CONCEPT OF RIBA - USURY IN ISLAM

By: Mumtaz Ali Tajddin S. Ali

[email protected]

The word riba comes from the verbal root raba meaning to grow, increase, addition or excess. It
refers to an addition over and above the principal sum being lent. In economics, it refers to that
surplus income, which the lender receives from the borrower, over and above the principal amount
as a reward for waiting or parting with the liquid part of his capital for a specific period of time.
Riba, in essence, is thus an amount charged on the principal as a consideration for the time during
which the principal is to be used and it consists of three elements, viz. addition to the principal,
the rate of that addition according to time, and the payment of the additional amount being a
condition of the bargain. All transactions including these three elements come under the category
of riba or usury.
The first Koranic revelation at Mecca denounced usury, yet without prohibiting it, reads: “And
whatever you lay out at usury, so that it may increase in the property of men, it shall not
increase with God; and whatever you give in charity desiring God’s pleasure, it is these that
shall get manifold” (30:39). This verse does not offer prohibitive injunction. It simply exhorts
that the riba does not increase with the God or procure no reward in the hereafter. Tabari in Jami
al-Bayan (21:46-48) reports from Ibn Abbas that the riba in this verse means a gift offered by
someone to a person with the intention that the latter will give a greater gift to the former. If the
riba in this verse (30:39) is taken to mean usury, which seems more probable, because in other
place it carries same meaning, there is no specific prohibition against it.

The scholars who favour the more liberal version of the prohibition also forward other arguments
to support their view. They point to a common grammatical rule: when “al” or translated into
English “the” comes as a prefix of a common noun, it becomes a proper noun. According to this
view, the word ‘al’ appears before the word riba in all in the Koran except the above verse (30:39),
the prohibition is limited to the type or riba prevalent at the time of the revelation. These loans, it
is argued, were mainly for consumption purpose. It is submitted that the commercial loans were
not in use and thus are not covered by the prohibition.
What is then meant by riba? The Koran does not define it for the reason that it was a well-known
term in Arab society. It is like the prohibition of pork, liquor, gambling, adultery etc., which were
prohibited without giving hard and fast definition as all these were eminent and there was no
ambiguity in their meaning. Similar was the case of riba – a term not foreign to Arabs. Not only
Arabs but also all the previous societies used to practice it in their financial transactions and none
had confusion about its exact sense.

In another occasion, the Koran reproached the Jews for their taking riba while it was prohibited
for them: “And because of their charging usury while they were prohibited from it” (4:161).
Here the word riba undoubtedly refers to usury, which was forbidden for the Jews, vide Old

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Testament, (Deut. 23:19, Psalms 15:1, 2-5; Proverbs 28:8, Nehemiah 5:7 and Ezekiel 18:89;
22:12). But it cannot be taken as a direct or explicit prohibition of riba for the Muslims. It indicates
in above Koranic verse (4:161) that the riba was prohibited for the Jews, but they did not comply
with the prohibition in their practical lives.

