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== Top 20 FREQUENT WORDS ==
riba 768
islamic 393
cit 266
ibn 151
prohibition 146
legal 134
ibid 116
economic 114
economics 113
scholars 106
credit 105
hadith 105
usury 105
sale 102
financial 99
forbidden 93
due 92
permissible 92
egypt 91
increase 91



== DOCUMENT KEY POINTS ==
*interest in islamic economics the definition of the islamic notion of riba is not offered in the quran and interest in islamic economics offers the reader various understandings of this islamic economic concept
*he has nearly years of diversified financial services experience and is a graduate of the fletcher school of law and diplomacy in international trade and the university of chicago in arabic and islamic studies

*ghazanfar the west and islam western liberal democracy versus the system of shura mishal fahm al sulami the regency of tunis and the ottoman porte a army and government of a north african eyalet at the end of the eighteenth century asma moalla islamic insurance a modern approach to islamic banking aly khorshid the small players of the great game the settlement of iran s eastern borderlands and the creation of afghanistan pirouz mojtahed zadeh interest in islamic economics understanding riba abdulkader thomas
*routledge islamic studies historians state and politics in twentieth century egypt contesting the nation anthony gorman the new politics of islam pan islamic foreign policy in a world of states naveed shahzad sheikh the alevis in turkey the emergence of a secular islamic tradition david shankland medieval islamic economic thought filling the great gap in european economics s

*no part of this book may be reprinted or reproduced or utilised in any form or by any electronic mechanical or other means now known or hereafter invented including photocopying and recording or in any information storage or retrieval system without permission in writing from the publishers
*british library cataloguing in publication data a catalogue record for this book is available from the british library library of congress cataloging in publication data a catalog record for this book has been requested isbn master e book isbn isbn adobe ereader format isbn print edition

*yusuf talal delorenzo riba in lisan al arab translated by ruba alfattouh abdulkader thomas and najwa abdel hadi in the shadow of deuteronomy approaches to interest and usury in judaism and christianity vincent j

*his major works include the realm of the saint power and authority in moroccan sufism austin tx university of texas and the way of abue madyan doctrinal and poetic works cambridge the islamic texts society
*khalil is a partner in the law firm of jones day resident in the singapore office where he co chairs the firm s global projects practice and the asia lending structured finance practice

*he is a director of yasaar ltd a advisory body as well as the supervisory panels of financial institutions worldwide including the dow jones islamic market indexes
*he has translated numerous classical islamic fiqh works from arabic persian and urdu into english and provided commentary thereon

*in the end riba can be diagnosed and financial relations may be had free from ita even in america in this humble endeavor i am hopeful god willing to have helped readers to understand how to identify riba and live free from it

*the research that comprises this book includes important contributions from some scholars whose views i may not fully embrace but which shed light on this definition in a way so as to ease the burden of those who wish to understand what this word is why it invalidates contracts and how one might understand it

*it took me a very long time to work on this subject i could have spent an equally long time attempting to achieve the erudition of the contributors
*i am most pleased however that these contributions providing unique detailed views give readers the ability to make an informed personal or academic decision about the meaning of this word and its role in finance

*then based on their own flawed understanding some have even gone so far as to declare that the prohibition that was is no longer because times have changed and society has moved forward and people are no longer in danger of being sold into slavery to repay their debts some of our modern reformers of islamic thought have had the audacity to claim that islamic finance is unnecessary because the whole issue of riba is an artificial one something from the depths of an islamic past that is better forgotten
*for most of these countries the repayment of principal is such a remote possibility that it is never seriously considered then finding themselves condemned in perpetuity to paying interest their only response appears to bea what a pathetic attempt to discredit their own religious teachings the prophet upon him be peace taught a time will come over people when not a one of them will remain other than consumers of interest and even those who do not consume it will be effected by its dust

*however to summarize the matter here at the outset riba at the level of the individual may seem relatively harmless at the societal level however the proportions of the problems inherent in riba are magnified many times over

*in order for it to break out of the confines of academia it required a real subject a practical and living application and practitioners who were not only conversant with the classical discipline but who in addition were cognizant and appreciative of the changes the world had undergone in the intervening centuries
*in the decades of the s and s at a time when newly independent muslim states were attempting to come to terms with their cultural and religious identities a handful of muslim thinkers began speculating on the theoretical foundations of an islamic economic system often as an afterthought to their musings about an ideal islamic state

*at this time too perhaps owing to the extraordinary demands placed upon individual scholars hired as advisors and partially in order to bring in a wider range of legal opinion representing each of the four major schools of classical legal thought as well as regional and cultural trends islamic banks began to establish supervisory boards often with as many as or members

*in pakistan a country of very capable and sophisticated bankers as well the attempt on the part of the government of general zia ul haq in the early s to islamize the banking system overnight by means of marshal law fiat brought about patently cosmetic changes that were ridiculed by bankers and the general public
*in egypt for example a financial scandal in a high profile islamic bank gave already hostile regulators the opening they needed to suppress islamic banking and finance in that country before these really had a chance to establish themselves

*the most important factor in the transition from the jurisprudence of recovery and revival to a more proactive and participatory jurisprudence of transformation and adaptation was the reconfiguration of the nominate contracts or perhaps more exactly the concept that the nominate contracts may be thought of as building blocks that may be constituted and creatively reconstituted for the achievement of all manner of objectives
*on the contrary as their own understanding of modern business concepts and practices increased scholars were emboldened to make comments of their own often pointing out parallels that exist between fundamental concepts of transacting and modern commercial law and then moving on to extrapolate shared concepts and to consider their possible applications in modern situations

*as alluded to earlier one of the factors in the development of a modern jurisprudence of islamic finance has been the ability of scholars to communicate their ideas among themselves and through debate and discussion with colleagues and peers and to an extent through demonstrating by means of actual business applications to bring about general agreement and approval throughout the scholarly community
*perhaps its greatest challenge however is an internal one to make modern muslims aware of the problem of riba and to assure them that viable alternatives to the financial products and services that they currently depend upon are available to them or soon will be as the readers of this book will soon discover for themselves the issue while certainly complex is not beyond reason or comprehension

