Associate Professor of Economics and Finance
Upper Iowa University
“There is nothing prohibited except that which God prohibits …
To declare something permitted prohibited is like declaring something prohibited permitted.”
Islamic economics developed as part of the revivalist movements seeking to bring about Islamic society, where an Islamic economy would be in lieu of other systems of economy, including capitalism and socialism. As a vibrant civilization that spanned near a millennium, Islam always had to deal with issues, laws, policies and institutions pertaining to economy and finance. The western colonial rules over the Islamic world ultimately gave rise to Islamic revivalism: movements that took inspiration from the Qur’an and the life of the Prophet and wanted to chart a new, forward-looking course for the Islamic world. Islamic banking and finance movement (IBF hereafter) emerged as part of a broader revivalist ethos that was to be in response to the western civilization, including its economic system with colonial and imperialist tendencies.
The contemporary Muslim is groping to perform the uphill task of establishing a New Social Order based on the ideals and values of Islam and capable of leading Muslims through the rough waters of the modern age. .. The emerging discipline of Islamic economics is one tiny but radiant element in this creative enterprise. [Naqvi, p. 10]
Throughout the anti-colonial struggle, the Muslim world went through a serious identity crisis and it was groping for new vision, ideas and direction, anything with “Islamic” label struck the chord of Muslims around the world. Naturally, economics with an Islamic identity – Islamic economics – came to limelight, an offshoot of which is the Islamic banking and finance movement. With one humble initiative in 1960s, which did not survive, within 3-4 decades, Islamic financial institutions (IFI hereafter) have now come mainstream. Almost all the Muslim-majority countries have some kind of IFI. Global financial powerhouses, such as HSBC, Citibank, now are vying for its share of the burgeoning Islamic financial market. Harvard University now has an Islamic Finance Project. Dow Jones has a Islamic market family of indexes.1 By all accounts, there is a growing demand for services provided by the IFIs.2
The crux of Islamic banking is freedom from Riba, which is commonly equated with interest (the fee charged by a lender to a borrower for the use of borrowed money).
“One body of scholarly opinion defines riba to include not only interest but also transactions involving speculation and capital gains, monopoly, hoarding, and absentee rents, in other words, any appropriation of value for which an acceptable counter-value is not forthcoming. … The reader can easily read through and conceptualize the implications of using more and more restrictive definitions, in the limit (to borrow mathematic term) equating riba simply with interest.” [Khan, 1987, pp. 1, 3]3
The relevance and Islamicity of Islamic banking movement, away from conventional banking based on interest, rests on the claimed prohibition of interest in Islam. Riba, of course, is categorically and indisputably prohibited in the Quran.
Those who devour riba will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: “Trade is like riba,” but Allah has permitted trade and forbidden riba. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever).
Allah will deprive riba of all blessing, but will give increase for deeds of charity: For He loves not creatures ungrateful and wicked. [2/al-Baqarah/275-276]
O ye who believe! Devour not riba, doubled and multiplied; but fear Allah. that ye may (really) prosper. [3/Ale Imran/130]
Therefore, there is absolutely no controversy regarding riba – or at least, some types of riba – being prohibited. Since the scope of this paper does not require to provide detailed explanation of each pertinent Islamic term, it would suffice to point out here that gradually riba was categorized as either riba al-nasia (related to deferment of payments) and riba al-fadl (related to exchange of commodities), and the latter was added primarily on the basis of Hadiths (prophetic narrations). Later the scope of riba in Islamic jurisprudence was extended in modern times to include all forms of interest (high or low rate, nominal or real, etc.) and riba al-fadl, based on qiyas (analogical deductions), was extended to more than six commodities. However, according to Ibn Abbas, one of the major companions of the Prophet and earliest of the Islamic jurists, and few other companions (Usama ibn Zayd, ‘Abdullah ibn Mas’ud, Urwa ibn Zubayr, Zayd ibn Arqam) “considered that the only unlawful riba is riba al-jahiliyyah” [i.e., a form riba an-nasia] [Saleh, p. 27] Of course, the prevailing, orthodox position is contrary to this observation.
However, what is riba and its scope, and are interest and riba completely equivalent or convergent? Another word, is interest, especially bank interest, Riba? Equating Riba with interest in general, the traditional Islamic literature, representing the Equivalence School [Ahmed, p. 28], refers to these two things interchangeably. As such, in explaining the rationale for prohibition of Riba, Islamic literature deals with the rationale for prohibition of interest, assuming that the two are completely equivalent.