RIBA AL-FADL AND RIBA AL-NASI’AH

The riba al-fadl also is called riba al-buyu, riba ghayr al-mubashir, riba al-khafi or ribal al-sunna.
The riba al-nasi’ah (from nasa’a means postpone, defer or wait) is also called riba al-duyun or
riba al-mubashir or riba al-jali. In Koranic perspective, it is sharply gleaned that the term riba
(usury) denotes two meanings: Simple Interest (riba al-fadl) and Compound Interest (riba al-
nasi’ah).
Nisaburi also distinguished two kinds of riba. The first is usury in kind, the riba al-fadl, in which
the measure of wheat for example, is sold for two measures at the time of harvest. The second is
called riba al-nasi’ah (decayed payment) which was used in the days of ignorance, where the
creditor lends money on the condition that the debtor pays a fixed sum every month. If, when the
loan becomes due, the debtor cannot pay, the term is prolonged and the interest increased. It is
related that Ibn Abbas declared only the riba al-nasi’ah to be unlawful but that later he revoked
this opinion and declared both to be forbidden (Nisaburi, 3:71-72). Abu Bakr al-Jassas writes in
Ahkam al-Koran (Lahore, 1980, 1:465) that, “The riba which was known to and practiced by the
Arabs was that they used to advance loan in the form of dhiram and dinar for a certain term with
an agreed increase on the amount of the principal advanced.” The same author further defines the
term, “The riba of ignorance period is a loan given for stipulated period with a stipulated increase
on the principal payable by the loanee.” (Ibid. 1:469).
Fakhruddin Razi in Tafsir al-Kabir (7:91) writes that, “As for the riba al-nasi’ah, it was a
transaction well-known and recognized in the days of ignorance i.e., they used to give money with
a condition that they will charge a particular amount monthly and the principal will remain due as
it is. Then on the maturity date they demanded the debtor to pay the principal. If he could not pay,
they would increase the term and the payable amount.” On the other hand, Tabari (3:101) mentions,
“In the days of ignorance, a person used to owe a debt to his creditor then he would say to his
creditor, I offer you such and such amount and you give me more time to pay.”
It infers that the transaction in which the creditor used to charge an additional amount on the date
of maturity was not a transaction of loan. Initially, it used to be a transaction of sale of a commodity
on deferred payment basis, in which the seller used to fix a higher price because of deferred
payment, but when the buyer would not pay at the date of maturity, the seller used to keep on
increasing the amount in exchange of additional time given to the buyer. The commentators have
frequently mentioned this form of riba because they wanted to explain a particular sentence of the
verses of riba, which reads: “Trading is only like usury” (2:275). The claim of non-believers
refers to the particular transaction of sale mentioned above. Their objection was that when we
increase the price of commodity in the original transaction of sale because of its being based on
deferred payment, it is treated as a valid sale. But when we want to increase the due amount after
the maturity date when the debtor is not able to pay, it is termed as riba, while the increase in both
cases seems to be similar. This objection of the non-believers has been specifically mentioned in
Tafsir Ibn Abi Hatim (Mecca, 1997, 2:454) on the authority of Sa’id bin Jubayr that, “They used

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to say that it is all equal whether we increase the price in the beginning of the sale, or we increase
it at the time of maturity. Both are equal. It is this objection which has been referred to in the verse
by saying: They say, Trading is only like usury.”
The practice of increase at the time of maturity relates to two situations: firstly, a situation where
the original transaction was that of sale of a commodity as mentioned by Qatada, Faryabi, Sa’id
bin Zubayr etc., that the second situation was where the original transaction was that of a loan
whereby monthly interest used to be charged by the creditor and the principal amount used to
remain intact until the date of maturity, and if the debtor would not pay the principal at that point
of time, the creditor used to increase the due amount on the principal in exchange of further time
given to debtor as mentioned by Fakhruddin Razi and Ibn Aazdi etc.

All these forms related to the transactions of a loan or a debit created by sale, but after the
revelation of the Koranic verses, the Prophet prohibited some other transactions as well, which
were not known previously as riba. The Prophet felt that, given the commercial atmosphere at that
time, certain barter transactions might lead the people to indulge in riba. The Arabs used certain
items like wheat, barley, dates etc., as a medium of exchange to purchase other items. The Prophet
treating these commodities as a medium of exchange like money, issued the injunction: “Gold for
gold, silver for silver, wheat for wheat, barley for barley, date for date, salt for salt, must be equal
on both sides and hand to hand. Whoever pays more or demands more (on other side) indulges in
riba” (al-Muslim, 2:25).
It indubitably implies that wheat is exchanged for wheat, the quantity on both sides must be equal
to each other and if the quantity of any one side is more or less than the other, this transaction is
also a riba transaction, because in the tribal system of Arab, these items were used in place of
currency, and the exchange of one kilogram of wheat for one and a half kilogram of another wheat
would stand for the exchange of one dhiram for one and a half dhiram. This transaction however
was termed as riba by the Prophet, and it was not meant by the term riba al-jahiliyya, but it was
known riba al-fadl or ribal al-sunna. It is to be noted, while prohibiting riba al-fadl, the Prophet
had identified only six items, and it was not clearly mentioned whether this rule is limited to these
six items or it is applicable to some other items as well, and in the latter case what are those items?
This issue raised controversy among the later jurists. Some earlier jurists, like Qatada and Tawoos,
restricted this rule to these six items only, while other jurists were of opinion that the rule will be
extended to other items of the same nature.