*brief descriptions of how all three of these nominates have been adapted to form the basis of different home financing programs may be found in abdulkader thomas and virginia morris guide to understanding islamic home finance new york lightbulb press
*introduction to understanding riba subject of much discussion by the scholars at the first conference of islamic banks at dubai in

*he also said analogy of rubbayya of riba is the unwritten speech of the arabs indicated that they spoke with the y sound saying rubya and hubya and did not say rubwa and hubwa
*every drop of blood for which they were owed and every riba they were responsible for were dropped except their capital which was given back to them

*he meant by rabeya taken by al rrabw or the breathlessness and that is the panting and quick breathing which the one who walks and moves fast has and so is the hashiya
*it is narrated he who admits the jizya tax on non muslims under muslim rule has to pay al rribwa which means that one who does not join islam because of zakat has to pay jizya which is more than he would have paid in zakat if he were a muslim

*al rrabw al rrabwatu al rrubwatu al rribwa al rrabawa al rrubawa alrribawa al rrabiya al rrabatu all that raised above the earth and raba

*this passage is supported by another in exodus if you lend money to any of my ie yahweh s people to any poor man among you you must not play the usurer with him you must not demand interest neshekh from him a as well as one from leviticus if your brother who is living with you falls on evil days and is unable to support himself with you you must support him as you would a stranger or a guest and he must continue to live with you

*whatever the case it is clear that according to jewish law the biblical prohibitions of tarbit and neshekh are not meant to refer only to the restricted category of excessive interest which is usury in the modern sense of the term but rather are applicable to all interest bearing transactions no matter how minimal the interest charged in them may be
*only in the book of ezekiel can one find a biblical passage mentioning usury as a transgression punishable by extreme measures where one man engages in filthly practices with his neighbor s wife another defiles himself with his daughter in law another violates his sister his own father s daughter where people take bribes for shedding blood you charge usury and interest you rob your neighbor by extortion you forget all about mea it is the lord yahweh who speaksa i mean to

*in the talmudic period the concept of usury was expanded beyond the paradigms set forth in the torah and other books of the old testament to include any type of business that gave even the slightest hint of interest
*indeed questions of mutuality and equity became so important to talmudic scholars that certain of them such as hillel went so far as to say a woman should not lend a loaf of bread to her girlfriend unless she states its value in money and a man may say to his fellow a weed with me and i ll weed with you or a hoe with me and i ll hoe with you

*according to salo baron maimonides emphasis on the charitable aspects of the deuteronomic prohibition of usury had the dual effect of facilitating a more lenient interpretation of the prohibition both in cases where the borrower did not really require charitable credit such as in productive loans and where the lender belonged to a class of persons such as orphaned minors and scholars who required special protection
*in particular he ignores the pseudoaristotelian conception of the sterility of money so important to medieval christian scholastics and merely restates the talmudic principle that it is forbidden to lease dinars since this is not like leasing a vessel which is being actually returned whereas these dinars are spent and others are returned

*the evasion of the prohibition of interest bearing transactions in medieval judaism by means of the contract foreshadows later attempts in medieval and early modern christianity to avoid the inconvenient commandments of deuteronomy and leviticus by redefining the concept of usury altogether
*to evade mishnaic prohibitions concerning the dust of usury the borrower would be paid a nominal salary by the lender and the contract would stipulate fictitiously that both parties would share in any losses that accrued from the joint venture

*the advent of the crusades and the introduction of feudal latin christians to the sophisticated monetary economy of the middle east soon prompted a reopening of the usury issue in the latin church as well as a profound reorientation in the nature of arguments concerning the practice of money lending
*implicit in this model is an attempt to limit the troublesome distinction between ethnic and religious communities in deuteronomy and replace it with a new dichotomy between two types of money to take usury for the loan of metallic money is forbidden by rabanus while asking usury for proselytization and other forms of spiritual sustenance is permissible

*through the affliction of usury saracens and other enemies who are too strong to be defeated by force of arms might be recalled to the unity of the church and if not would be compelled under the pressure of usury either to yield to the church or at least not to disturb it
*these christian usurers to avoid sanctions even go so far as to hide their faith and pretend to be jews in which guise they are protected by local princes who falsely say about them these are our jews

*by mid century no fewer than thirteen such exceptions were regarded as acceptable loans by the commentator hostiensis feuda when a fief is returned to the lender as security for a loan the lender may take the proceeds of the fief without deducting them from the capital loaned

*although he was originally opposed to usury as a form of social injustice luther s instinctive antipathy toward the anarchic doctrines of peasant revolutionaries as well as his pragmatic support of the political and economic interests of local german princes caused him to reevaluate his previous opinions and claim in that considerations of public interest superseded the teachings of the gospels in questions having to do with the regulation of money lending
*once the principle of private property has been established he said it becomes theft for a person to withhold rents or interest charges that are due to one s creditor in accordance with paul of to render to all their dues romans

*from the exclusivist brotherhood of the children of israel who are forbidden in deuteronomy to take usury from each other and the idealistic universal brotherhood of the medieval catholic church which attempted albeit unsuccessfully to apply the usury prohibition to all individuals living in christian domains one now arrives at the universal brotherhood of reformation protestantism which sets the text of deuteronomy on its head by making all mankind fair game for the moneylender and the merchant banker
*instead it must be seen as the outcome of successive conflicts between a number of classic religio ethical oppositions or antitheses the material world versus the hereafter the ideal versus the real collective responsibility versus individual conscience social justice versus public utility and in a socioeconomic sense the values of relatively small scale agrarian and trading societies versus the efficiency needs and highly materialistic value system of the modern world economy

*a c may allah be pleased with him relates the messenger of allah peace and blessings of allah be upon him cursed the devourer of riba his constituent the one who acts as a witness to it and one who acts as a notary to it
*if you do it not take notice of a war from allah and his messenger but if you turn back you shall have your capital sums deal not unjustly and you shall not be dealt with unjustly baqara a

*interest in islamic economics a c hakim relates on the authority of that the prophet peace and blessings of allah be upon him said riba is of seventy three kinds the lightest in seriousness of which is as bad as one s marrying his own mother for the muslim who practices riba goes mad
*this type of riba is forbidden in order that it does not become a pretext for committing forbidden acts that is in order to prevent it being used as a pretext to committing credit riba such that a person sells gold for example on credit then pays back in silver more than the equivalent of what he had taken in gold

