Understanding Islamic Finance - Doha Academy of Tertiary Studies

50 Understanding Islamic FinanceRiba which was charged only when the borrower was not able to return the loan at maturity,as present-day interest is charged both at the beginning when the transaction is executed andin the case of overdue payments.Sometimes it is misunderstood that only a high rate of interest is prohibited and anynormal charge on loans or debts does not come under the purview of prohibition. On thebasis of verse 3: 130 (given earlier) it is argued that a loan involves Riba only if it carriesthe condition of doubling and redoubling, and the word “Riba” refers only to usurious loanson which an excessive rate of interest is charged by the creditors, which entails exploitation.It is added that modern banking interest cannot be termed “Riba” as the rate of interest isnot excessive or exploitative.However, the argument is not tenable as per the tenets of the Holy Qur’ān. The Qur’ānmakes it very clear that in a loan transaction, and for that matter a trade transaction culminatingin a debt contract, any addition chargeable to the principal amount is Riba. The Qur’ānsays: “If you repent, then you have your principal only”. Believers have been ordered togive up whatever amount of Riba is outstanding. Otherwise they will be considered at warwith Allah and his Prophet (pbuh). Further, “rate” is a relative term and any rate will, overtime, double and redouble the principal; hence, any addition over the amount of debt per seis prohibited, irrespective of the rate. 14Exegetist Ibne Jarir Tabari, while explaining verse (2: 279) says that creditors are entitledto only the original amount of debt without any addition or profit. 15 Daaera-e-Maarif alIslami (the Encyclopaedia of Islam in Urdu) has given a convincing argument to clarify thisconfusion: “Allah says in Surah Al-Māidah ‘and sell not Signs of Allah for a low price’(5: 44). Would this mean that selling the Signs of Allah for a high price is permissible?Definitely not! Similarly, the verse 3: 130 will not permit one to charge any rate or anythingover and above the principal of a receivable.” 16It is also argued by a few that Umar the Great (Gbpwh) stated that the Prophet (pbuh)passed away before giving any specific direction with regard to differences of opinion aboutthe meaning of Riba. The Shariat Appellate Bench (SAB) of the Supreme Court of Pakistanhas discussed this issue in detail in its judgement and concluded that Umar the Great (Gbpwh)had not even the slightest doubt about the prohibition of Riba Al-Nasiah that is involved inall types of modern commercial laws. 17In addition, it is argued that there was no commercial interest in Arabia at the time ofrevelation of the Holy Qur’ān; only a particular form (may be on consumption loans) wasprohibited. This also is not correct. The SAB has elaborated upon this aspect in detail, asevidenced by some of their findings that we reproduce below:“It is not to say that commercial or productive loans were not in vogue when Riba was prohibited.More than enough material has now come on the record to prove that commercial and productiveloans were not foreign to the Arabs, and that loans were advanced for productive purposes bothbefore and after the advent of Islam.All kinds of commercial, industrial and agricultural loans advanced on the basis of interestwere prevalent in the Byzantine Empire ruling in Syria, to the extent that Justinian, the Byzantine14 For details see Shariat Appellate Bench, 2000, pp. 557–564; Zaman, 1966, pp. 8–12.15 Tabari, n.d., pp. 26, 27.16 University of the Punjab, 1973, 10, p. 172.17 Shariat Appellate Bench, 2000, pp. 539–543.