Why is Interest (Riba) Prohibited in Islamic Bank

Mansoor Danish

Channel: Mansoor Danish

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Bismillah R Rahman r Rahim. Hello everybody. This is monsoon daanish. And in today's session we'll be discussing about the principle which governs Islamic finance industry. And the first principle that we will discuss in today's episode is the prohibition of interest or rubber based transactions. Now, interest is one of the hub of the conventional financial industry, you walk into any conventional financial industry, any bank, any financial institution, you want to take some loan, for business for home for studies for buying an automobile for buying a house, or you want a personal loan, or you want a loan for the purpose of getting someone treated who's unwell, they

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offer you interest based loans, any kind of loan that they offer you, they have an interest model embedded in it. If you want to put some money with the bank as deposits, they'll give you some interest in return, if you put some money into a savings account, they again offer you some interest for that. So, interest is clearly one of the hub of the conventional financial industry. And so, we understand what does the word interest mean loosely or in a very simple usage, interest would mean any excess premium, which is charged by the lender of the money the one who lends the money, he charges an excess premium from the borrower

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for a certain duration of time, when the money has been kept with the borrower. So, for example, I lend you some money for a period of a year and against that money, I charge you a

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percent 2% 5% 10% 20% could be any number could be any percentage, which I charge as a premium over and above the principal that becomes interest.

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Now, this is in a very simple layman term

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coming to the concept of rubber, well rubber would simply mean to grow to multiply to increase to swell, there could be different aspects of rubber, okay, and the word rubber the root word can be used in different contexts. But when we talk of financial industry, when we speak of rubber, in that context, we are referring to what is called the premium being charged over and above the amount of money lent out

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that is the interest. So, when we talk of rubber, there can be different categories of rubber, which we will see shortly from now. But the kind of interest which is dealt by conventional financial industry clearly falls under the definition of Riba.

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And as I mentioned to you in the beginning that why interest is the hub of conventional financial industry. Social Justice is the hub of Islamic financial industry. And I think this is an important word that we must keep in mind, because whenever you wish to understand the permitted transactions and the prohibited transactions from an Islamic financial point of view, invariably, they would fall under the category of whether it promotes social justice, or it does not promote social justice, a transaction which is detrimental to social justice would be termed prohibited transaction which promotes social justice benefit for the community as a whole, that shall be permissible.

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That's an important term that we keep in mind. Now, why has Riba been prohibited as I mentioned to you, one of the things that rebar does is it promotes injustice in the society, very simply, who are the people who come to the bank and place the money with the bank, they are the ones who have money with them. I mean, if I have money, I will go to a bank and I place my money in the bank. Against this, the bank is going to offer me some interest.

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Who are the people who will typically come to the bank to seek law seek out loads, they are the ones who are in need of money who don't have sufficient money, when they come to the bank. The bank who is acting now as an agent, would lend out my money to the one who needs it, but would charge him a higher percentage of interest.

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So he gives me the one who's deposited the money 5% while he charges, the one who's taken a loan 10% he picks up that 10% pays me back my 5% and in the bargain makes a 5% profit from interest, profit from interest. This is prohibited.

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This is creating injustice in the society. Here is a man who's got money. He is just sitting with his money pretty secured. He knows he's going to get 5%

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the bank who is acting as an agent knows they have no risk involved. I mean, the money is not belonging to the bank in the first place.

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So the bank is just simply picking up your money, giving it out to someone who needs it, collecting 10%, paying you or 5% and making 5% in this bargain, without putting in any major effort in the economic activity. Whereas the man who's taking the loan, he has to run the economic activity, he runs the risk of whether the economic activity will be successful or failure, irrespective of the result of the economic activity for which he had taken the loan, he still has to repay back the principal along with the interest. This is injustice. This is a society where there will be a widening gulf between the rich and the poor, because the rich are getting richer, the poor are

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getting poorer, the poor, keep looking at the rich for loans, and the rich keep charging them heavy interest. This is absolutely injustice.

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Now we might try and argue and pick up individual transactions to justify Riba. But remember what we said, we are looking at social justice for one and all. If we make something permissible for one individual as an exception, then they can be so many others who could justify that exception for themselves. Let a small loss take place in order to avert a bigger calamity that is so important in the Islamic financial sector.

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There are basically two categories of interest based transactions or two types of robot one is called Riba further and one is Rabbana sia, we will talk about them in the future sessions. But to tell you briefly, Reba anastasiia is the kind of rubber that you have in your money lending transaction, you go to person from lend, take borrowing money, he gives you an upfront agreement whereby you need to pay him back the principal along with a premium of 5% or 10%. That's Riba and then you have rebar further, which happens when you exchange two homogeneous commodities and the rebar could be the excess which arises in the exchange of these two commodities, either because of

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the quality or because of the quantity. We will talk a little bit more on this in the future session. But that is all that we have for this session. We have tried to understand the basic principle, which governs the Islamic financial industry number one is Riba we have other principles as well, but we will take them up in the future session. If you have any questions that you would like to ask, please post it in the comment box or you can check the details of the video you'll find my email address, you can get in touch with me over email, please share this video. Please like this video, and remember to subscribe to my channel with that will conclude the session. Thank you so

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much for watching.