*thus it is permissible to buy five cubits of a specific cloth for six of the same or an egg for two or a sheep for two on condition that the exchanges take place at the time of the contract if the payment of either is deferred the sale is not permissible for it is sufficient that the objects be of like kind in order to effect the prohibition of credit riba that is the deferring of the payment of either of the two exchanged goods
*in other words credit riba is the exchange by sale of one kind for another of like kind or for a different kind along with an excess in the volume or the weight against the delay of payment for example as the sale of a of wheat for and a half to be paid after two months or of wheat for sas of barley to be paid after three months or without excess such as the sale of one pound of dry dates paid immediately against a pound of dry dates to be paid after a delayed period

*thus either the narrator of the hadith heard only the answer of the messenger of allah peace and blessings of allah be upon him and did not hear the question that had preceded the answer or failed to relate it or what was intended by his saying there is no riba was that credit riba is the greater of the types riba much more significant in danger more frequently occurring and more severe in punishment than the other
*this type of riba occurs only in two counter values which are of exact like kind such as a bucket of wheat for one and half buckets of wheat and a gram of gold for a gram and a half

*the distinction between these two types is that riba of possession occurs in the case of delay of possession while credit riba occurs in the case of delay of the date of payment by explicit mention of the delay even if it is a short period in the contract
*pretexts to committing riba and its ambiguous circumstances ibn kathir says truly which is sharecropping has been forbidden likewise muzabana which is purchasing ripe dates that are yet on the palms for dates that have already fallen onto the ground and also muhaqala which is selling grains that are still in their spikes for grains which have already been harvested all of these have been forbidden and others like them in order to avoid the essence of riba because it is not possible to know if two things are equal before desiccation

*the source of this is the authentic hadith related by and may allah be well pleased with them that the prophet peace and blessings of allah be upon him said gold for gold in equal amounts hand in hand and any surplus is riba silver for silver in equal amounts hand in hand and any surplus is riba wheat for wheat in equal amounts hand in hand and any surplus is riba barley for barley in equal amounts hand in hand and any surplus is riba dry dates for dry dates in equal amounts hand in hand and any surplus is riba salt for salt in equal amounts hand in hand and any surplus is riba
*another group limits ribawi goods only to foodstuff that is measured or weighed this is the opinion of a narrated opinion of ahmad and one of the opinions of imam the last party holds that ribawi goods are particular to foodstuff and that which ameliorates it this being the opinion of imam malik

*in other words the impermissibility of surplus riba when the counter values are of disparate kinds such as the sale of wheat for barley is forbidden by way of preventing pretexts for committing forbidden acts so that the disparity of amount when the types are disparate is not taken as a pretext and means to credit riba such that a person takes a loan of gold due on a particular date and then returns the loan in an amount of silver that exceeds the equivalent of the gold taken in proportion to the amount of riba desired
*it is possible that the wisdom behind the impermissibility may not be preventing the pretexts for committing forbidden acts such as taking a lot of something of low quality for a little of that which is high quality in which the excess of the low quality is for the quality of the high quality nevertheless it is still forbidden because of the considerable extent of fraud involved which makes it impossible to know which one of them is more unjust

*we had mentioned that abu yusuf was of the opinion that the true criterion ribawi commodities mentioned in the source text and others is custom the criterion thus changing with the changing of the custo miss his opinion is the strongest because the hadith establishing the necessity of equality in exchange in ribawi commodities whether of volume or weight is based upon the criterion which was the prevailing custom during the time of the prophet peace and blessings of allah be upon him and the establishing of the legal cause of the criterion by means of the source text can be perceived by consideration of the dominant custom
*thus it is not permissible to sell wheat for wheat in equal weight nor gold for gold or silver for silver in equal volume because the explicit text of the hadith is a stronger proof than that of custom and that which is stronger abandoned for that which is weaker

*the legal cause for the impermissibility of credit riba the legal cause for the impermissibility of credit riba which was the type of riba known during the preislamic period is either of the two principal factors of the legal cause of the impermissibility of surplus riba namely either the volume or weight being equal or being of like kind
*if in the pre islamic period a man gave a loan to his brother and the debt later became due he would give him a choice either pay now or increase the due amount thus he would either repay the debt or postpone payment and add onto the due principal this obviously being harmful to the one in debt as the debt may eventually consume all of his wealth

*the standard of disparity according to the hanafis is set according to the difference in origin such as the vinegar of dry dates and the vinegar of grapes or the meat of cow or the meat of lamb or according to the difference in utility such as the mohair of a goat and the wool of a sheep for each one is used for different purposes according to industry or by a change in quality attribute such as the bread made of wheat because bread is sold by individual count or weight while wheat is sold by volume
*are all considered to be of disparate kinds bread made from white flour and bread made from wheat are likewise disparate fat and meat are disparate olive oil and olives are of disparate kinds olive oil which is obtained by boiling the olives and oil obtained by pressing are also disparate all because the intended purposes of each of them are different and so on in accordance with the delineated criterion

*if therefore what is required in order to be free from riba is equality in the traded commodities then accordingly equality in the volume or weight is the means to being free from that which is forbidden and since a handful of a dry measured commodity or a single apple cannot be exchanged in exact amounts then it is not possible for them to be included in the category of ribawi commodities that is surplus riba though they do enter into the sphere of credit riba and are considered ribawi commodities in that regard

*the cost of any handiwork done on the gold or silver is of no consideration and has no effect on their value such that if a man pays some dinars for golden jewelry the value of which exceeds the value of these dinars then equality of amount in like commodities is what is considered not the value thereof

*if one agrees to this principle the hadith of in which he states i used to hear the prophet of allah peace and blessings of allah be upon him say a food stuff for foodstuff for equal amounts falls under the rubric of this principle for the hadith makes clear that edibility is the legal cause for the legal ruling since foodstuff arabic is derived from to feed arabic which includes all edibles arabic it is a suitable description because it tells of the extreme importance of the four kinds explicitly mentioned in the hadith since food is indispensable for the continuation of life
*muslim reports that the prophet peace and blessings of allah be upon him said gold for gold silver for silver wheat for wheat barley for barley dry dates for dry dates salt for salt in equal amounts the same for the same hand in hand and if the types are different sell however so you may wish so long as it be hand in hand that is immediate collection this hadith being the source of the condition of immediacy is taken

