Historical Riba Judgement by Taqi Usmani

Top 20 FREQUENT WORDS

riba 296 holy 188 allahu 160 qur 135 transaction 122 loan 113 prohibition 110 islamic 104 loans 99 based 95 amount 86 radi 83 anhu 82 alayhi 80 transactions 80 banks 79 prophet 79 sall 77 sallam 77 verse 73

DOCUMENT KEY POINTS

• the text of the historic judgment on interest given by the supreme court of pakistan introduction it was a momentous event as big as the creation of the country itself
• the shariah appellate bench consisted of mister justice khalil ur rahman mister justice munir a shaikh mister justice wajeehuddin ahmad and maulana justice muhammad taqi usmani

• the first approach to interpret the term riba as adapted by some of the appellants was that the verses of the holy qur an which prohibit riba were revealed in the last days of the life of the holy prophet sall allahu alayhi wa sallam and he did not have an opportunity to interpret them properly and therefore no hard and fast definition of the term riba can be found in the holy qur an or in the sunnah of the holy prophet sall allahu alayhi wa sallam
• all these appeals arise out of the same judgment of the learned federal shariat court dated november whereby the court has declared a number of laws of the country repugnant to the injunctions of islam as they have provided for charging or paying interest which according to the findings of the learned federal shariat court falls within the definition of riba clearly prohibited by the holy qur an

• the fifth way of argument was that although the modern interest based transactions are covered by the prohibition of riba yet the commercial interest being the back bone of the modern economic activities throughout the world no country can live without being involved in interest based transactions and it will be a suicidal act to abolish interest from domestic and foreign transactions

• the following set of verses is found in the surah al baqarah in the following words those who take interest will not stand but as stands whom the demon has driven crazy by his touch
• so whoever receives an advice from his lord and stops he is allowed what has passed and his matter is up to allah

• ibn jarir al tabari d ah the most famous exegete of the holy qur an reports from ibn abbas radi allahu anhu and several tabi in like saeed ibn jubair mujahid tawoos qatadah zahhak and ibrahim al nakha i that the word riba in this verse means a gift offered by someone to a person with the intention that the latter will give him in return a greater gift

• this verse contains a clear prohibition for the muslims and it can safely be said that it is the first verse of the holy qur an through which the practice of riba was forbidden for the muslims in express ter miss that is why hafidh ibn hajar al asqalani the most famous commentator of sahih al bukhari has opined that the prohibition of riba was declared sometime around the battle of uhud
• then the holy prophet sall allahu alayhi wa sallam proceeded to taif which could not be conquered but later on the inhabitants of taif who belonged mostly to the tribe of thaqif came to him and after embracing islam surrendered to the holy prophet sall allahu alayhi wa sallam and entered into a treaty with him

• in fact the prohibition of riba was effective at least from the nd year of hijra but the holy prophet sall allahu alayhi wa sallam deemed it necessary to announce the basic injunctions of islam at the time of his last sermon which was the most attended gathering of his followers
• the holy prophet sall allahu alayhi wa sallam not only prohibited riba on that occasion but had also declared that the first riba decreed to be void is the riba payable to his uncle abbas ibn abdul muttalib radi allahu anhu

• secondly the view that riba was prohibited in the last days of the holy prophet sall allahu alayhi wa sallam is sought to be supported by another tradition of imam bukhari where he has reported from abdullah ibn abbas radi allahu anhu that he said the last verse of the holy qur an which was revealed on the holy prophet sall allahu alayhi wa sallam was the verse of riba
• therefore even if the above statement of abdullah ibn abbas radi allahu anhu is taken at its face value it is an admission on his own part that the verses of surah al i imran surah an nisaa and surah ar rum were revealed before this verse of surah al baqarah which clearly indicates that the prohibition of riba was already imposed before the revelation of these verses

• in the light of this explanation it is more probable that according to abdullah ibn abbas radi allahu anhu the verses mentioning the severity of the prohibition of riba verses of surah al baqarah were already revealed and it was only verse which was revealed in the last days of the holy prophet sall allahu alayhi wa sallam
• the upshot of the above discussion is that although some indications of displeasure against riba were given in the makkan period also but the express prohibition of riba was revealed in the holy qur an sometime around the battle of uhud in the second year of hijra

• moreover the literature of hadith while explaining the word riba has mentioned in detail the transactions of riba which were used to be effected by the arabs of jahiliyya on the basis of which the earliest commentators of the holy qur an have defined riba in clear ter miss
• nehemiah he that hath not given forth upon usury neither hath taken any increase that hath withdrawn his hand from iniguity hath executed true judgment between man and man hath walked in my statues and hath kept my judgments to deal truly he is just

