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Many wonderful discoveries in the field of science owe their
existence to the enormous contributions made by Muslims of the
early era, who formed the strong bases on which modern science
stands proudly today. Science is vital to living; so is economics.
But the tragedy is that not only have the Muslims been unable
to contribute substantially to the discipline of economics, but
also, they tend to blindly accept the laws and bases laid down
by contemporary economics, which has nothing to do with Islam.
Islamic economics is not just interest-free banking, it is a complete
concept of the functioning of the whole economic system, which
rejects many of the norms of contemporary economics and finance.
THE CASE OF RIBA: IS THERE REALLY A CONFUSION?
There are many verses in the Qur'an having multiple interpretations
but when it comes to riba, Allah does not leave a single grey
area when He clearly underlines that indulging in riba is like
waging a war against Allah and His Prophet (PBUH). (1) This leaves
no doubt as to the banning of riba for all times to come. Therefore,
even if Muslims are at a complete loss, there is no justification
for not abolishing riba. Therefore it is clear, that whatever
the circumstances, Muslims must not indulge in riba.
But the question is: what is riba? Unfortunately, this is the
very question that has divided the Muslim scholars over the last
few centuries into two main schools of thought, namely the Equivalence
School and the Non-Equivalence School. According to the Equivalence
School of thought, modern day interest and riba are co-equal and
identical to each other and therefore modern day interest is banned
in Islam. The proponents of Non-Equivalence School hold that modern
day interest is distinct form the Qur'anic concept of Riba, which
they believe refers only to the exploitative rates of interest,
or usury.
We can pretend to be confused, or be genuinely confused, about
riba being modern day interest. The correct way is to really make
an honest effort at finding out the truth. For this we have to
first see the clear injunctions in the Qur'an about riba. Qur'an
gives a very clear definition of Riba when, discussing riba it
makes clear that in the event of giving a loan, Muslims can only
get the repayment of the principal amount, and nothing more than
that. (2) If we just ponder over this ayah, we can straight away
say, that whatever name you give to riba, whether you call it
interest or usury, it is still riba and therefore is haram.
Another verse that could be used to define riba is when Allah
says in the Qur'an that, He has clearly separated profit that
we earn from trade, from riba, and that those who mix the two
are like people who have been led astray by the Satan. (3) Thus
riba is different from profit on trade. Now what is trade? Is
this trade of goods, services or money? But the tragedy is that
not only have the Muslims been unable to contribute substantially
to the discipline of economics, but also, they tend to blindly
accept the laws and bases laid down by contemporary economics,
which has nothing to do with Islam. Islamic economics is not just
interest-free banking, it is a complete concept of the functioning
of the whole economic system, which rejects many of the norms
of contemporary economics and finance.
To answer this question we must go back to our Prophet's period
and find out what was generally regarded as trade at that time.
We find out that, in those times trade was generally referred
to the trade in goods and services. The word trade was not used
for transactions involving exchanging money with money. Obviously
there were no stock exchanges at that time, nor were there banks.
The only transactions that involved an exchange of money with
money were where a creditor lent money to a borrower and later
on got that money back, charging some amount over and above the
principal. But this borrowing transaction was not referred to
as trade in those times. Therefore, when Qur'an says that profit
is allowed only on trade, that clearly means trade in goods and
services. One can earn profit on trade but not in borrowing transactions.
Thus the interest earned in a borrowing transaction cannot be
termed halal on the pretext that it is profit, just like profit
on trade.
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