*nevertheless the hanbali scholars in contradistinction to the hanafis hold that surplus riba is forbidden in all commodities which are measured by volume or weighed for their like kinda even if it be a small amount such as one dry date for two or even what is less than a grain of either of the two intrinsic monies gold or silver a though not in water and likewise not in what is not customarily weighed due to its being produced from other than gold or silver such as those objects made out of copper iron cotton etc

*moreover it is forbidden to exchange two disparate amounts of commodities that are of the same kind due to the saying of the prophet peace and blessings of allah be upon him dates for dates in equal amounts in which he took the equality of type of the dry date into consideration then said but if the categories are disparate sell however so you wish and according to another version but if the types are different and in another if their kinds are different

*furthermore justice and equality in trading commodities of different essences meaning things not measured by volume or by weight such as cloth occur when their value is proportionate to one another meaning that the proportionate value of one of the two counter values in relation to its kind is equal to the proportionate value of the other countervalue in relation to its kind
*for example if iron and copper are considered to be ribawi commodities then it would not be permissible to sell them or credit for immediate payment of dirhams for if ribawi commodities are traded for other than their own type then exchange for disparate amounts is permissible therein though delay of payment is not

*the juridical meaning of riba professor sanhuri gave preference to the school as to the legal cause of riba by means of assessing the issue from a social and economical vantage point and in so doing he penetrated into the essence of the matter comprehending the most essential aspects of the issue
*the practical results of the jurists disagreement as to the legal cause of the impermissibility of riba there are numerous practical differences resulting from the disagreement between the hanafis and as to the legal cause of riba s impermissibility some of which are related to surplus riba others to credit riba

*the jurists are in disagreement concerning some aspects related to realization of the condition of like kind the following being loci of the disagreement the sale of flour for its like or flour for grain the hanafis hold that it is not permissible to sell flour made from a certain type of grain for that grain itself regardless whether they are equal in amount or not because true equality between them is not possible for example in the sale of wheat flour for wheat corn flour for corn etc
*however both the hanafi and the schools agree that it is not permissible to sell one qafiz of rice for two as volume plus like kind is impermissible according to the hanafis and edibility plus like kind is impermissible according to the likewise they also agree that the sale of one pound of saffron for two or one pound of sugar for two is not permissible because the hanafis forbid weight plus like kind and the forbid edibility plus like kind

*the three remaining imams other than those of the hanafis hold that it is not permissible to sell an animal whose meat is eaten for the meat of the same kind such as a slaughtered sheep for a live sheep which is intended to be eaten due to the hadith related by in which the prophet of allah peace and blessings of allah be upon him forbade the sale of an animal for like meat likewise it has been related that the prophet peace and blessings of allah be upon him forbade the sale of a
*likewise it is not permissible to sell wheat flour for wheat nor either of them for bread though it is permissible to sell bread for bread or flour for flour if the two kinds are disparate for example in the sale of wheat bread for barley bread or wheat flour for corn flour as these are disparate kinds

*the impermissibility is due to the existence of the legal cause namely either of the two conditions of the legal cause of surplus riba in that case being measurement by volume according to the hanafis and edibility according to the the consequences of their disagreement appear in the following two cases in the sale of non edible commodities the hanafi school does not permit the sale of one qafiz of plaster for one qafiz of limestone with a delay in payment whether by means of a loan or a debt of an unspecified commodity to be paid when the debt is due due to their both being measured by volume
*likeness of kind is clearly not fulfilled as for the equality of amounts it likewise is not fulfilled because the weight of the counter value is different from that of the object of sale for dirhams are weighed by mithqal while cotton iron and saffron are weighed by steel yard thus oneness of measurement is not achieved the legal cause is likewise not fulfilled and thus there is no riba therein

*according to similarity of kind alone is not a sufficient legal cause for the impermissibility of credit riba because the type of commodity is merely the locus of the impermissibility or a mere condition for the impermissibility of riba and the ruling may be based upon the condition just as stoning is related to the chastity of a woman the reason of this being that the legal cause is a name for a description suitable for the ruling such that legal cause of a ruling is that cause which is suitable for what is intended from that ruling being in this case edibility as man continues to live thereby and intrinsic monetary value as it is through it that people interests are maintained
*the scholars agree that it is permissible to forward purchase a harawi cloth for a marawi cloth due to their not be like in kind according to the hanafis and due to the lack of edibility or intrinsic monetary value according to the it is impermissible to forward purchase currencies for other currencies according to the hanafis due to likeness of kind and likewise according to the due to their being of monetary value

*

*related by ahmad abu dawud daraqutni by its general meaning and hakim in his mustadrak who said it is rigorously authenticated according to the conditions of muslim but the two ie bukhari and muslim did not relate it
*some scholars have deemed it weak due to the presence of muhammad ibn ishaq in the chain except that hafiz ibn hajar strengthened the chain of the hadith

*in fact the kuwaiti civil and commercial codes were drafted by a committee headed by three egyptian lawyers and the more recent jordanian civil code was drafted by a single egyptian jurist there are at least four other arab countries syria libya iraq and kuwait whose civil and commercial codes were either written by abd al razzaq ahmad al sanhuri the architect of the egyptian civil code or largely based upon his codes

*all four schools consider the items mentioned in the traditions only as examples of the kinds of things which are prohibited and therefore agree that the prohibition extends by analogy qiyas to other ite miss however there is a difference of opinion as to what other items the prohibition
*interest in islamic economics sanhuri s two great treatises al wasit the middle way a multi volume work on every aspect of civil law and al masadir al haqq fil fiqh al islami the sources of law in islamic jurisprudence a six part work now published in two volumes which contains a comparative summary of the history of obligations and which also lays out sanhuri s views on riba

*if it becomes a commodity which goes up and down then the transactions of the people will be impaireda categories of riba that the prohibition against riba likely extends to money is further bolstered by the fact that the quranic verses on riba appear to have been aimed at proscribing a particular type of transaction occurring at that time which involved the charging of interest on loaned money