KORAN CONDEMNED RIBA AL-NASI’AH

It can be safely said that the only verse of Koran through which the riba was forbidden for the
Muslims in expressed terms: “O you who believe! Do not devour usury, doubling and
redoubling, and be careful of your duty to God that you may be successful” (3:130). It was
revealed sometime in the 2nd year after Hijra as the context of its preceding and succeeding verses
relate to the battle of Uhud. According to Tafsir al-Kabir (9:2), the Meccan invaders had financed
their army by acquiring usurious loans during the battle of Uhud, and had in this way arranged
huge arms against the Muslims. It was apprehended that it might induce the Muslims to arrange
for arms on the same pattern by procuring usurious loans. In order to prevent them from this
approach, the above verse was revealed containing explicit prohibition of usury, which was
apparently the Riba al-Nasi’h.

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The severity of the prohibition appeared soon after the conquest of Mecca in 8/630, when the
Prophet declared all the amounts of riba void that were due at that time. The declaration embodied
that nobody could claim any interest on any loan advanced by him. Then the Prophet took field
against Taif, which could not be conquered, but later on the inhabitants of Taif came forward and
embraced Islam, and concluded a treaty with the Prophet. One of the terms of it was that Banu
Thaqif would not forego the amounts of interest due on their debtors, but their creditors would
forego it. Abu Ubaid Kassim bin Salam (d. 229/844) has reproduced the text of the treaty in Kitab
al-Anwar (p. 132). The words referring to the prohibition of interest reads: “The sums due to them
from the people – Banu Thaqif will get out of those only the principal advanced.” Banu Thaqif
having an impression that the Prophet had accepted their treaty and began to claim the amounts of
interest from Banu al-Mughirah, who refused it on the plea that the riba was prohibited after Islam.
Banu Thaqif claimed that according to the treaty, they were not bound to forego the amounts of
interest. They referred their dispute to the arbitration of Att’ab bin Usayd, the amir of Mecca, but
it yielded no result. The case was ultimately referred to the Prophet on which the Koranic verse
revealed: “O you who believe! Be careful of your duty to God and relinquish what remains
due from usury, if you are believers. But if you do it not, then be apprised of war from God
and His Prophet; and if you repent (from charging interest), then you are entitled to your
capital. Do not deal unjustly, and you shall not be dealt with injustice” (2:279). Thus, Banu
Thaqif refrained from their claims and declared, “We have no power to wage war against God and
His Prophet,” vide Tabari’s Jami al-Bayan (1:397).
The next argument advanced by some appellants is that the basic cause (illat) of the prohibition of
riba is zulm (injustice) according to above Koranic verse. The words “do not deal unjustly, and
you shall not be dealt with injustice” denotes that the basic cause (illat) of the prohibition is
injustice (zulm). Some appellants comment that there is no injustice in charging interest from a
rich person, who had borrowed money to earn enormous profit therewith. Since the basic cause of
the prohibition is missing in the commercial interest charged by the banks or the financial
institutions, it cannot be reckoned as prohibited. To cite another example, the Koran on the other
hand prohibited the use of liquor, whose cause (illat) is intoxication, but the philosophy of its
prohibition is mentioned in the Koran that, “The devil just intends to cause hostility and hatred to
occur between you by means of liquor (khamr) and gambling (maysir), and to bar you from the
remembrance of God and from prayer. Thus, would you not desist?” (5:91). Can one claim that he
has been using liquor for a long time but it never resulted in having hostility and hatred with
anyone, and therefore, the basic cause (illat) of the prohibition does not govern in his habit, he
should be permitted to use liquor? Or one can reasonably argue that drinking liquor has never
prevented him from remembering God and the prayer, therefore, the use of liquor should be held
permissible. Obviously, none will accept these arguments because the hostility and hatred referred
to in the Koran are not intended to be the cause (illat) of the prohibition. It simply spells out some
evil results, which the liquor and gambling often produce in the society. It is in the same vein that
after prohibiting the transaction of riba, the Koran has mentioned the zulm (injustice) being the
philosophy of prohibition, but it does not mean that prohibition will not be applicable if the notion
of zulm appears to be missing in a particular case. The illat or the basic feature on which the
prohibition is based is the excess claim over and above the principal in a transaction of loan, i.e.,
the compound interest, and as such illat exists in the society, the prohibition will follow regardless
of whether the philosophy of law is or is not visible in a particular transaction.