• mister riazul hassan gillani the learned counsel for the federation of pakistan argued before us that riba al jahiliyya which was prohibited by the holy qur an was a particular transaction in which no increase used to be stipulated at the time of advancing a loan however if the debtor could not pay the principal amount at the time of maturity the creditor used to offer him two options either to pay the principal or to increase the amount in exchange of an additional term allowed by the creditor
• the well known imam fakhruddin al raazi has mentioned the practice of riba in the days of jahiliyya as follows as for the riba an nasiah it was a transaction well known and recognized in the days of jahiliyya ie 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

• the third form is mentioned by mujahid as quoted by the learned counsel but the full explanation of this transaction is given by ibn jarir himself on the authority of qatadah in the following words the riba of jahiliyya was a transaction whereby a person used to sell a commodity for a price payable at a future specific date thereafter when the date of payment came and the buyer was not able to pay the seller used to increase the amount due and give him more time
• 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

• in fact the term mutashabihaat used in the beginning of surah al i imran of the holy qur an refers to two kinds of verses firstly they refer to some words used in the beginning of different surahs the correct meaning of which is not known to any body for sure like alif lam mim ra but the ignorance of the correct meaning of these words does not affect the lives of muslims because no precept of shar iah has been given through these words
• the holy prophet sall allahu alayhi wa sallam treating these commodities as a medium of exchange like money issued the following 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

• it means that if 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 commodities were used as money and the exchange of one kilogram of wheat for one and a half kilogram of another wheat would stand for the exchange of one dirham for one and a half dirham

• these narrations of the statement of sayyidna umar radi allahu anhu clearly reveal two points firstly that all his concern in the issues of riba related to riba al fadl and not to riba al nasiah which was prohibited by the holy qur an and secondly that even in the issue of riba al fadl he did not feel difficulty in many transactions which were clearly prohibited however he was doubtful only with regard to some transactions which were not expressly mentioned in the relevant hadith or in any other saying of the holy prophet sall allahu alayhi wa sallam

• if a poor person hires a taxi one can advise the owner of the taxi to give some concession to him on the basis of his poverty but no one can reasonably assert that the owner of the taxi must not charge any fare from him or must not charge a fare higher than his actual expense otherwise his income will be held as haram and analogous to waging war against allah and his messenger

• once it is accepted that interest cannot be charged from the poor while it is quite lawful to be charged from the rich who will have the authority to determine the exact degree of poverty required for exempting a person from the charge of interest if the distinction between lawful and unlawful interest is drawn on the basis of the purpose of the loan and the loans taken for consumption are exempted from the charge of interest as urged by some appellants the consumption itself may be of different kinds which range from food items to luxurious objects

• meanwhile the money changer at his table trapeza begins in the fifth century to receive money on deposit and to lend it to merchants at interest rates that vary from to percent according to the risk in this way he becomes a banker though to the end of ancient greece he keeps his early name of trapezite the man at the table

• keeping in view such close financial relations of the arabs with the roman empire how can it be imagined that the arabs were totally unaware of the credit transactions flourishing in the roman empire as we shall see later the business relations of the arabs were not restricted to syria
• this law of justinian was promulgated in byzantine empire shortly before the birth of the holy prophet sall allahu alayhi wa sallam in arabia justinian died in ce while the holy prophet sall allahu alayhi wa sallam was born in ce and obviously the law remained in force for quite a long time after its promulgation

• the size of these caravans may be imagined from the fact that the caravan led by abu sufyan at the time of the battle of badr consisted of one thousand camels and had returned with profit one dinar for every one dinar
• this fact finds mention in the old testament of the bible itself which says and they sat down to eat bread and they lifted up their eyes and looked and behold a company of ishmaelites came from gilad with their camels bearing spicery and balm and myrrh going to carry it down to egypt

• a doctor jawed ali whose extensive research about the arabs of jahiliyyah is appreciated throughout the academic world has analyzed the funding sources of these caravans and has remarked as under what the historians have narrated about the caravans of makkah reveals that the capital of a caravan never used to be the capital of one individual or a 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
• have you not seen a person saying to another i shall certainly finance you then he gives him so this does not increase with allah because he gives him not to please allah but to increase his wealth

• moreover such a huge amount cannot be borrowed for normal consumption needs and the hadith mentions that the borrower set out on his sea voyage and after the date of maturity he earned so much that he sent one thousand dinars to his creditor and offered to pay him the same amount once more under the impression that the first payment did not reach him but the creditor admitted that he had received the amount and therefore he refused the debtor s offer to pay him once more