The advocates of Islamic banking and finance movement routinely claim unanimity about the riba-interest equation. In this essay, we examine the veracity and validity of such claim of consensus (ijma). Another word, the subject matter of this essay is not whether interest is haram or not, but whether there is any ijma about riba-interest equation.
The Claim of Ijma about Riba-Interest Equivalence
The issue whether interest is Riba is important not merely as a scholarly discourse or polemics, but it is vitally important for Muslims, who want to abide by the guidance of Islam as entailed in the Qur’an and Sunnah, but also because they want to be convinced that nothing prohibited (haram) is made permissible (halal) and nothing halal is made haram. Among the contemporary educated Muslims, there is significant confusion and ambivalence about this issue of interest. The Islamic literature that equates interest with riba is voluminous and overwhelming, and reading such literature one may come across the claim of consensus (ijma’) about this issue. Indeed, there is a tendency to even claim that the debate has already ended or there is no further room for debate or dispute.
“… general consensus among Muslim scholars clearly is that there is no difference between riba and interest.” Tariq Talib al-Anjari. “Islamic Economics and Banking,” http://islamic-world.net/economics/economic_banking_01.htm;
“The Shariah disallows Riba and there is now a general consensus among Muslim economists that Riba is not restricted to usury but encompasses interest as well.” “Principles of Islamic Banking,” November-December 1995, http://www.usc.edu/dept/MSA/economics/nbank1.html
“The renowned Islamic scholar Dr. Yusuf Al-Qaradawi holds that the question of prohibition of interest is a settled issue and that ‘there is no provision left in it for any reformist to re-interpret and provide any excuse for stating anything otherwise’. He states that it is ‘an issue which has withstood the test of consensus (Ijma) of ummah of the present day as well as of the past’.” [Syed Thanvir Ahmed. “Attempt to Justify Interest an Exercise in futility,” http://www.islamicvoice.com/april.99/economy.htm.]
“The consensus of Islamic jurists, fuqaha’, as well as specialists in Islamic Economics has been that interest is equivalent to what is termed in the Shariah as riba, which is strongly condemned.” Mabid Ali Al-Jarhi and Munawar Iqbal. “Islamic Banking: Answers to Some Frequently Asked Questions,” Islamic Development Bank, Occasional Paper No. 4, 2001.http://irtipms.iskandertech.com/OpenSave.asp?pub=92.pdf
“All the school of thought of Muslim jurisprudence hold the unanimous view that riba, usury and interest are strictly prohibited. [Siddiqui, p. 15]
“The equivalence of riba to interest has always been unanimously recognized in Muslim history by all schools of thought. In conformity with this consensus the Islamic Fiqh Academy of the Organization of the Islamic Conference (OIC) has recently issued a verdict in its Resolution No. 10(10/2) upholding the historical consensus on the prohibition of interest. [Iqbal and Molyneux, p. 9; IFC/2000]
“Riba (usury), call it bank-interest if you like, is prohibited by the texts of the Qur’an and the Sunnah. This was the conclusion drawn unanimously by the Muslim jurists (fuqaha).” [Nyazee, p. 1]
“… a scholarly consensus was established by the scholars of the Followers (tabi’in) on the impermissibility of both types of riba, any debate thereby being ended.” [Zuhayli in Abdulkader Thomas, p. 29]
“The prohibition of riba al-nasia essentially implies that fixing in advance a positive return on a loan as a reward for waiting is not permitted by the Shariah. In this sense, riba has the same meaning and import as the contemporary concept of interest in accordance with the consensus of all fuqaha’ (jurists). It makes no difference whether the loan is for consumption or business purposes, and whether the loan is given (or taken) by a commercial bank, government, corporation, or an individual. Similarly, it makes no difference whether the return is a fixed or a variable percentage of the principal, or an absolute amount to be paid in advance or on maturity, or received in the form of a gift or prize or a service if stipulated as a condition (or expected as a custom) in the loan contract or an extension in its maturity.” [Jarhi and Iqbal, p. 11; emphasis is mine]
The Islamic discourse pertaining to economics and finance is replete with such pious and absolutist statements. However, the reality is anything but. It has been a common practice among Muslim scholars and jurisprudents to be quite liberal in claiming consensus (Ijma). A concept of consensus or unanimous agreement can be viewed at merely a factual level, whether such a consensus exists or has existed or not. However, the Islamic concept of ijma has special significance. The very use of the word ijma inspires awe among the believing and Islam-abiding faithfuls, because based on the principles (usul) of Islamic jurisprudence, the concept of ijma carries the notion of religious infallibility and, thus, binding upon Muslims. To go against an ijma may provoke religious renunciation by the orthodoxy.