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BANKING AND PRODUCTIVE LOANS
It is incorrect to claim that the culture of the commercial or productive loans were not in vogue
when riba al-nasi’ah was prohibited, and it were also not foreign to the Arabs and that loans were
advanced for productive purpose before and after the advent of Islam. It is generally believed that
mercantile loans and banking transactions were introduced during the 17th century, but the modern
research discoveries have proved that the banking system existed about 2000 years before Christ.
According to Encyclopedia Britannica (3:67), “Pastoral nations such as Hebrews, while they
maintained money-lenders, had no system of banks that would be adequate from the modern point
of view. But as early as 2000 B.C., the Babylonians had developed such a system. It was not the
result of private initiate, as that time, but an incidental service performed by the organized and
wealthy institution of the cult. The temple of Babylon, like those of Egypt, were also the banks.”
The article has then detailed how the banking operations developed from religious institutions to
private business institution, until in 575 A.D., there was a banking institution in Babylon, i.e., The
Igibi Bank of Babylon. The records of this bank indicate that it acted as buying agent for clients;
loaned on crops, attaching them in advance to ensure reimbursement; loaned on signatures and on
objects deposited, and received deposits on interest. The article has further detailed that similar
banking institution existed also in Greece, Rome, Egypt, etc. before Christ and they deposited
money, lent it on interest and extensively used letters of credit, financial papers and traded in them.
Even in the days closer to the advent of Islam in Arabia, all kinds of commercial, industrial and
agricultural loans were advanced on the basis of interest in the Byzantine. Emperor Justinian (527-
565) had to promulgate a law determining the rates of interest from different types of borrowers.
Edward Gibbon in The Rise and Fall of the Roman Empire (2:90) summed up the Code of
Justinian, allowing the rate of 4% interest from illustrious people, 6% from general people, 8%
from the manufacturers and merchants and 12% from nautical insurers.
The above law of Justinian was enforced in Byzantine Empire shortly before the birth of the
Prophet in 571 A.D. On the other hand the Arabs, especially of Mecca, had constant business
relations with Syria, one of the most civilized provinces of the Byzantine Empire. The Arab trade
caravans exported goods to and imported other goods from Syria. Their economic and financial
relations with the Byzantine empire were so prominent that the currency used throughout the
Arabian peninsula was the Roman gold dinar (4.25 grams) and the Persian silver dhiram (1.40
grams) till the year 76/695, when the Umayyad caliph Abdul Malik (d. 86/705) struck the first
Islamic dinar (of gold), dhiram (of silver) and fals (of copper). How can it be imagined that the
Arabs were totally unaware of the credit transactions flourished in the Byzantine Empire?
The trade was the most significant economic activity of the Arabs. Mecca consisted of barren lands
and arid hills with little amount of water; therefore, it was not ideal for cultivation. Hence,
commerce and trade was the basic characteristic of the economic life in Mecca. For this purpose
their commercial caravans traveled to Syria, Iraq, Egypt, Ethiopia etc. The history of these trade-
caravans refers back to a period as early as that of the prophet Jacob. It is narrated in the Koran
(12:19-20) that the brothers of Joseph had thrown him in a pit from where a passing caravan picked
him up and sold him in Egypt. It has been ascertained that this was an Arab caravan consisting of
the children of Ismael, who had embarked on a business tour to export spices, balms and perfumes
to Egypt, vide Old Testament (Genesis, 37:25). It suggests the extent to which the Arabs had
deployed their mercantile activities. Indeed, the Arabs were trade-oriented people and the
importance of their trade caravans can be judged by the fact that the Koran had revealed a full