• instead of giving them that money in trust he suggested that he give it to them as a loan so that it may remain in the risk of abdullah and ubaidullah and may reach safely to sayyidna umar radi allahu anhu and it was beneficial for abdullah and ubaidullah as well because after taking the amount as loan they could purchase some goods from iraq and sell them in madina and after settling the principal amount to sayyidna umar radi allahu anhu they could earn some profit

• it is argued that this verse of the holy qur an is the first verse that came with a clear prohibition of riba but it has qualified the prohibition by the words doubled and multiplied 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
• that instead of claiming all the profit from them he might convert this transaction into mudarabah through which half of the profit would be deserved by abdullah and ubaidullah and the remaining half would go to baitulmaal

• they are rather meant to indicate the evil practice of some people who used to commit the grave sin of selling the verses of the holy qur an and still did not gain much in financial ter miss 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
• a combined study of the verses of surah al i imran and surah al baqarah leaves no doubt that the words doubled and multiplied occurring in surah al i imran are not of restrictive nature and that doubled and multiplied is not a necessary condition for the prohibition of riba

• secondly the interpretation of the holy qur an should always be based on the explanation given by or inferred from the ahadith of the holy prophet sall allahu alayhi wa sallam and his noble companions who were the direct recipients of the revelation and were fully familiar with the context of the verse and the environment in which it was revealed
• ii it is reported by hammad b salamah in his jame from sayyidna abu hurairah radi allahu anhu that the holy prophet sall allahu alayhi wa sallam has said if the creditor received a goat as mortgage from the debtor the creditor may use its milk to the extent he has spent in providing fodder to the goat

• vi the same author has reported that sayyidna anas ibn maalik radi allahu anhu was asked about a person who advances a loan to someone and then the debtor gives him something as a gift will it be permissible for him to accept that gift sayyidna anas ibn maalik radi allahu anhu answered that the holy prophet sall allahu alayhi wa sallam has said if one of you has advanced a loan and the debtor offer the creditor a bowl of food he should not accept it or if the debtor offers him a ride of his animal cattle the debtor must not take the ride unless this type of gift has been a usual practice between them before advancing the loan
• whenever the creditor received a gift he sold it in the market until the aggregate amount received by the creditor reached dirha miss abdullah ibn abbas radi allahu anhu advised the creditor not to take more than dirha miss viii it is reported by sayyidna ali radi allahu anhu that the holy prophet sall allahu alayhi wa sallam has said every loan that derives a benefit to the creditor is riba

• even if it is held that the tradition of sayyidna ali radi allahu anhu attributing the above statement to the holy prophet sall allahu alayhi wa sallam is not authentic the same principle has been established undoubtedly by several companions of the holy prophet sall allahu alayhi wa sallam

• the first leg of this argument which restricts the definition of riba al qur an only to a situation where the creditor increases his claim in exchange of more time given to the debtor after the maturity of the loan has already been fully discussed in para to of this judgment where we have held that riba al qur an is not restricted to that situation alone it rather includes every transaction where an additional amount is claimed over and above the principal whether at initial stage or after the maturity
• therefore the learned counsel contended any transaction of loan whereby the repayment of the principal money which stands for gold or silver is delayed from one side is riba al fadl hence makruh even though it is returned without any addition because the transaction of gold for gold or money for money is permissible only when two conditions are fulfilled

• however we would like to note that even if the standpoint of the learned counsel is accepted for a moment his argument that riba al fadl being applicable to the muslims only the laws relating to the banking interest are within the definition of muslim personal law as contemplated in article b of the constitution of pakistan and therefore they are outside the jurisdiction of the federal shariat court or the shariat appellate bench of this court is not sustainable for two obvious reasons

• the illat is the basic feature of a transaction without which the relevant law cannot be applied to it whereas the hikmat is the wisdom and the philosophy taken into account by the legislator while framing the law or the benefit intended to be drawn by its enforcement
• the argument is based on two assumptions firstly that the basic illat of the prohibition is zulm and secondly that there is no zulm in the modern interest based transactions or at least there may be some interest based transactions which have no element of zulm

• the illat the basic feature on which the prohibition is based is the excess claimed over and above the principal in a transaction of loan and as soon as this illat is present the prohibition will follow regardless of whether the philosophy of the law is or is not visible in a particular transaction
• can one say that he has been using liquor for a long time but it never resulted in having enmity with anyone and therefore the basic illat of the prohibition being not present he should be allowed to use liquor or can one reasonably argue that drinking wine has never prevented him from offering prayers at their due times and therefore the basic cause of prohibition mentioned by the holy qur an being absent the drinking should be held as permissible