*thus the critical question from the standpoint of modern commercial transactions and at the center of the modern debate over riba is how does the treat loan transactions in light of the rules on riba which seem to only address sales the recognizes the qard loan which
*as a result of these traditions riba was classified into two categories riba al fadl and while the four schools of islamic law differed in their particular views regarding each of these categories they generally understood them as follows riba al fadl this occurs when one type jins of mal ribawi is exchanged for an unlawful excess of the same type of mal ribawi

*validity of a loan with a riba stipulation essentially the question here is whether a riba stipulation in a loan agreement nullifies the entire contract or whether it can be severed leaving the transaction valid while this issue appears to be under researched the views of each school of law can be summed up as follows
*because interest bearing loans are not prohibited for themselves but by analogy to sales and because it is argued the nature of loans has changed since the days of prophet muhammad from consumption loans to mostly production loans some islamic scholars contend that at least those contemporary loans not charging exorbitant rates of interest can be legal

*according to schacht hiyala can be described in short as the use of legal means for extra legal ends ends that could not whether they themselves were legal or illegal be achieved directly with the means provided by the the legal devices enabled persons who would otherwise under the pressure of circumstances have had to act against the provisions of the sacred law to arrive at the desired result while actually conforming to the letter of the law

*the hanafis and however regard the outward visible sign of the act or statement as the exclusive determinant of intent while the hanbalis and malikis search for the reality of the inner intent or motive
*it is prohibited he argued in order to prevent access to a greater evila his reasoning being that if riba al fadl were permitted then eventually people would be tempted to conduct commerce with it is not clear however whether ibn qayyim regarded this pre islamic practice of doubling the debt riba al jahiliyya as itself being or as just a subset of which he viewed as encompassing any delayed profit generally

*the following passage appears to confirm this as his objective if those practicing legal artifices permit the sale of for a credit transaction by which an object is sold currently for and resold at term for using a ring worth a copper coin and they say the five is in return for the ring then how can they forbid the sale of the ornaments by their weight with the increase equaling the manufacture and how does the perfect virtuous which surpasses reason in its wisdom justice mercy and sublimity bring permission for the former and prohibition of the latter is this anything but the opposite of what is reasonable true to
*interest in islamic economics being under a direct prohibition with riba al fadl prohibited merely as a means to which itself was prohibited only because it was a means to riba aljahiliyya so he forbade riba al fadl because of his fear for their sake of to permit them between them is an avenue to you pay or you increase riba al jahiliyya

*nevertheless their opinion was acceptable to the khedive who set on embarrassing abdu ironically proceeded to accuse him of wanting to force riba on pious musli miss perhaps partly because of the khedive s actions abdu is often quoted as having found bank interest as well as interest generated by insurance policies to be lawful under the and when rida was asked whether abdu had ever issued a written fatwa

*thus money expands yarbu with them and is hoarded in the safes sanadiq plural of sanduq and in financial houses buyut maliyya known as banks bunuk and the labourers are stripped from the value of their labor because most of the profit would then derive from the money itself he ie abduh the narrator is rida means that most of the profit goes to the capitalist rabb al mal not to the worker and thus die the poor

*that might allow them to bring the projected articles in accordance with the in fact he claims to have originally entitled his work opinions on prohibited riba in the in the process of researching and writing however badawi says he discovered that these scholars ideas reflected a general theory of riba of which he became convinced
*so he set about rewriting his original paper and retitled it the theory of prohibited riba in the sanhuri was so impressed with badawi sz study that he had it published in the fuad university later cairo university law journala the journal of law and economics majallat al qanun wal iqtisad then and still the most prominent arabic law journal

*despite the general consensus that sanhuri s codes for the most part were not islamic the sections on interest were in his view certainly in accordance with the consequently his views regarding riba and the debate surrounding it as well as the fate of the interest provisions in the egyptian civil code in this era of islamic codification are critical
*he then cited approvingly to ibn qayyim s reasoning that riba al fadl is prohibited only because it is a means to and that a prohibition of means is less stringent than a prohibition of ends and therefore can be lifted in cases of need

*it is when the lender claims interest independently upon interest which has accumulated so he says to the debtor either you pay the principal and the interest accumulated upon it or you increase such that the frozen interest is included in the capital and the whole becomes new capital increased by the interest which is produced from the period by which the term of the loan is lengthened

*so long as the need exists to obtain capital by means of loan or otherwise and so long as capital is not owned by the state but rather is the property of the individual who accumulates it by his work and his effort then it is his right that he not oppress concerning it and that he not be oppressed as long as the need exists for all of this then interest on capital within the mentioned limits is permitted as an exception to the basic rule of prohibition

*article when the object of an obligation is the payment of a sum of money of which the amount is known at the time when the claim is made the debtor shall be bound in case of delay in payment to pay to the creditor as damages for the delay interest at the rate of four percent in civil matters and five percent in commercial matters
*any commission or other consideration of whatsoever nature stipulated by the creditor which together with the agreed interest exceeds the maximum limits of interest set out above will be considered as disguised interest and will be subject to reduction if it is established that this commission or this consideration is in respect of a service actually rendered by the creditor or of a lawful consideration

*article if interest is agreed the debtor may after six months from the date of the loan give notice of his intention to terminate the contract and to restitute the thing taken on the loan provided that the restitution takes place within a term not exceeding six months of the date of the notice
*however he incurs the interest that accrued on the debt before he announces his intention to prepay and the interest that accrues on the debt during the period following his announcement until he actually executes his intention

*he also now regarded the six commodities mentioned in the hadith as only practical examples relevant at the time of the prophet and not intended to define or limit the contours of the prohibition or its underlying reason
*rashid rida s views on riba therefore he argued were wrong because they were based on a mistaken understanding of both riba al jahiliyya and the views of ibn abbas and ibn qayyim

*article of the egyptian civil code however instructed a judge in any civil matter to apply the provisions of any applicable law and in their absence custom and in the absence of custom the principles of the thus the was relegated to a subsidiary role in the hierarchy
*at first it appeared to be more restrictive than even the original bill because it not only prohibited interest but also made it a criminal offense to agree to its stipulation