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chapter (sura Qoraish, the 96th chapter) to denote that their business towards Yamen in winter and
towards Syria in summer were a blessing from God on account of their services to Kaba. According
to Taj al-Arus (6:44), the Koran specifically mentioned the term ila’af, which refers to the
commercial treaties the Arabs of Qoraish had with different nations and tribes.
There are concrete evidences that the Arabs used to borrow money for their commercial and
productive needs, and the institution of interest was a part and parcel of the economic system of
the people of Arabia. Dr. Jawad Ali writes in al-Mufassal fi Tarikh al-Arab (7:290) that, “What
the historians have narrated about the caravans of Mecca reveals that the capital of a caravan never
used to be the capital of one individual or particular family; it rather belonged to the traders of
different families and to those individuals who themselves had money or had borrowed it from
others and had contributed it to the capital of the caravan, with a hope to earn huge profit.”
In another Koranic verses, the term riba finds mention: “Those who swallow down usury cannot
arise except as one whom the devil has prostrated by his touch does arise; that is because
they say, Trading is only like usury; and God has allowed trading and forbidden usury. To
whomsoever then the admonition has come from his Lord, then he desists, he shall have what
has already passed, and his affair is in the hands of God; and whoever returns (to it) – these
are the inmates of the fire: they shall abide in it” (2:275). “God does not bless usury and He
causes charitable deeds to prosper, and God does not love any ungrateful sinner” (2:276),
and “O you who believe! Be careful of your duty to God and relinquish what remains due
from usury, if you are believers. But if you do it not, then be apprised of war from God and
His Prophet; and if you repent (from charging interest), then you are entitled to your capital.
Do not deal unjustly, and you shall not be dealt with injustice” (2:278-9).
Almost all the commentators have mentioned the reasons of the revelation of the above Koranic
verses (2:275-9) dealing with riba that the different tribes of Arabs entered into usurious bargains
from each other. For example, Tabari writes in Jami al-Bayan (3:107) that, “The tribe of Banu
Amr used to charge interest from the tribe of Banu al-Mughirah and Banu al-Mughirah used to
pay them interest.” One individual did not take these loans from another. Instead, the tribe as a
collective entity borrowed money from another tribe, means the tribe conducted as a joint stock
company for funding their trade-caravans.
Another argument advanced on behalf of some appellants was that the prohibition of riba is
applicable only to those interest transactions where the rate of interest is exorbitant or excessive.
This argument is sought to be supported by the Koranic: “O you who believe! Do not devour
usury, doubling and redoubling, and be careful of your duty to God that you may be
successful” (3:130). It is argued that this verse is the first verse came with an explicit prohibition
of riba, but it has qualified the prohibition by the words “doubling and redoubling” to denote that
the practice of riba is forbidden only when the rate is so excessive that it makes the payable amount
twice that of the principal. The word tadi’f means adding to a thing until it becomes manifold, and
ad’af being plural of paucity, is followed by the word muda’afah to make the idea more intensive.
The Arab practice was that of compounding the interest, added to the principal, and thus within a
few years the original sum became several-fold.
In his judgment, Justice Muhammad Taqi Usmani writes in The Historic Judgment on Interest
(Karachi, 2000, p. 64) that, “The logical result of this expression would be that if the rate of interest
is not so high, the prohibition is not applicable. The interest charged in the present banking system,