• islam has no problem in welcoming any constructive suggestion from whatever quarter it may have come but at the same time it has its own principles on which no compromise is possible because they are based on divine guidance the most distinct feature of the islamic economy that draws the line of difference between the islamic and secular economies and the prohibition of riba is one of those basic principles
• the suggestion seems to be substantially reasonable but when this suggestion is given in the context of leaving the definition of riba unsettled and evolving principles of identifying zulm in space time situations it apparently means that it is the pure economic approach which will play a decisive role in identifying zulm in a particular situation and in turn determining what is halal or haram in shar iah

• it is these areas where human reason needs the guidance of divine revelation and it is the divine revelation which finally decides as to which human attitude actually falls within the limits of zulm or injustice even though it appears to be just in the eyes of some secular rationalists and it is in such issues that the divine revelations come with a specific command that prevails upon the rational arguments advanced by differing opinions

• a detailed account of the rationale of the prohibition of riba would in fact require a separate volume but for the purpose of brevity we would concentrate on three aspects of the issue a the logic of the prohibition on theoretical ground b the evil effects of interest on production c the evil effects of interest on distribution
• it is therefore argued that just as a merchant can sell his commodity for a higher price than his cost he can also sell his money for a higher price than its face value or just as he can lease his property and can charge a rent against it he can also lend his money and can claim interest thereupon

• the logical result of this finding would have been that money should not be taken as an instrument that gives birth to more money on daily basis nor should it have been taken as a tradable commodity when it is exchanged for another money of the same denomination because once it is accepted that money is neither consumption good nor production good and that it is merely a medium of exchange then there remains no room for making itself an object of profitable trade for it will be like a mediator himself has been made a party

• after discussing the pitfalls of the existing financial system one of the committee s recommendation was that in order to ensure that money performs its true function of operating as a means of exchange and distribution it is desirable that it should cease to be traded as a commodity
• it skews economic effort towards money out of money and against providing real services and goodsa a it also results in a massive world wide diversion of effort away from providing useful goods and services into making money out of money

• conversely if the intent of sharing the profit of the borrower is designed on the basis of an interest based loan it will mean that the financier wants to ensure his own profit while he leaves the profit of the borrower at the mercy of the actual outcome of the business
• the basic philosophy underlying this scheme is that the one who is offering his money to another person has to decide whether a he is lending money to him as a sympathetic act or b he is lending money to the borrower so that his principal may be saved or c he is advancing his money to share the profits of the borrower

• on the other hand if the business of the borrower earns huge profits the financier should have shared in the profit in reasonable proportion but in an interest based system the profit of the financier is restricted to a fixed rate of return which is governed by the forces of supply and demand of money and not on the actual profits produced on the ground
• in order to limit the use of loans the shar iah has permitted to borrow money only in cases of dire need and has discouraged the practice of incurring debts for living beyond one s means or to grow one s wealth

• it is partly because those who have more money to lend get more in interest than those who have less it is partly because those who have less often have to borrow more and it is partly because the cost of interest repayments now forms a substantial element in the cost of all goods and services and the necessary goods and services looms much larger in the finances of the rich

• this alternately encourages or discourages borrowing thereby speeding up or slowing down the creation of money and the growth of the economy the fact that by this method people and businesses with outstanding debts can be suddenly hit with huge extra charges on their debts simply as a management device to deter other borrowers is an injustice quite lost in the almost religious conviction surrounding this ideologya a this method of controlling banks inflation and money supply certainly works it works in the way that a sledge hammer works at carving up a roast chicken
• carmack and bill still observe about it as follows why are we over our head in debt because we are laboring under a debt money system in which all our money is created in parallel with an equivalent quantity of debt that is designed and controlled by private bankers for their benefit

• in order to solve this problem many suggestions have been proposed by different quarters some of which are the following a that the loans should be indexed meaning thereby that the debtor must pay an additional amount equal to the increase in the rate of inflation during the period of borrowing
• on the other hand having held that this question does neither justify interest nor provides a substitute for it in the banking transactions we do not have to resolve this issue in this case nor does the decision about the laws under challenge depend on it

• in some cases this technique is applied on the basis of buy back arrangement which means that the commodity already owned by the customer is sold by him to the bank and is simultaneously purchased by him from the bank at a higher price which is nothing but to make fun of the original concept
• b to make it a valid transaction it was necessary that the commodity is really purchased by the bank and it comes into the ownership and possession physical or constructive of the bank so that it may assume the risk of the commodity so far as it remains under its ownership and possession

