Understanding Islamic Finance - Doha Academy of Tertiary Studies

44 Understanding Islamic Finance3.2.1 Prohibition of RibaIt is important to observe at the very beginning that there is no difference of opinion amongMuslims about the prohibition of Riba and all Muslim sects consider indulgence in Ribabasedtransactions a severe sin. This is because the primary sources of Sharī´ah, i.e. theHoly Qur’ān and Sunnah, strongly condemn Riba. However, there have been differencesregarding the meaning of Riba or what constitutes Riba, which must be avoided for theconformity of economic activities to the tenets of the Sharī´ah.There are a number of myths and much confusion, even among devoted and pious Muslims.While some liberal Muslims consider that commercial interest is not Riba prohibited byIslam, many pious and devoted Muslims have the belief that any prefixed return in all typesof transactions is Riba and therefore prohibited. Many in the business community considerthat in Islamic banking, costless money should be available. A number of economists andpolicymakers believe that the profit margin on credit sales by Islamic banks resembles Riba.These myths have to be removed, particularly among the three main stakeholders, i.e.Sharī´ah scholars, academicians and bankers. If they properly understand and accordinglyeducate the masses, only then will people in general have firm confidence about the conceptsand the working of the new system. Therefore, besides the prohibition of Riba, we willdiscuss the connotation of Riba to explain what types of transactions Islamic banks have toavoid.Prohibition of Riba in the Qur’ān and SunnahA number of verses of the Holy Qur’ān expressly prohibit Riba. Although some indicationsof displeasure against Riba were given in the Makkah period, the express prohibition wasimposed by Islam sometime before the battle of ’Uhad in the year 3 AH. 1 Final and repeatedprohibition came in the year 10 AH, about two weeks before the passing away of the holyProphet (pbuh). From the Holy Qur’ān, verses on Riba in order of revelation are givenbelow:• Surah al-Rum, verse 39“That which you give as Riba to increase the people’s wealth increases not with God;but that which you give in charity, seeking the goodwill of God, multiplies manifold.”(30: 39)• Surah al-Nisa’, verse 161“And for their taking Riba although it was forbidden for them, and their wrongfulappropriation of other people’s property. We have prepared for those among them whoreject faith a grievous punishment.” (4: 161)• Surah Al-e-Imran, verse 130“O believers, take not doubled and redoubled Riba, and fear Allah so that you mayprosper. Fear the fire which has been prepared for those who reject faith, and obey Allahand the Prophet so that you may get mercy.” (3: 130)(This verse contains a clear prohibition for Muslims and it can firmly be said that it isthe first verse of the Holy Qur’ān through which the practice of Riba was forbidden forMuslims in express terms. This was sometime around the battle of ’Uhad). 21 Ibn Hajar, 1981, 8, p. 205.2 Shariat Appellate Bench, 2000, Justice Taqi Usmani’s part, paras 11–24.