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it is argued, is not normally so high as to make the payable amount double the principal, and
therefore, the banking interest is not covered by the prohibition.” Abu Muhammad Izz al-Din Abd
al-Salam (1181-1262) rejected in his Tafsir al-Quran al-Azim the ban on interest that had been
almost unanimously pronounced by Muslim lawyers. Qadeeruddin Ahmed writes in his write-up,
Ijtehad or a built - in Mechanism for change in Islam that, “This term (riba) is ordinarily
translated as interest. To begin with it should not be so translated without first removing from it
the mist of prejudices that covers its intrinsic sense, because it is to be applied in circumstances
which are poles apart from those which prevailed fourteen hundred years ago. The chances are that
every payment that is called interest may not be so. To my mind ordinary interest is not riba,
according to the provisions of the Koran, and the interest on our nationalized banks is particularly
not so. If however, they are irreversibly so, then the next question is: what can be the substitute for
it? We have first to discover the substitute with the help of our knowledge of the science of
economics and the requirements of the modern world, so that new proposals may be formulated
and tested by applying to them the provisions of the Holy Quran and ahadith. The task of finding
a substitute cannot be performed merely with the help of the knowledge of the types of transactions
which took place hundreds of years ago. Our knowledge of history is incomplete and the record of
history, which has come down to us was left by those, who were not experts of economics. To try
to understand modern banking on the analogy of partnerships or commission agencies of old times
is, to say the least, making unfair comparisons. To regard a partnership to be interest-free banking
is an outrage to the science of economics” (The Changing world of Islam, Karachi, 1986, pp.
235-6).
The different Koranic verses relating to the same subject must be studied in juxtaposition with
each other. No verse can be interpreted in isolation from the other relevant material available in
other parts of the Koran. The Koran has dealt the subject of riba in four different chapters.
Obviously, no verse can contradict another on the same subject. The most detailed treatment of
riba is found in 2:276, which says, “God does not bless usury, and He causes charitable deeds to
prosper.” The word mahaqa in this verse means he took away the blessing thereof or he diminished
it. It also signifies the blotting out or annihilating of a thing. Usury is explicitly condemned in
comparison with the charitable deeds, which is not the real source of the prosperity and the Divine
blessings. It further contains the command: “O those who believe! Fear God and give up whatever
remains of riba, if you are believers” (2:278). The words “whatever remains of riba” indicate that
every amount over and above the principal has to be given up. This point is further clarified in
express terms: “And if you repent (from the practice of riba), then you shall have your capital”
(2:279). These words do not leave any ambiguity in the fact that repentance from the practice of
riba is not possible unless any amount exceeding the principal is given up and that a lender is
entitled only to the principal he has actually advanced. A combined study of the Koranic verses,
3:130 and 2:279 leaves no doubt in the fact that the words “doubled and redoubled” occurring are
not so restrictive nature, and not a necessary condition for the prohibition of riba. These words
have rather been used to refer the worst kind of practice of riba rampant at that time.
Unlike the text of a statute book, the Koran contains some words or expression used either for
emphasis or for explaining the evil results of a particular act, which are not meant to be taken as
restrictive qualification for the command or the prohibition preceding them. A self-evident
example of this style is the verse, which reads: “Do not sell my verses for a little price” (2:41).
Nobody can take this verse to mean that selling the verses of the Koran is prohibited only because
the price claimed is very low and that if the verses are sold for a higher price, the practice can be