• but if the financing transaction contemplates that in the case of a loss the loss will be shared by both the parties in proportion to their respective investments this much is enough to validate the transaction after which the parties can agree on a condition that if the business gains a profit a certain rate of profit attributable to the original investment of the financier will be deserved by him
• therefore all the objections against interest are very much applicable to the mark up system as in vogue in pakistan and this system cannot be held as immune from being declared as repugnant to the holy qur an and sunnah

• the court invited this bank to send some of its experts to assist the court and to throw light on the working of the islamic banks and the feasibility of the proposals presented so far for transforming the banking system to the islamic ways of financing
• what is meant by islamizing the banks and financial institutions is not to advance money without return what it does mean is that the banks will finance on the basis of profit and loss sharing and other islamic modes of financing none of which is devoid of return

• islamic banking is distinctive in two respects concentrating on the real sector of the economy it imparts tremendous stability to the economic system by achieving an identity between monetary flows and goods and services and by operating on a system of profit and loss sharing in its evolved state it insulates the society from the debt mountain on the analogy that if the economies enter into recessionary or deflationary phases the principles of profit and loss sharing protects the states and economic operators from the evils of accumulation of interest and minimizes defaults and bankruptcies

• to quote james robertson again why has the process of issuing new money into economy ie credit creation been delegated by governments to the banks allowing them to profit from issuing it in the form of interest bearing loans to their customers should governments not issue it directly themselves as a component of a citizen s income would it be desirable and possible to limit the role of interest more drastically than that for example by converting debt into equity throughout the economy this would be in line with islamic teaching and with earlier christian teaching that usury is sin
• having studied the effect of debt on the economies of developed and less developed countries he set up and is the chairman of oxford research and development corporation limited which explores the use of equity instruments and the development of equity markets for areas of finance currently served by debt

• recognition of the degree of interdependence in an equity oriented market place can lead to more consideration of the needs of others and ultimately to a more caring and compassionate society
• no longer will managers have to face the choice between paying interest and disemploying some or not paying interest and disemploying all

• khan both economists of the research department of the international monetary fund imf have studied in detail the implications of an interest free islamic banking and while discussing the profit and loss system they have observed as shown in a recent paper by khan this system of investment deposits is quite closely related to proposals aimed at transforming the traditional banking system to an equity basis made frequently in a number of countries including the united states
• philip moore in his recent study of islamic finance observes as follows although this long term shift from a bond based to an equity based financial system accords in many respects with islamic economic principles it is a trend which is by no means confined to the islamic world and which is increasingly being championed globally

• the problem is created by the system that separates the banking and financing from the normal trade activities and which has compelled the people to believe that banks and financial institutions deal in money and papers only and that they have nothing to do with the actual results emerging in trade and industry

• though musharakah is the ideal mode of financing that fully conforms not only to the principles of islamic jurisprudence but also to the basic philosophy of an islamic economy yet there is a variety of instruments that may be used on the assets side of the bank like murabahah leasing salam istisna etc

• the upshot of this discussion is that when money is exchanged for money no excess is allowed neither in cash transaction nor in credit but where a commodity is sold for money the price agreed upon by the parties may be higher than the market price both in cash and credit transactions

• although the laws under challenge in the present case are not specifically related to the foreign borrowings yet it is obvious that once the interest is held illegal these transactions will also be hit by the prohibition in some way or the other

• at a time when we are in the dire need to improve the economic status of our people to eradicate poverty to raise the level of our education and to provide at least the minimum health requirements to our rural areas where thousands of men women and children are at the brink of death for want of any medical aid we are forced to allocate of our total budget for repayment of interest based loans
• embarrassing for the whole nation are the remarks of the president of ifc international finance corporation an affiliate of the world bank in his report to the board of directors of ifc about a proposed investment in the hala spinning mills

• the holy prophet sall allahu alayhi wa sallam has also termed the following transactions as riba i a transaction of money for money of the same denomination where the quantity on both sides is not equal either in a spot transaction or in a transaction based on deferred payment
• ii a barter transaction between two weighable or measurable commodities of the same kind where the quantity on both sides is not equal or where the delivery from any one side is deferred

• ahmad khan chief executive islamic unit of the hong kong shanghai banking corporation hsbc based in london from outside pakistan and mister abdul jabbar khan the former president of the national bank of pakistan mister shahid hasan siddiqui and mister maqbool ahmad khan from pakistan are the bankers who have a long experience of banking in different parts of the world besides others appeared before us

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DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\riba

KeyWords

riba prohibit loan transaction NA bankand vers islam quran prophet amount borrow allah profit usuria financi meanigs commodities principal increase

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DOCUMENT REFERENCES

Number of Pages

64

Published Date

2000-07-31 02:41:57

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