*so the draft codes were once again buried in committee and the government succeeded in avoiding the issue of codifying the the judicial debate the maglis al dawla the council of state the highest administrative court in egypt had as early as regarded the constitution to be superior to ordinary law so that if a conflict occurred the constitution would prevail
*interest in islamic economics with pressure mounting on the government by islamic parties to enforce the on november the ministry of justice set up a committee chaired by the president of the court of cassation mahkamat al naqd and charged it with preparing legislation in accordance with the between and the committee produced a number of proposals

*the modern debate over riba in egypt with the passage of article in the court was presented with numerous challenges to the constitutionality of laws not in accordance with the in april the mahkamat al ulya was presented with a constitutional challenge made under article to certain personal status legislation enacted in and which made it possible to imprison a husband who refused to pay maintenance to his wife in spite of being able to do so

*the rector argued that article of the civil code was null and void because it conflicted with the principles of the which by virtue of the amendment to article of the constitution became the principal source of legislation
*the district court of mit ghamr refused to grant the interest saying the court feels embarrassed in front of goda be he praised and exalteda to give judgment for the plaintiffsa or even to consider their claim since this is in reality claiming riba which in all its forms is made unlawful in the this is pointed out by god s words o believers devour not riba doubled and redoubled

*the sanduq al tawfir affair revisited to some extent this question became moot when in the fall of the governmentappointed mufti of egypt dr muhammad sayed tantawi ruled that interest on government investment certificates shahadat al istithmar and similar financial instruments such as postal saving accounts sanadiq al tawfir was in accordance with the he issued his fatwa apparently at the request of the government which had been losing out on millions of dollars worth of egyptians savings to islamic banks and similar institutions

*thus giving those who doubt the legality of a fixed rate certificate an investment option which all agree is in accordance with the but in the final analysis tantawi agrees with the majority position of the committee and concludes that interest earned on government investment certificates shahadat alistithmar and similar financial instruments such as postal saving accounts sanadiq altawfir is in accordance with the this is because he says the interest earned is the result of a lawful mudaraba transaction because it is a new transaction beneficial to both individuals and the nation and it does not involve any exploitation by either party of
*therefore tantawi says because people connect the the word interest with riba he has proposed to the responsible officials at the national bank al bank alahly to take the steps necessary to rename the profits arbah generated by these certificates from interest to investment return or investment profit al ribh al istithmary

*tantawi then asks what is better to share whatever earnings the driver brings in or to have the driver pay him le a day and for the driver to keep whatever he makes above that figure the first alternative tantawi says will inevitably lead to conflict the first day the driver claims to have made only le because despite the fact that the driver may be telling the truth it is natural to doubt him since he may be tempted to hide some of his income in order to not have to share it
*conscious of this threat sanhuri was determined with the help of badawi to justify the interest provisions of the new egyptian civil code under the thus it would appear that norman anderson is mistaken when he says that the significant point a is not so much that sanhuri incorporated in the new iraqi civil code much more of the than he did in egypt but rather that he abandoned it as often and as radically as he did in favour of quite different principlesa and particularly so in matters such as

*with the adoption of article to the egyptian constitution in making the a source of law and its subsequent amendment in making the the source of law it looked as if egypt was truly headed towards codifying the in fact several draft codes were prepared in accor dance with and not surprisingly given the fundamentalist contribution the draft civil code outlawed interest
*but as the memorandum accompanying the amendments outlawing between natural persons in the libyan civil and commercial codes indicates the desire for more islamic provisions regarding riba may have had less to do with piety than an intention to make an easily intelligible gesture of defiance in the face of the west s denigration of islamic culture and achievement and a reaffirmation of faith in the indigenous culture its respectability and viability

*and it was no more surprising when in the mufti of egypt ruled that interest on government investment certificates and the like such as postal savings accounts was in accordance with the thus the tide of the debate at least in egypt appears to have swung all the way back to where it began at the turn of the century with the sanduq al tawfir affair
*thus while the legislators of each country may disagree on the perceived need for riba it appears that all those countries whose codes are indebted to sanhuri still feel that some need exists for interest in the economy and they agree with sanhuri whether implicitly like kuwait and libya or explicitly like egypt that such a need brings their laws on riba into accordance with the first postscript the jurisprudential debate over riba in the arab world has primarily taken place in egypt

*neither the facts of the deposit are analyzed and then analogized with its proper home in nor are the rules defined to correctly apply to the circumstances of the deposit
*and as a result the mufti of egypt in is writing arguments perhaps at the behest of others that are little different from those he personally considered in or his predecessors wrote at the bidding of the government as far back as

*dr hassan abbas zaki chairman of the board of directors of the international arab banking corporation sent a letter dated to the honorable great imam dr muhammad sayyid tantawi shaykh ul azhar stating the following honorable doctor muhammad sayyid tantawia as salamu alaykum wa rahmatu allahi wa barakatuh the customers of the international arab banking corporation forward their funds and savings to the bank which uses said funds and invests them in permissible dealings earning a profit which is distributed to the customers at prespecified amounts and agreed upon time periods

*it is well known that when banks pre specify for their customers their profits and returns those profits returns are fixed after a detailed study of the international and domestic market conditions and the economic circumstances in society in addition to the special conditions and nature of each transaction and the average profitability of each such transaction
*in other words o you who have the proper faith in allah it is not permissible for you and not proper for any of you to devour the property of another in invalid and forbidden ways that allah most high has forbiddena such as theft usurpation riba and other acts that allah most high has forbidden

*establishment of justice the central goal of islam the quran and the sunna have both placed tremendous stress on justice making it one of the central objectives of the according to the quran establishment of justice is one of the primary purposes for which god has sent his prophets al quran
*this is but natural because injustice undermines brotherhood and solidarity accentuates conflict tensions and crime aggravates human problems and thus leads ultimately to nothing but misery in this world as well as in the hereafter

*the implications of justice given the importance of justice in islam there arises the question of what its implications are justice is a comprehensive term in islam and covers all aspects of human interaction irrespective of whether it relates to the family the society the economy or the polity and irrespective of whether the object is a human being animal insect or the environment

