities, what will happen, the solution is clear as the Prophet peace be upon him recommend
that is to avoid any doubt in mind. To avoid any backdoor, the best way would be to sell. If you need the money, I sell the good quality wheat that I have. All right, and give you the money. And then when you return the money without any increase, you can return it in the form of we'd have a different quality. But again, money here or currency would be used as a medium of exchange to achieve justice and equity and not really to beat the system.
Now, there are some who would suggest that, among some jars, there are those who would take a more lenient view in terms of
their attitude towards interest. Can you perhaps clarify for us the basis of some of these claims that that there are more case for more lenient the interpretation of the interest? Well, first of all,
I would not discuss the question from the vantage point of raising any issue about political affiliation or political pressures on some jurists to give up or to give the verdicts that their particular oppressive government may be demanding from them or pressing them.
This might be the case. In very rare situations that may exist. I'm not totally eliminating, but I'm not even discussing on that basis, because that's an easy way to go out and not discuss the things more objectively. But I would say even if you assume good intention and lack of pressure, I think,
as Prophet Mohammed indicated, that my oma or my followers will never have a unanimous view on something which is wrong. So there may be some humans who may slip or make a mistake here or there even with good and
tension, but never the the majority of the consensus of Muslim jurists and the consensus that it is forbidden. So we have to look at it only as isolated cases. But some of the reasons why this kind of attitude or linear attitude was taken may be explained by the fact that some jurors may be very well trained in Islamic law as such an Islamic teaching, but they may lack a
reasonable understanding of economics and how economic system operates. And if you go to a Judas like that, who doesn't have this background, and you tell him that it is impossible for our country to progress and have development if we were to follow strictly the rules about interest. And if he gets the impression that it is impossible, impossible, to have the means of living and support the development without interest, they may use a role in Islamic law, which says when you're really forced, not by choice, you may resort to that. But that assumption is wrong in itself.
Let's discuss even some of the
basic grounds that people use for this justification. And this was discussed by Sheikh Abu Zahra in response or rebuttal to this.
As indicated earlier, some might use the rule of necessity.
But again, there is no reason on Earth. Why interest would be an absolute necessity without which you can't really have an economic system. We have seen that and we'll see it further as we discuss the topic that are definite, and better alternatives than than interest.
Some people might say, if you don't take interest money would be idle, and we'd lose in value. The answer to that and who said that is then agree with the idea of leaving money idle. It's not the idea of investing the money or getting some income on it. It is the question of how you invest that whether there is sharing and profit and loss or a fixed type of interest.
I should add here that
even among the rare jurists who might have taken what you call a lenient attitude, towards interest, some of them after they express their opinions, they got very strong rebuttals from other learned jurists, and apparently they realized their mistakes and kept quiet, they didn't argue back, which is tantamount of illegally withdrawing their position. And another case, relatively more recent case, a person even who published this kind of view, particularly about the investment or saving in the post office, as was done in some countries under the administration of the post office for text entry. It was reported also that before his death, he also came back or reversed his position
on the topic. So the thing that should be remembered here is that an honest Muslim, would not try to see some mistake or slip by a jurist and say, oh, haha, you know, this is someone who's learned, we said that you can take it, that's not an honest approach, one has to look into the evidence, and to the fact that it has been strongly
rejected by the great majority of jurors. And it is impossible, impossible, that God would forbid us something which is absolutely essential for our lives. Just like saying God say, don't eat. You know, it's impossible that such a command would exist in Islamic teaching. So when God says, Don't take interest or give interest, it is impossible that this command would contradict with basic survival needs of human beings, there must be alternatives. And I'm sure many of our viewers who are watching who are accustomed to the system in in North America where interest is very, very prevalent, must be anxious to hear some of the reasons as to why Islam has prohibited interest.
Could you perhaps give us some reasons? First of all, one has to be quite honest, by giving the first and most important reason for at least from the Muslim point of view.
As we have seen in the previous program, and to some extent, this one, the progression of interest in Islam is unequivocal, there is no ifs and buts. It's so clear text for the Muslim, if God who knows our needs as humans, and who's revealing these teachings for the overall welfare of the individual, and society and the world at large, has forbidden that. There must be an awful good reason, even if we can find all the reasons that itself suffice for the believer. But that's not all.
of all, the attitude of
taking and given interest
is an activity or behavior, which seems to reduce the feelings of compassion and sharing in society and tend to foster the attitude of greed. And in many cases, even exploitation, what somebody might say is, well, you're literally talking about the consumption loans, really, some ethical
objections to it, but how about others, other loans used for production? What's wrong with that, there are a number of wrong things. First of all, when
an economic system is based largely on interest, you will end up having a few individuals or institutions who have tremendous and disproportionate power in society, these are the ones who control loans or control, you know, money.
