9/9/2019 Bank interest and Muslim society

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Bank interest and Muslim society

By Abdur Rahman Hamza

There has been confusion about "riba" (interest) among Muslims all over the world, especially among the
Indian Muslims. In spite of efforts of the ulama to find a solution, the confusion remains. No consensus
could be reached about the definition of “interest” during the early period of Islam and till today there are
differences of opinion on the matter. On the one hand, interest is important from economic view point, on
the other, there is strong warning against riba in the Qur’an. Many people and even ulama agree that without
finding a solution of the problem the economic condition of Muslims is at stake.

We are compelled to take loans from banks because of commercial and personal requirements. In big cities
taking loans from banks and other financial institutions for purchasing houses, cars and for higher and
professional education, have become a norm. People no longer have the Islamic spirit of helping their needy
brethren by giving interest-free loans.

Falling value of currency notes and inflation have made the situation extremely complicated. During the
time of Prophet (pbuh) there was no problem of inflation because in those days silver and gold coins were in
circulation. The purchasing power remained constant for centuries in earlier times but in modern times paper
currency is in use and its purchasing value is continuously decreasing. What could be purchased for Rs 100
a year ago, more money will be needed now to purchase the same today.

Let us take an example for properly understanding the issue of interest. Consider, two colleagues, one Hindu
and the other Muslim, retire from government service and get Rs 0.5 million each in the form of Provident
Fund and Gratuity benefits. The Hindu colleague puts the entire amount in fixed deposit for 12 years. After
twelve years he will get a total amount of Rs 1.8-2 million rupees as a result of compound interest. The
Muslim colleague, considering “interest” illegal, puts his entire amount in a simple bank account. After 12
years he will get his principal amount of Rs 0.5 million together with a meager amount as “interest” which
he prefers not to use because to him “interest” is unlawful.

Since the value of money is continuously falling, after 12 years the value of Rs 1.8-2 million received by the
Hindu colleague will be almost equal to his principal amount of Rs 5 lakh or more in terms of buying power.
He can use the money for the marriage of his children or their technical education. After twelve years the
real value of Rs 0.5 million received by the Muslim colleague will be equal to Rs 0.1 million or even less in
terms of its earlier buying power. The money will not be enough to meet the expenses of marriage or
technical education of his children.

In order to avoid the difficulties resulting from inflation, some ulama have offered a solution that while
giving a loan; an agreement should be entered into with the debtor that repayment of the loan should be in
terms of gold. But there is a difficulty in such agreements, for this type of agreement both the lender and
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debtor should be Muslims. This type of agreement is not possible in case of bank deposits or loans. If a
person deposits Rs one million in a bank for five years on the condition that after five years the bank would
pay him the same amount equal to its worth in gold. Obviously the terms would not acceptable to the bank,
because banks do not work on conditions put forward by depositors. They work on their own rules and
regulations as prescribed by the government.

Muslims are left with only two alternatives: either they have to accept the principal amount only and suffer a
loss because of decreasing real value of money or accept fixed deposit money along with compound interest
which is “unlawful” from Shari'a and Islamic point of view as understood now.

Some people debate whether different forms of interest were defined or not during the times of the Prophet
(pbuh). God knew about the different types of interest and He declared a certain form as “illegal” through
his revelation. As a matter of fact “interest” (riba) in old or modern forms can be declared illegal only when
interest is clearly and authoritatively defined and a consensus reached at about its legality. Islamic jurists and
ulama agree that there is neither any definition nor any consensus or interpretation about “riba”. Right from
the times of the Prophet and Caliphs to the modern days, there are serious differences among jurists and
ulama about riba’s definition.

Traditions about “riba” are contradictory and there are serious differences about the definition of “riba”
among jurists. After carefully examining all the definitions of “riba” it becomes clear that these definitions
do not apply to bank interest and that riba is not the same as bank interest. Riba which has been declared
illegal by Qur'an, contains the element of exploitation and excessive interest like the one demanded by
money-lenders in our country (India). On the contrary, banks give interest voluntarily out of the income they
derive from lending out deposits, in a way benefiting the banks as well as the depositors.

Some people hold the view that since the unlawfulness and impermissibility of “interest” is clear from
Qur'anic injunctions; exercise of judgment is not permissible about interest. But this is not true because
under certain compulsions, interpretations or judgments have been exercised pertaining to illegal and
impermissible cases. For example, Muftis of the country have declared insurance permissible under
compulsive circumstances, though they made it clear that insurance too contained the elements of interest
and gambling, but today it is permissible for the needy.

Similarly, the punishment of chopping off hands is prescribed in Qur'anic injunctions but Hazrat Umar
abolished the punishment during the famine year. Qur'an has laid down eight heads on which the money of
Zakat should be spent but one of them was abolished by Hazrat Umar on the plea that Islam had by then
become powerful and widespread.

During the period of the Prophet (pbuh), female slaves who gave birth to children fathered by their masters
were allowed to be sold like other slaves but when Hazrat Umar became Caliph, he found that the practice
was becoming a source of coercion and exploitation. Therefore, he banned the sale of mother slave and
prescribed the rule that such slaves could neither be sold nor gifted to anyone and that after the death of their
masters they become free automatically. Some people described Caliph Umar’s action as heresy and a
deviation from religion and condemned this action. Rationalists not only considered it permissible but also
essential for a just social system for the establishment of which prophets are sent.

Finding a solution to the problem of bank “interest” is crucial for Muslims. This issue should be settled at
the earliest through re-interpretation and serious discussion because due to the lack of a clear definition, the
economic condition of Muslims is deteriorating, while that of non-Muslims is constantly improving. If the
problem is not rectified, the coming generations of Muslims will lead a life of economic slavery. It is
necessary to determine whether the existing system of bank “interest” is the same riba or usury under which
a loan of Rs would go on multiplying and reach unimaginable proportions within a few years and the poor
debtor would be forced to sell his house and other belongings. This “riba” has been forbidden by Quran.

If it is difficult to determine “interest”, can the Quranic injunction not be interpreted on the lines of
insurance so as to make bank interest on deposits permissible as a matter of Milli necessity in modern times
and to save the community from economic deprivation. Such interpretation, of course, should be within the
limit of Shariah.

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