*even though the extension of help to the poor and the raising of their socioeconomic condition enjoys a high profile in confining the rationale behind the prohibition of interest to just this limited objective is not only factually wrong but also unduly restrictive in terms of the concept of justice in islam
*hence it was necessary for the caravans to muster all available financial resources to purchase all the locally available exportable products sell them abroad and bring back the entire import needs of their society during a specific period

*financial resources become available to borrowers on the criteria of their ability to provide acceptable collateral to guarantee the repayment of principal and sufficient cash flow to service the debt
*the rich however do not borrow only for investment but also for conspicuous consumption and speculation while governments borrow not only for development and public well being but also for chauvinistic defence build up and white elephant projects

*on the basis of these findings it may be hoped that the adoption of the profit and loss sharing system would help raise saving by curbing the availability of credit to both the public and private sectors for unproductive purposes which serve as a major drain on savings
*the encouraging fact is that over the last hundred years the equity premium has been substantially high in the united statesa average real rates of return on stocks has been percent about percent higher than that on treasury bills

*moreover by making the savers and the banks involved in the success of the entrepreneur s business greater expertise may become available to the entrepreneurs leading to an improvement in the availability of information skills efficiency and profitability
*since budgetary discipline has now rightly become a part of conventional wisdom and is also indispensable for the success of the euro the prospect of reducing unemployment by means of fiscal deficits is not a feasible alternative for the european union or even other countries if they do not wish to lose their competitiveness

*they may however tend to be relatively more successful in an equity based system where the banks would be motivated to give at least as much attention to the profitability of the project as to the collateral and thereby enable small businesses also to compete
*even morgan guarantee trust company the sixth largest bank in the united states has admitted that the banking system has failed to finance either maturing smaller companies or venture capitalists and though awash with funds is not encouraged to deliver competitively priced funding to any but the largest most cash rich companies

*one of these is the excessive build up of public and private debt as a result of relatively easy access to credit particularly short term credit in an interest based system of financial intermediation where the lender tends to rely more on the crutches of collateral than on the strength of the project

*in the late s when there was a decline in confidence in the dollar there was an outflow of funds from the united states leading to a substantial depreciation in the external value of the dollar accompanied by a decline in us gold and foreign exchange reserves and a rise in international commodity prices
*the first is to bail out the domestic banks at great cost to the taxpayer and the second is to allow the banking system to fail and the economy to suffer a near breakdown

*on the strength of their own wealth and the enormous amounts they are able to borrow they are able to destabilize the financial market of any country around the world whenever they find it to their advantage
*according to a survey conducted by the bank for international settlements the daily turnover in traditional foreign exchange markets adjusted for double counting had escalated to billion in april compared with billion in april billion in april and billion in april

*the imf has also thrown its weight in favor of equity financing by arguing that foreign direct investment in contrast to debt creating inflows is often regarded as providing a safer and more stable way to finance development because it refers to ownership and control of plant equipment and infrastructure and therefore funds the growth creating capacity of an economy whereas short term foreign borrowing is more likely to be used to finance consumption

*in the end we may do well to join the prophet peace and blessings of god be on him in his following prayer o god give me the wisdom needed to accept your teachings and save me from the evil promptings of the self
*what we as human beings need to do is to accept his teachings willingly and to trust that their implementation even if this involves some difficulties in the beginning will ultimately lead to the well being of all in a just manner

*this misunderstanding in conjunction with the typical juristic usage of the language on justice prompted many of the early to mid twentieth century writers on islamic economics and finance to jump to unwarranted conclusions that are neither supported by the canonical islamic texts the quran and the sunna of the prophet muhammad pbuh nor accurately representing the expressed views of early muslim jurists

*thus the english reader who is not familiar with the end of verse la tazlimuna wa la tuzlamun reads this translation as a proof that the sole objective served by the prohibition of riba is the avoidance of injustice in the sense of exploitation of the poor debtor by the rich creditor
*if ye do not take notice of war from allah and his messenger but if ye turn back ye shall have your capital sums deal not unjustly and ye shall not be dealt with unjustly

*thus it is paradoxical for anyone accustomed to this modern notion of interest to hear the claim that islamic banking involves no interest when the school child mentioned previously can easily calculate the implicit interest rate in the credit sale and leasing finance models that dominate islamic bank practices
*in particular when we observe an islamic bank engaging in a one year credit sale with a credit price that is higher than the cash price any school child can calculate the implicit annual interest rate calculated as the price difference divided by the cash price and then multiplied by

*muslim narrated on the authority of abu said al khudriy the messenger of god pbuh said gold for gold silver for silver wheat for wheat barley for barley dates for dates and salt for salt like for like hand to hand in equal amounts and any increase is riba

*the extra risk borne by the islamic bank between the time it buys the car and the time it sells it to the client is negligible since that time period can be a matter of minutes despite the fact that writers on islamic banking over emphasize this difference
*while some contemporary jurists found the logic of ibn rushd to be objectionable due to its dramatic enlarging of the scope of riba understanding the economic content of that logic can help us enhance our understanding of the law and its economic as well as its juristic implications

*for example if a person sells a horse in exchange for clothes justice is attained by making the ratio of the price of the horse to other horses the same as the ratio of the price of the clothes for which it is traded tr
*since it is not necessary for a person owning one type of those goods to exchange it for the exact same type justice in this case is achieved by equating volume or weight since the benefits utilities are very similara understanding the prohibition of riba al fadl in economic terms efficiency and pre commitment we can now understand the economic logic of ibn rushd by converting his language to contemporary economic terminology

*this does not mean that equality considerations are ignored for they can be easily addressed ex post through islamic re allocative mechanisms such as zakat thus the common conjunction of the verses of zakat and sadaqat with the verses of riba in al rum al imran and al baqarah can be understood in this light in addition to the direct contrast between the two terms riba and zakat both of which lexically mean increase

*we shall see in the next section that a similar argument illustrates the efficiency enhancing role of pre commitment mechanisms which allow economic agents to avoid efficiency gains from the prohibition of riba and the pre commitment mechanisms inherent in islamic financial contracts the informational argument which applied to riba al fadl applies by extension to however the dimension of time adds at least another source of inefficiency in the market the tendency for humans to be dynamically inconsistent