And when they control money, they some, if they were individuals would not really be motivated to seek some other productive
work to benefit society, because they can just sit down and simply because they have some wealth, which they inherited or earned or whatever, they can just sit idle. And money begets money in that case, which is should not really be the case. And they get disproportionately rich. And when you get a few individuals like that, or institutions, it spells, it spells out on the political system, because again, the so called, you know, industrial, war machinery, industrial complex, complex would really exert a great deal of pressure in a political sense to guarantee the protection of their particular interest. And that could lead also to political corruption.
Secondly, as a principal in Islam, which is both ethical and practical, is a ruling standard law called alone move, which means that if a person
is subjected to the possibility of profit, he should as well be subjected to the possibility of loss, if a person may get large profits, he should also be,
you know, prepared to accept a lower profit depending on the achievement of a particular venture, or enterprise. Now, this whole notion, ethical and practical as it may be, is not there in the question of interest. Why? Because when you lend some money, you're guaranteed you're given certain fixed interest bearing type of document, regardless of what profit the enterprise is making. If they lose, they still have to pay you.
If they make more profits, you don't get all the profits, you get part of it and they keep the rest. And that is contrary to Islamic philosophy that people should share equally in the positive and negative in the profit and loss. There are aspects which relate to one verse recited from the Quran in chapter two, verse 275, which like in those who deal in interest, are usually as one who's touched by devil or by by Satan.
And the possible translation to that into our modern term is the kind of psychological torment torment ation, or tournament in anxiety that people who deal in interest are subjected to ask anyone
who has a house, for example, during this last few years, particularly the last one or a year or two, when the mortgage was coming up for renewal, how much anxiety about the great impact on the change of interest on the monthly payment, there is anxiety on the one who has to pay interest. There may be also anxiety on one who's taking interest, what's going to happen to interest interest rate tomorrow, how much will be my income as a result of this. So this attitude, which combines greed and anxiety is something really, which
causes a great deal of agony to many people on both sides of the deal.
But are some practical reasons Also, many companies go bankrupt because the creditors are not willing to give them a chance.
Because when you lend money, you don't care what will happen to the company. They may have certain capital and all you're concerned about is getting back your loan or bond plus the interest that has accumulated so if the company runs into some difficulty if your shareholder you wait a little bit because you're likely to do to lose your
If you're a creditor, and there's any sign of difficulty, you don't care how much damage will happen to society, you don't care who gets his slip, the unemployed as a result of this, you don't care about how much losses the company would incur when they sell their assets. Of course, at very, very low price, so long as you're getting your money back, you're dead. So this, again, create this difficulty and maybe responsible for many cases of bank bankruptcy of viable enterprises, which if it were based on equal sharing of profit or loss could have possibly survived and weathered the difficult period that they were, were going through another aspect, when you make loans available,
everybody's right, I can take any loan I want, if I'm willing to pay the interest, exorbitant or small as it may be,
and that may generate some kind of
excess expenditures on the part of consumers, many people do not behave wisely, because they know they can get the loan. And as you know, many economists refer to this fact that some people are up to their ears, in debt on all these charge card businesses on because this easy of getting money might cause people to make many unwise decisions in consumption.
Furthermore, when you have a few people controlling wealth,
and when they need money, simply they borrow money from other so other people have no control on the way they run the business. You give, again, disproportionate power, to you know, fewer individuals or institutions and society. And that's not a very, quote unquote, democratic type of
So the point is that, besides all of these difficulties, and this is not an exhaustive list, there are some economists even have some may have some questions about some negative effects of of interest, particularly high interest rates. The idea is that there are definitely better
Now, another argument
is that it's not basically different or doesn't differ substantially from partnership.
Somebody hold that view, how would you, how would you respond to that? Well, there are two basic differences you can make analogy. First, is that, when you give something by way of loan,
you have a guarantee, at least, you know, so long as the whole thing does not go under, and you lose everything. But basically, you have at least guaranteed a sense of that of interest, payment on plus your capital, or your
principal amount that you learn without participating in profit and loss. Whereas in partnership, you equally participate in profit and loss. So if the company makes 20% profit, you get 20%. If they make 5%, you get 5%, make no profit, you don't get profit, if they make 2% loss, the same thing will happen to you. But that's essentially different from loan. Because the loan, even if they lose, so long as they still have some capital to pay you, even if they have to sell that capital, they still have to pay you the principal, plus the fixed interest, promised 7% or 8%, or whatever the case may be. That's one basic difference, isn't it?
