Does the ‘Riba’ in the Quran Also Refer to Modern Commercial Loans?
This is part 3 of 5 of our series highlighting key arguments and refutations from Mufti Taqi Usmani and others in the "Historic Judgment on Interest" delivered at the Supreme Court of Pakistan in 1999.
"The third argument differentiates between consumption loans and commercial loans. It contends that "riba" used in the Quran is restricted to the increased amount charged on consumption loans extended to the poor for their day to day needs. As far as modern commercial loans go, they were not practiced in the days of the Prophet (Allah bless him and give him peace), nor has the Quran addressed them when prohibiting 'riba'. Even the basic philosophy underlying the prohibition of 'riba' cannot be applied to these commercial and productive loans where the debtors are not poor people. In most cases they are wealthy and use loans to generate profits. Any increase charged from them cannot be termed injustice which was the basic cause of the prohibition of 'riba'."
This argument is fallacious on the following grounds:
(i) A transaction’s validity is not based on a party’s financial status
(ii) The Quran does not differentiate between consumption and commercial loans
(iii) Commercial loans were indeed common amongst the Arabs at the time
(iv) The Quran and not human reason sets the measure of injustice
A transaction’s validity is not based on a party’s financial status
Whether or not a transaction is valid does not depend on the financial position of the transacting parties — rather on the nature of the transaction itself. A sale generating lawful profit or a lease of property for lawful use are valid irrespective of whether the buyer is rich or poor. The poor buyer deserves a concession at most but it cannot be said that it is prohibited to charge him profit.
Gambling and bribery are equally prohibited for both the rich and poor based on the nature of these transactions.
Charging a debtor interest follows the same principle. It would be permissible to charge if lawful by its intrinsic nature regardless of whether the debtor was rich or poor but it is prohibited by its intrinsic nature and therefore invalid to charge the rich or poor alike.
What’s more — poverty is a relative term — who determines who is rich and who is poor and thereby exempt from paying interest?
If a distinction is to be accepted based on the loan’s purpose then consumption ranges from items of necessity to items of luxury. Based on this premise, a car and a home are necessities for which the rich and employed needn’t pay interest on millions borrowed and an unemployed individual borrowing a small sum to set up a street stall is liable to pay interest for taking a commercial loan!
Interest is prohibited in all its forms — hence the distinction between consumption and commercial loans as the basis for the permissibility or prohibition of interest is inaccurate.
The Quran does not differentiate between consumption and commercial loans
The Quranic verses and injunctions of the Sunnah prohibiting riba do not differentiate between the riba from consumption or commercial loans even if for argument’s sake one were to assume that commercial loans didn’t exist at the time — just as the prohibition of liquor and gambling is not restricted to the forms existent at the time the verses were revealed and not the forms prevalent today!
The prohibition of riba encompasses all forms of excess over and above the principal amount for all times.
Commercial loans were common amongst the Arabs at the time
The portion of the argument that contends that commercial loans were not common at the time the verses were revealed is invalid. All forms of commercial, agricultural and industrial loans were common amongst the Arabs and were extended before and after the advent of Islam.
These interest-based loans were common place in the Byzantine Empire to the point that Justinian the emperor at the time established a law determining different interest rates for different borrowers.
Gibbon mentions in his book — The Decline and Fall of the Roman Empire — "Persons of illustrious rank were confined to the moderate profit of Four Per Cent; six was pronounced to be the ordinary and legal standard of interest; eight was allowed for the convenience of manufacturers and merchants; twelve was granted to nautical insurers."
This same law was enforced in Arabia after the Prophet’s (Allah bless him and peace) birth and remained in force. The Arabs had business relations with Syria which was an integral part of the Byzantine Empire as well as with Iraq, Egypt and Ethiopia. The Arabs were aware of interest in all its various forms as is also reflected in Abdullah Bin Salaam’s warning advice to Abu Burdah from Iraq to be wary of the riba practiced in his country.
The Arabs were well known traders. Trade was the mainstay of the economic activity on the peninsula and extended beyond it. There were a great deal of import and export activities with surrounding countries; trade caravans being the method of transporting goods at the time.
The Quran revealed Surah Quraysh explaining their trade during the winter and summer as a blessing. Abu Sufyan’s caravan at the time of Badr comprised 1000 camels and returned with a 100% profit.
