The case for giving up riba
The Islamic New Year starts with the month of Muharram, which essentially means forbidden or prohibited. Muharram shows that Islam prioritizes the importance of understanding prohibitions, one of the major ones being “taking riba/interest.” Allah says: “O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger,” (Qur’an 2:278-9).
Many argue that riba and interest are not the same thing, so taking interest might not actually fall under the above prohibition. Nonetheless, deriving an understanding from the Qur’an, riba (two types, namely “Riba An Nasiyah” and “Riba Al Fadl”) is the “excess which results from predetermined interest” and “excess compensation without any consideration resulting from a sale of goods.” Therefore, even if riba and interest are not the same verbatim, any unexplained excess return will fall within the ambit of riba and thus, is prohibited.
The reason behind this prohibition is that riba does not ensure equity in exchange or, in lay terms, it encourages impartiality and unfairness in society because riba essentially encourages unjust/unequal exchanges. While some may find it beneficial, most suffer from such inequality.
It is pertinent to mention that riba is also a colossal contributor to the creation of a monopoly in a society where the rich get more money as returns, and those in need of loans have to pay more against their loans. When former president Obasanjo spoke about Nigeria’s loans, he said that even after paying $16bn against a $5bn loan, Nigeria owed $28bn to its creditors.
If we look into the kind of bank accounts we are maintaining, it becomes discernible that we have also encouraged the same inequality and monopoly in society, and with or without knowing, by taking riba of either kind, we have made the Almighty and His Messenger wage war against us. All we had to have done was simply open a bank account or take a loan from a bank that follows the conventional banking system. This banking system is one that encourages the taking and giving of interest while investing and taking returns from non-Sharia avenues.
Under Sharia law, this is prohibited because money must not be allowed to create more money (because money is not a commodity but a medium of exchange). Rather, a bank should “earn” its profits through “real economic activities.” Thus, instead of traditional accounts with interest-based returns, Sharia-compliant banks provide accounts which offer profit/loss using two forms of finance ie mudarabah and musharakah.
Under the mudarabah form of finance, a profit-loss sharing agreement will be entered into by two parties, following which the finance provider will provide capital to the labour (ie effort) provider. Profits will be shared based on a pre-agreed profit ratio and losses will be shared with regards to the investment ratio. However, under the musharakah form of finance, a joint venture is formed where all partners contribute capital and share the profit and loss on a pro-rata basis.
If these forms of finance are followed, equality is ensured, risks are shared, and the rights of the parties -- that are normally infringed when they are obliged to pay interests -- will not be undermined. In order to ensure these benefits, thousands of banks around the world have adopted the Sharia-compliant banking system. However, their reason for this adoption might also be to target more clients.
Nevertheless, the more concerning issue is that not all banks that claim to be Sharia-compliant are actually 100% Sharia-compliant. As Allawala (CEO, Standard Chartered Saadiq Malaysia) mentions, Sharia-compliant banking does not refer only to interest-free-banking, but “transparency, full disclosure of defects, zero exploitation, fair treatment of the customer,” and being considerate towards debtors.
Thus, a client experience different than that of conventional-banking should be adopted, “which generates ‘real economic activity’ by creating a participative model of investing in viable business ventures, protecting the rights of investors and depositors, and providing opportunities for small businesses and entrepreneurs to access capital,” says Allawala.
However, some of us do not wish to keep our savings in a Sharia-compliant bank in the first place because that would deprive us of interests. It is understandable that during this pandemic, with millions of people losing their jobs, every penny counts. But do we really want the Almighty and His Messenger to wage war against us because of that?
Nevertheless, Islam is never too strict. The Qur’an reads that although eating pork is prohibited (for the sake of our good health), if there is no alternative, then one can eat pork for the sake of his survival (Qur’an 2:173). Similarly, Allah says if someone unknowingly takes riba and he repents after knowing about this prohibition, then he may have his principal (2:279). Nevertheless, if he knowingly takes riba, then he shall be the companion of the Fire (2:275) and war shall be waged against him (2:279).
The main purpose of this article is to remind people about the benefits of not taking riba, and understanding the severe repercussions and depth of this prohibition. I, therefore, urge banks and people to do their best to give up riba, once and for all, on these days of Muharram.
Anusha Islam Raha is a law graduate. She is currently studying LLM and pursuing her career as a teacher.