A second basic difference also relate to the point I was raising earlier also about the control of the destiny of society.
If you lend money, you have no control whatsoever. In other words, the company's it's not your business, how we run it, you just give us the loan, we'll give you the bond, you're entitled to 8%, you have no say, as to how the business should be run.
If you buy shares, on the other hand, that is a form of partnership,
you have the right to be elected to the board or elect qualified people to the board of directors. So in a sense, the person who's sharing profit or loss has some control. So there's some sharing in the decision making process in society, which is definitely more democratic equality, industrial democracy, production, democracy, whatever you call it, that there's some kind of sharing rather than leaving that power, only in a few hands, at least a
larger base in participation in
very crucial decisions and the community. So loans
with interest is not really the same as partnership. Now, I mentioned this a while ago that Islam doesn't encourage money sitting around idle and being eaten away by inflation and so on. And given the prohibition on interest, there must be some alternatives that are provided.
Could you perhaps share some thoughts on that? I'm glad that this point is brought forth because some people get the false impression that when Islam prohibits interest that is against development, and that everybody should keep his money in the mattress or just, you know, keep it idle, which is a very false impression. First of all, Islam encourage trade. And as the verse cited in the previous program, say that God made trade, permissible and lawful. So a person can invest on his own. Well, if he doesn't have the capacity or enough funds to invest on his own, he can opt for partnership, two people can put the funds and their work together. And again, equally shared, profit and loss are
proportional to their contributions. Thirdly, there is a type also what you might call or some call it, sleeping partnership, that is when a person has access to money. But he does not, however, have the skill to participate in the venture. And that is not in Islam as karate, that is, you could agree with someone who has the skill and I'll share or I contribute capital, you contribute effort and expertise. And we agree ahead of time that you take certain percentage of the profit, I take a certain percentage, there is nothing wrong again, because the profit or loss is shared by both and there is some kind of, you know, equity in the distribution of
If this is not possible, some people say I don't have enough even for this. Well, Islam is not against buying shares. But you have to make sure that it's common stocks, not preferred shares where there's some minimum.
But you if you buy common shares in companies, which are not prohibited, like you don't buy shares, for example, in companies making wines or dealing mainly an interest as a basic business, you could buy that, and with the smallest amount, you could possibly be really a partner in that company in this very small capacity. So that's again, another thing that you could do.
If you say, all right, I want to invest in something which is more liquid, something that I can really get my money back relatively quickly. Well, again, there is the so called mutual fund, or investment banks, where the bank or institution, collect money from people who want to invest, and then invest it in lawful investment that Islam allows. And then at the end of the years, you know, sharing the profit in the various ventures to which the bank has contributed. So they collect the profits. And then they distributed per capita or per dollars, depending, of course, on how much profit they made, and everybody can get his [???]. But this allows, again, for entry and exit of
investors. In fact, they, in some countries, cooperatives, has also been operating very successful, especially with farmers,
providing them with loans, not really long. So providing, let's say, with capital needed for
production, and then looking after the sales of the production to avoid, again, exorbitant charges by metal persons. And then finally, deduct whatever has been provided to them by way of seeds or rental for equipment and so on, and making a modest profit on that. So there are varieties of ways where investment can can be made.
Well, some claim that interest is perhaps a better than the alternatives that you suggest, because it gets people who want to invest money, a lot more flexibility, different degrees of risk, and so on. How would you respond to that? Well, that it may appear on the surface. But when you look at it closely, really, it doesn't. Because let's take a few examples of this. Suppose you don't want to take any risk at all? Well, there is nothing against Islamic law. For example, if you wanted to keep a few dollars for contingency,
either at home or in the bank as a deposit. You could do that there is no objection. Suppose you want to take only a small degree of risk, but to protect your capital? Well, the answer to that by blue chips buy shares in companies like utilities, which doesn't doesn't give that much higher return. But at least you don't, you're not likely to lose your capital. And there might be a modest appreciation also, of your capital, you could do that. If you're interested in high degree of risk, plus or minus 25%. That is your you're willing to make a profit of 25% or lose 25% or right you can buy from a company that has high risk company, if you want a combination, make a next portfolio. So
for each degree of risk, there is definitely a solution. We may be able to pursue this a little bit further.
Unfortunately for this time, we
do want to thank you for watching, come back next week and we'll continue our discussion.