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Islamic Laws on Riba (Interest) and Their Economoic Implications

Published online by Cambridge University Press:  29 January 2009

M. Siddieq Noorzoy
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Extract

The Islamic fundamentalist doctrine on riba states that the rate of interest is zero, a doctrine based upon the Quranic injunctions against it. The word ‘riba’ means ‘increase’ as interpreted by Imam Razi, which corresponds to the word ‘interest’ as defined by Webster's New World Dictionary. In both cases the increase refers to the amount beyond what is owed. Thus, the strictest interpretation that can be given to the word riba is that it means interest—an amount, or rate, due above the principal of a loan. The word riba, however, is commonly translated as usury which is defined by Webster's Dictionary as “an excessive or unlawfully high rate or amount of interest.” Thus, the fundamental aspect of the controversy about the doctrine of interest in Islam is whether the rate of interest is zero, in which case riba is interpreted to mean interest per se, or whether a positive rate of interest is permissible, in which case nba is interpreted to mean usury.

Type
Articles
Information
International Journal of Middle East Studies , Volume 14 , Issue 1 , February 1982 , pp. 3 - 17
Copyright
Copyright © Cambridge University Press 1982

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References

NOTES

1 The injunctions against riba in the Holy Quran are contained in several verses: Sura II, 275–276 and 278–281 (Ali, A. Yusaf, trans. [3d ed.; Washington, D.C.: American International Printing Co., 1938], pp. 111–112;Google ScholarSahih al-Bukhari, trans. Khan, M. Muhsin [rev. ed., 1976] Ankara: Hilal Yayinlari, III, 168–170;Google Scholar and Pickthall, Mohammad M., The Meaning of the Glorious Koran [New York, N.Y.: New American Library, n.d.], p. 59).Google Scholar

2 The study by Razi, Imam Fakhrudin is “Mafatihu'l-Ghaib,” cited in Qureshi, Anwar I., Islam and the Theory of Interest (2d ed.; Lahore: S. H. Mohammad Ashraf, 1974). p. 45.Google Scholar

3 Cf. the translations referred to in n. 1 above.

4 Qureshi, , Islam and the Theory of Interest, p. 70.Google Scholar

5 Ibid., pp. 46–47.

6 Holy Quran, trans. (3d ed.) Ali, Yusuf, p. 111 n. 324.Google Scholar

7 See, e.g., Ahmad, Shaikh M., Economics of Islam: A Comparative Study (2d ed.; Lahore, S. H. Mohammad Ashraf, 1958);Google ScholarAli, S. A., Economic Foundations of Islam (Calcutta: Orient Longmans, 1964);Google ScholarQureshi, , Islam and the Theory of Interest; Nejatullah Siddiqui, Banking without Interest (2d ed.; Lahore: Islamic Publications, 1976);Google Scholar and Siddiqui, S. A., Public Finance in Islam (Lahore: S. H. Mohammad Ashraf, 1962).Google Scholar

8 Daawa (Cairo), 04, 1980, 50–51.Google Scholar

9 Qureshi, , Islam and the Theory of Interest, p. 68.Google Scholar

10 Ibid., pp. 61–62. The Prophet Muhammad mentioned six products in his statement on riba fadl: gold, silver, wheat, barley, dates, and salt. Some writers such as Ali, Yusuf, Holy Quran, trans. 3d ed. (p. 111 n. 324) would restrict the meaning of the Prophet's injunctions against barter to these six products. The consensus is that the injunctions apply to all commodities. I adopt this interpretation. See also Qureshi on this issue, p. 66.Google Scholar

11 Ibid., pp. 64–66.

12 On the prohibition of riba the view may be taken that the Quranic injunctions against riba are absolute and thus the prohibitions must be accepted as they stand. Imam Razi and other Islamic scholars of Islamic law have pointed out a variety of arguments for these injunctions. In the final analysis they are reduced to the two types of loan transactions on consumption and investment, and the reasons attached to the prohibitions of riba on these types of loans. See Qureshi, , Islam and the Theory of Interest, pp. 45–48,Google Scholar and Ali, S. A., Economic Foundations of Islam, pp. 173–175.Google Scholar

13 While the injunctions against riba apply to both parties in a loan transaction they do not mean that borrowers can abuse borrowing priviliges. There are reminders against abuse in borrowing and nonpayment of debt. Cf. Qureshi, p. 82.

14 CfAli, S. A., Economic Foundations of Islam, p. 174.Google Scholar

15 On the theory of capital see Hicks, J., Capital and Growth (New York: Oxford University Press, 1965).Google Scholar

16 E.g., Suits, D. B., “The Determinants of Consumer Expenditure: A Review of Present Knowledge,” in Johnson, W. and Kamerschen, D., eds., Macroeconomics: Selected Readings (Boston: Houghton Mifflin, 1970).Google ScholarBoskin, M. J. presents evidence from U.S. data showing a positive correlation between the rate of interest and saving (“Taxation, Saving and the Rate of Interest,” Journal of Political Economy, 86, Supplement [04 1978”, S3–S27).CrossRefGoogle Scholar

17 Siddiqui (Banking without Interest) sets up a model of banking which attempts to get around the basic question of charging interest on loans. His model basically refers to the practice of invesment banking through which banks are direct investors as partners in business ventures. A second form of organization to which he pays a great deal of attention is called mudaraba (joint enterprise) and is defined as that form of organization where “one party should provide capital and the other should transact the buisness under the agreement that he will receive a fixed percentage of div'ldend in the overall profit of the business” (p. 8). The latter type is a variant of the silent partnership. In both cases, active or silent partners share in profits and losses on the basis of prior agreements. But the problems of calculating profits, as noted above, and separation of ownership and control, a phenomenon common in modern corporate forms of business, are not explored. In other respects Siddiqui's book is of interest in showing how a banking system might work without fixed interest earnings and what the role of the central bank might be in such a system.

18 See Qureshi, , p. xviii.Google Scholar

19 For a survey of these and other arguments on interest see ibid., pp. 1–14.

20 Modern Library (New York: Random House, 1937), Book II, chap. 4.Google Scholar

21 Mandaville, Jon E., “Usurious Piety: The Cash Waqf Controversy in the Ottoman Empire,” International Journal of Middle East Studies, 10 (08 1979), 289–308.CrossRefGoogle Scholar

22 Gran, Peter, Islamic Roots of Capitalism (Austin: University of Texas Press, 1979), esp. pp. 3–34.Google Scholar

23 Townsend, John, Middle East Annual Review (Essex, England: Middle East Review Co., 1979), pp. 121–147.Google Scholar

24 Ali, S. A., p. 168.Google Scholar

25 Ibid., p. 162.

26 E.g., on some aspect of the money and capital markets see Siddiqui, , pp. 49 and 79.Google Scholar For the commodity market see Qureshi, , p. 88.Google Scholar

27 Some writers argue that the injunctions apply against all speculative activities without distinguising between the various effects of speculation. See for example, Qureshi, , pp. 68–90.Google Scholar

28 Daawa, 04 1980, pp. 50–51.Google Scholar

29 Ali, S. A., pp. 22–23.Google Scholar