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held as permissible. Every person of common sense can easily understand that the words “for a
little price” used in this verse are not of restrictive nature. They are rather meant to indicate the
evil practice of some people who used to commit the grave sin of selling the verses and still did
not gain much in financial terms. It never means that the blame is directed towards the “little price”
they gain; rather the blame is directed to the selling of verses itself.
Likewise, at another place, the Koran says: “And do not force your slave girls to prostitution if
they want to remain chaste” (24:33). It does not mean that if the girls do not want to remain chaste,
one can force them to prostitution. What the verse means is that although the prostitution in itself
is a major sin, yet it becomes all the more evil if a girl is forced to indulge in this profession while
she intends to remain chaste. The words “if they want to remain chaste” are not of restrictive nature
meant to qualify the prohibition with their desire to remain chaste. These words have been added
only to indicate the increased severity of the crime. Thus, it is in the same style that the words
“doubling and redoubling” (3:130) have been used with riba, which are not intended to qualify the
prohibition of riba with doubling or redoubling. They are only meant to emphasize the added
severity of the sin if the interest charged is so exorbitant or excessive.
Imam Sultan Muhammad Shah had launched energetic campaign in the formation of a colossal
project of the Diamond Jubilee Investment Trust Limited (DJITL) in 1945 for the progress of the
Ismailis of the different parts of East Africa. The Imam said, “The DJITL would lend in small rate
of interest to these societies to the scale of their capital. Don’t give the shares to anyone except
the Ismailis, but the works of the lending may be performed with other communities, and lend
them in undermost rate than market, so that they inspire to borrow loan from these societies on
interest.” (Mwanza, 14th May, 1945). This interest is riba al-fadl, not riba al-nasi’ah.
The Imam also said, “Whoever have surplus amount besides business, and deposited in bank or
post-office on interest, I suggest them to invest their surplus amount in the shares of the Trust
Company or keep with them as deposit, then they would earn best dividend and interest, and the
dividend and interest of which are also not unlawful according to the Islamic doctrine.”
(Kampala, 17th May, 1945). The Imam also said, “The foremost mandate of the DJITL is to lend
funds to different Co-operations and Co-operative Societies in very low rate of interest.” (Dar-
es-Salaam, 13th July, 1945). This interest categorically is riba al-fadl, which is not forbidden.
Riba at the time of the prophet was the financial exploitation of poor debtors by unscrupulous
moneylenders; the debtors could be dispossessed and sold into slavery. The prophet obviously
wanted to stop this social evil. Interest in modern financial markets is not riba. Usama reports that
the Prophet said, “There is no riba unless there is postponement in payment.” (Bukhari, 34:79).
It indicates that only those cases were treated as riba in which there was a barter only in name.

BANK DEPOSITS
It may be added that a case in which the debtor, of his own free will, paid to the creditor a certain
sum over and above the original debt, was not considered a case of riba (Abu Daud, 22:11). This
was a case in which the Prophet himself was the debtor, and when he paid back the debt, he paid
something in addition. Such excess amount is in fact a gift made by the debtor of his own free will
and is not prohibited. (The Religion of Islam, Lahore, 1936, p. 721) by Maulana Muhammad Ali.

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Anas bin Malik narrated that the Prophet said: ‘When one of you grants a loan and the borrower
offers him a dish, he should not accept it; and if the borrower offers a ride on an animal, he should
not ride, unless the two of them have been previously accustomed to exchanging such favors
mutually.” (Baihaqi’s Kitab al-Buyu)
What has been suggested is in accordance with the Koranic verse quoted above, and repeated here
that, “And whatever you lay out at usury, so that it may increase in the property of men, it
shall not increase with God, and whatever you give in charity, desiring God’s pleasure – it is
these (persons) that shall get manifold” (30:39). Islamic economic system is largely based on
some certain encouragements and prohibitions. In Islamic economic system, Riba (Interest) is
prohibited whereas trade is permitted. “God has allowed (profit from) trade and prohibited Riba”
(Koran, 2: 275). Such teachings imply that financial activities involved in an Islamic economic
system should be asset-backed transactions and businesses. This suggests that all the financial
transactions ought to illustrate real transactions or sale of goods, benefits, or services.

