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Published in the 1-15 Oct 2004 print edition of MG; send me the print edition

ISLAMIC PERSPECTIVES

Bank 'interest' and Muslim society 

By Abdur Rahman Hamza

There has been confusion about riba (interest) among Muslims all over the world, specially among the Indian Muslims. In spite of efforts of the ulama to find a solution, the confusion remains. No consensus could be reached about the definition of “interest” during the early period of Islam and till today there are differences of opinion on the matter. On the one hand, interest is important from economic view point, on the other, there is strong warning against riba in the Qur’an. Many people and even ulama agree that without finding a solution of the problem the economic condition of Muslims is at stake.

We are compelled to take loans from banks because of commercial and personal requirements. In big cities taking loans from banks and other financial institutions for purchasing houses, cars and for higher and professional education, have become a norm. People no longer have the Islamic spirit of helping their needy brethren by giving interest-free loans.

Falling value of currency notes and inflation have made the situation extremely complicated. During the time of Prophet (pbuh) there was no problem of inflation because in those days silver and gold coins were in circulation. The purchasing power remained constant for centuries in earlier times but in modern times paper currency is in use and its purchasing value is continuously decreasing. What could be purchased for Rs 100 a year ago, more money will be needed now to purchase the same today.

Let us take an example for properly understanding the issue of interest. Consider, two colleagues, one Hindu and the other Muslim, retire from government service and get Rs 0.5 million each in the form of Provident Fund and Gratuity benefits. The Hindu colleague puts the entire amount in fixed deposit for 12 years. After twelve years he will get a total amount of Rs 1.8-2 million rupees as a result of compound interest. The Muslim colleague, considering “interest” illegal, puts his entire amount in a simple bank account. After 12 years he will get his principal amount of Rs 0.5 million together with a meagre amount as “interest” which he prefers not to use because to him “interest” is unalwful.

Since the value of money is continuously falling, after 12 years the value of Rs 1.8-2 million recieved by the Hindu colleague will be almost equal to his principal amount of Rs 5 lakh or more in terms of buying power. He can use the money for the marriage of his children or their technical education. After twelve years the real value of Rs 0.5 million received by the Muslim colleague will be equal to Rs 0.1 million or even less in terms of its earlier buying power.The money will not be enough to meet the expenses of marriage or technical education of his children.

In order to avoid the difficulties resulting from inflation, some ulama have offered a solution that while giving a loan, an agreement should be entered into with the debtor that repayment of the loan should be in terms of gold. But there is a difficulty in such agreements, for this type of agreement both the lender and debtor should be Muslims. This type of agreement is not possible in case of bank deposits or loans. If a person deposits Rs one milllion in a bank for five years on the condition that after five years the bank would pay him the same amount equal to its worth in gold. Obviously the terms would not acceptable to the bank, because banks do not work on conditions put forward by depositors. They work on their own rules and regulations as prescribed by the government.

Muslims are left with only two alternatives: either they have to accept the principal amount only and suffer a loss because of decreasing real value of money or accept fixed deposit money along with compound interest which is “unlawful” from Shari'a and Islamic point of view as understood now.

Some people debate whether different forms of interest were defined or not during the times of the Prophet (pbuh). God knew about the different types of interest and He declared a certain form as “illegal” through his revelation. As a matter of fact “interest” (riba) in old or modern forms can be declared illegal only when interest is clearly and authoritatively defined and a consensus reached at about its legality. Islamic jurists and ulama agree that there is neither any definition nor any consensus or interpretation about “riba”. Right from the times of the Prophet and Caliphs to the modern days, there are serious differences among jurists and ulama about riba’s definition.

Traditions about “riba” are contradictory and there are serious differences about the definition of “riba” among jurists. After carefully examining all the definitions of “riba” it becomes clear that these definitions do not apply to bank interest and that riba is not the same as bank interest. Riba which has been declared illegal by Qur'an, contains the element of exploitation and excessive interest like the one demanded by money-lenders in our country. On the contrary, banks give interest voluntarily out of the income they derive from lending out deposits, in a way benefitting the banks as well as the depositors.

Some people hold the view that since the unlawfulness and impermissibility of “interest” is clear from Qur'anic injunctions, exercise of judgment is not permissible about interest. But this is not true because under certain compulsions, interpretations or judgments have been exercised pertaining to illegal and impermissible cases. For example, Muftis of the country have declared insurance permissible under compulsive circumstances, though they made it clear that insurance too contained the elements of interest and gambling, but today it is permissible for the needy.

Similarly, the punishment of chopping off hands is prescribed in Qur'anic injunctions but Hazrat Umar abolished the punishment during the famine year. Qur'an has laid down eight heads on which the money of Zakat should be spent but one of them was abolished by Hazrat Umar on the plea that Islam had by then become powerful and widespread.

During the period of the Prophet (pbuh), female slaves who gave birth to children fathered by their masters were allowed to be sold like other slaves but when Hazrat Umar became Caliph, he found that the practice was becoming a source of coercion and exploitation. Therefore, he banned the sale of mother slave and prescribed the rule that such slaves could neither be sold nor gifted to anyone and that after the death of their masters they become free automatically. Some people described Caliph Umar’s action as heresy and a deviation from religion and condemned this action. Rationalists not only considered it permissible but also essential for a just social system for the establishment of which prophets are sent.

Finding a solution to the problem of bank “interest” is crucial for Muslims. This issue should be settled at the earliest through re-interpretation and serious discussion because due to the lack of a clear definition, the economic condition of Muslims is deteriorating, while that of non-Muslims is constantly improving. If the problem is not rectified, the coming generations of Muslims will lead a life of economic slavery. It is necessary to determine whether the existing system of bank “interest” is the same riba or usury under which a loan of Rs100 would go on multiplying and reach unimaginable proportions within a few years and the poor debtor would be forced to sell his house and other belongings. This “riba” has been forbidden by Quran.

If it is difficult to determine “interest”, can the Quranic injunction not be interpreted on the lines of insurance so as to make bank interest on deposits permissible as a matter of Milli necessity in modern times and to save the community from economic deprivation. Such interpretation, of course, should be within the limit of Sharia.
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