Huge caravans such as these were funded collectively by contributions from tribe members. Hence it is inaccurate to believe that the Arabs were unfamiliar with commercial loans.
According to Quranic exegesis the background of Surah Al-Baqarah’s verses dealing with riba was the interest-based loans between tribes.
Ibn Jariri narrates: "The tribe of Banu Amr used to charge interest from the tribe of Banu al-Mughirah."
References to commercial loans are found in many ahadith as well.
Reported by Imam Ahmad, Al-Bazzar, and Al-Tabarani from Abdurrahman ibn Abi Bakr, the Prophet (Allah bless him and give him peace) said:
"The debtor will be summoned before Allah on the Day of Judgment. Then Allah will ask him: 'O Son of Adam! Why did you incur debt and infringe on others' rights?' The man would reply: 'My Lord! You know I took it, but I neither abused nor lost it. It was stolen or fumed in a fire or lost its value.' Allah, the Almighty and Exalted, will say: 'My slave has told the truth, and I am more entitled (than anyone else) to settle his debt.’ Then Allah will issue a command and something will be placed on his scales causing his good deeds to outweigh his bad ones. And so, by Allah's Grace, he will enter Paradise'."
Apart from the trade caravans, evidence that commercial loans were prevalent can also be seen from the following accounts:
Ibn Saad reports Sayyidna Umar (Allah be pleased with him) wanted to send a trade caravan to Syria for which purpose he borrowed four thousand dirhams from Sayyidna Abdurrahman ibn Awaf (Allah be pleased with him).
Al-Baihaqi reports that Sayyidna Miqdad ibn Aswad (Allah be pleased with him) borrowed seven thousand dirhams from Sayyidna Uthman (Allah be pleased with him). Sayyidna Miqdad (Allah be pleased with him) was of the affluent of the Prophetic companions and clearly did not borrow this sum to meet his consumption needs.
When Sayyidna Umar (Allah be pleased with him) received the fatal blow from a Christian, he called his son and directed him to calculate the debt he owed his creditors. His son calculated the amount and found that it was 80,000 dirhams. Sayyidna Umar directed his sons to pay the amount from his assets. Obviously, this amount of 80,000 dirhams could not have been borrowed for personal consumption.
Based on this study it is clear — the assertion that the prohibition of riba was restricted only to “consumption and not commercial loans as they did not exist at the time” is far from accurate.
The Quran and not human reason sets the measure of injustice
The measure of injustice is what is set by the Quran as a command from Allah and not independent, individual opinion. It is in this light that the verse referring to riba as injustice must be understood.
"And if you repent (from claiming riba), then you are entitled to get your principal back. Neither you wrong nor be wronged." [Al-Baqarah 2:279]
The Quran establishes that the one who repents from riba, withdrawing from its practice and giving it up completely — as the one entitled to the principal. If the debtor fails to pay the principal, he commits injustice against the creditor and if the creditor claims any amount over and above the loan, he commits injustice against the debtor.
The Quran does not leave the standard of justice for transacting parties to decide but in fact sets the standard for it — where anything contrary to it is injustice.
In the upcoming part in this series we examine the next Argument:
“The Quran prohibits riba-al-jahiliyya which according to a number of traditions was a particular transaction of loan where no additional amount over and above the principal was stipulated but if the debtor could not pay back the loan at maturity, the creditor would grant him and extension against charging an additional amount. According to this theory, an increased amount stipulated in the initial loan agreement does not constitute riba al-Quran. It falls in the category of riba-al-fadal, prohibited by the Sunnah. Its impermissibility is of a lesser degree and may be termed disliked but not prohibited. This prohibition may be relaxed in cases of genuine need and doesn’t apply to non-Muslims as it falls within the category of 'Muslim Personal Law', which does not come under the jurisdiction of the Federal Shariah Court, as established in Article 203(B) of the Constitution of Pakistan.”
Previous parts of this series can be accessed here:
Part 1 of 5: Is the Definition of Riba Ambiguous?
Part 2 of 5: Does the Word 'Riba' Only Refer to Excessive Interest?
Source: The Historic Judgment on Interest, Mufti Taqi Usmani, et al., Supreme Court of Pakistan