Jamal Badawi – Economic System of Islam 13 – Prohibition Of Riba Interest 2

			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.
		

			First
		

			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
		

			approach.
		

			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
		

			equitable alternatives.
		

			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
		

			income.
		

			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 shit. But this allows, again, for entry and exit of
		

			different
		

			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.