*those verses assert four aspects of human behavior they are impatient that is they discount the near future too heavily they treat potential gains and losses asymmetrically they do not follow through with their plans to repent or otherwise anda most surprising of alla they wish to hasten the evil

*interest in islamic economics common difference effects individuals have been observed to determine their time preference based not only on the period of time between two choices but also on the distance between the time a choice is made and the time of the two options

*the solution is one of two pre commitment mechanisms go to the vegetarian restaurant so that you do not need to deal with the temptation of a steak on the menu or take your wife with you or if unmarried take a strong friend to the steakhouse to ensure that you will not be able to order the steak
*on the other hand when he does not possess an object and when asked how much of what he has he is willing to exchange for the object he will always be willing to pay less of what he has to get it

*instead we relied on solid evidence from the classical sources of islamic jurisprudence to show that there are two fundamental differences between the islamic asset based financing model and its conventional counterpart the islamic model encourages marking assets to market including the time value of an asset value of its usufruct as measured by interest when the time factor is relevant and automatic collateralization that ties the financing to a given asset thus imposing pre commitment and discipline on the financial firms as well as their clients
*also the credit rating according to which a conventional financial institution will decide whether or not to provide you with financing or the rate at which to do so will be a function of the amount of debt you currently hold and your creditworthiness as suggested by your previous repayment history

*in both the torah and the quran the ban is formal with the latter text elevating the ban to a universal tenant of the highest order when without equivocation god forbids riba in the th verse of the second chapter of the quran those who devour usury will not stand except as stands one whom the evil one by his touch hath driven to madness
*the two most ancient perspectives presented in the translation of the entry for riba in lisan al arab and the comparative religion perspective shared by dr cornell make clear that from the earliest times the increase paid on a loan of money has troubled the abrahamic faiths to the extent that specialized words were selected to embody the fact that such gains are unacceptable when taken from one human by another

*and the third revelation places the use of riba in distinction to the practice of competing societies a thought which seems to have evaded various egyptian governments described the khalil in chapters and which has associated modernization solely with the adoption of all western civic and commercial practices including the use of interest
*in this case the quran reawakens the original revealed concept and restores its broadness for the jews ultimately chose to forbid interest among themselves but not in their relations with non jews and for their taking riba even though it was forbidden for them and their wrongful appropriation of other peoples property we have prepared for those among them who reject faith a grievous punishment

*the linguistic notion of riba the root of the word or rbw as described in lisan al arab entails the concepts of growing or exceeding or self generated expansion
*to attribute intrinsic value to money is to declare that money does not require god in order to increase its value

*it is buttressed in the following hadith the prophet peace be upon him on more than one occasion stated that exchanges should be do not sell gold for gold unless equivalent in weight and do not sell amount do not sell gold or sliver that is not present at the moment of exchange for gold or silver that is present
*the prophet we ask god s peace and blessings for him explicitly insisted that the exchange be weight for weight saying gold for gold silver for silver wheat for wheat barley for barley dates for dates salt for salt must be of equivalent weight hand to hand

*third the prophet peace be upon him observed that in many cases of exchange the arabs would seek an increase by one party in the sum to be exchanged if that party were to delay the delivery of their share of the exchange
*reported that bilal may god be pleased with him brought to the prophet peace be upon him some good quality dates whereupon the prophet asked him where these were from

*the risk of the commoditization of a currency is that trading unrelated to commerce and of a speculative nature may prove destabilizing to the productive sectors of the economy as well as proving harmful to the livelihood and savings of the citizens
*overall these hadith discuss riba al fadl with a focus on assuring that one establishes clearly one s intention and use for an item if one is dealing in gold then is bullion the same as a minted coin for monetary purposes if so then to demand an increase is to demand riba

*interest in its most common usage is the concept of the time value of money whereby the value of money ought to increase with the mere passage of time
*but in the case of umar may god be pleased with him in the first hadith reviewed earlier in this section there was no offer or demand to double or quadruple there was simply an offer for an increase related to the passage of time

*these are described in the following two hadith anas ibn malik reported that the prophet peace be upon him said when one of you grants a loan and the borrower offers him a dish he should not accept it and if the borrower offers a ride on an animal he should not ride unless the two of them have been previously accustomed to exchanging such favors mutually

*yet as chapter demonstrates there is always someone who is willing to raise obstacles to understanding what is the forbidden riba and why we should not keep under its remit some commercial transactions

*one would have thought that the november appellate bench of the supreme court of pakistan announcement of a historical judgment disposing off a number of appeals against the federal court judgment on riba of november would have brought the matter to its end

*despite the existence of the commission and the decisions of the courts the government has not since the time of zia ul haq made any clear and unequivocal statement of its intentions of introducing and supporting the process of islamization of the economy and elimination of interest
*the abolition of interest requires economic conditions that would make interest redundant meaning that it would not be in the self interest of the people to deal in interest

*nonetheless the government was reluctant to adopt the report s recommendations and filed an appeal in the appellate bench of the supreme court of pakistan in november to stay an order of the court s judgment on the prohibition of riba
*this multi state body was meant to be variously a development bank and a central bank to the islamic states like the bank for international settlements but it was also intended to operate on a basis other than interest

*notes this appendix is adapted from two articles by mr khan in the renaissance magazine is the elimination of riba from the economy a legal issue and elimination of interest a proposed strategy december and january and one in new horizons july and supplemental research by mr thomas and special thanks to professor shujaat ali khan for comments on the historical context in pakistan


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== DOCUMENT WORD ANALYSIS ==
=== Main Category ===
: AlHuda Material\islamic economics


=== KeyWords ===
riba cit prohibit legal ibn loan ibid scholar amount exchange meaning commodities hadith usuries sale transact financial increase due forbidden



== RELATED DOCUMENTS ==
:[[Interest in Islamic Economics (Understanding riba) by Abdulk]] 
:[[Islamic Economic System by Muhammad Naeem khan]] 



== DOCUMENT REFERENCES ==


=== Number of Pages ===
160


=== Published Date ===
2008-11-14 03:07:16


== Full Document ==


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[[Category:Islamic Finance]]

[[Category: Islamic Economics]]