The question of deposits in banks, on which interest is payable, seems to be more or less like the
question of trade, a necessity of modern world conditions. Just bear in mind that the bank receives
the deposits from account holders not as a borrower, but as a trustee. There the money is safe and
may be withdrawn in need. But at the same time, the bank will never let the deposits to lie idle,
but lends to the traders. Out of this transaction, a major portion of profit is generated. The bank
parts the earned profit and credit it in the accounts of the account holders. This is virtually a profit
earned by the bank, wherein is nothing objectionable, but that earned profit itself being largely
income, which does not come in the domain of interest. This is very reason that the commercial
banks brand their income as Profit, not Interest. According to mainstream viewpoint, the bank
profit is an inevitable and necessary part of modern life that cannot be avoided. This is a more
lenient approach. Imam Sultan Muhammad Shah said, “Usury is condemned, but free and honest
trade and agriculture – in all its forms – are encouraged, since they manifest a Divine service, and
the welfare of mankind depends upon the continuation and intensification of these legitimate
labours.” (Memoirs of Aga Khan, London, 1954, p. 177). All these afford overwhelming evidence
to the certitude that the interest (riba) is not prohibited, but the accumulated sum and previous
accumulated interest, the compound interest (riba al-nasi’ah) is however not permissible.
Notwithstanding, in case of dilemma or to reconcile a layer of confusions on the issue of usury by
anyone or those who maintain conservative viewpoint, it is advisable for them to deposit amount
of so called interest in the Better Tomorrow Scheme. To my mind, this is absolutely a creative
and ideal option. On 26th April, 1920, a lady from Multan presented her mehmani in Karachi before
Imam Sultan Muhammad Shah. She reverently asked, “Mawla! You are well known that I am a
widow and have only a son of 12 years. My late husband left behind ten thousand rupees. I have
no other source of income and if I may expend the amount of my late husband, there would be
nothing in hand after few years. In order to face impending challenges, I have no option, but to
lend this amount on lowest rate of interest. When the people knew, they charged that it was an
illegitimate execution. Mawla! Guide me what to do?” The Imam said, “You may continue it at
lowest interest till your son becomes matured to earn, then you refrain from it, which thereafter
must never be rendered it being source of your upkeep.”

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PIR SADRUDDIN DENOUNCED COMPOUND INTEREST
It is markedly needed here to discuss briefly the culture of highest interest rate by the Hindus in
India. As early as 600 BC, money lending was considered as a lawful occupation in India. As the
old Indian saying goes, “Cream is sweeter than milk, grandson than the son, and interest than
the principal.” The Indian money lenders were greedy and started to force people pay highest
interest rates. The Brahmanas were greatly involved in this field in the 6th century. During the
period of Pir Sadruddin (1300-1416), the trade-oriented Ismailis were victims of the debt-trap
created by the Hindu lenders, known as Sahukar, Mahajan and Bania. These money lenders
charged a maximum 20% to 21% interest rates. In sum, heavy rate of interest was rampart in India
and had entirely demoralized both the lenders and borrowers.

It seems that the rich Ismailis were also involved in money lending. On that occasion, Pir
Sadruddin laid strictest taboos against the interest and its excessive twin usury being the fraught.
In So Kiriya (34), Pir said, Dhan viyaj no na kari’ye’n ahaar means “Do not live on money
procured from usury.” In 11th pa’t of Bavan Ghatti, Pir also condemned the usury in harsh words.
Thus, Ismaili farmers and merchants were rescued from paying unreasonably high rate of
Compound Interest or Riba al-Nasi’ah.

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Karachi: June, 2024

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