SUMMARY OF THE HISTORICAL JUDGEMENT ON

INTEREST GIVEN BY SUPREME COURT OF PAKISTAN

INTODUCTION:

On 23 December 1999, the Shariah Bench of the Supreme Court of Pakistan gave its landmark decision
banning interest in all its forms.

The Shariah Appellate Bench consisted of

1) Mr. justice Khalil-ur-Rehman,

2) Mr. justice Munir A Shaik,
3) Mr. justice Wajeehuddin Ahmad,
4) Maulana justice MuhammaTaqi Usmani.

ARGUMENTS AGAINST THE SHARIAH COURT

First Argument:

The verses of the Holy Quran which prohibit riba were revealed in the last days of the Holy Prophet,
(S.A.W), and he did not have an opportunity to interpret them properly.

Second Argument:

The second argument runs on the basis that the word ‘riba’ refers only to the usurious loans on which an
excessive rate of interest used to be charged by the creditors. As far the modern banking interest, it
cannot be termed as ‘riba’ if the rate of interest is not too much or unfair.

Third Argument:

The third argument differentiates between consumption loans and commercial loans.

The word “Al-Riba” used in the Holy Quran is restricted to the increased amount charged on the
consumption loans used to be taken by the poor people for their day to day needs and the rich people used
to charge heavy amounts from them.

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But the modern commercial loans are concerned, they are not in the days of the Holy Prophet,(S.A.W),
nor has the Holy Quran addressed them while prohibiting’riba’ and the basic philosophy of ‘riba’ cannot
be applied to these commercial and productive loans where the debtors are not poor people. In most cases
they are wealthy or at least economically well-off and the loans taken by them are generally used for
generating profits.Therefore, any increase charged from them by the creditors cannot be termed as Zulm
(injustice) which was the basic cause of the prohibition of ‘riba’.

Fourth Argument:

The fourth says that the Holy Quran has prohibited riba-al-jahiliyya.In which if debtor could not pay off
the loan at its due date the creditor would give him more time against charging an additional amount.
According to this theory, if an increased amount is fixed in the initial agreement of loan, it does not
constitute riba al-Quran. However, it does fall in the definition of riba-al-fadl, prohibited by the Sunnah.
Its prohibition is of a lesser degree which can be termed as makrooh and not haram.

Fifth Argument:

The fifth was that although the modern interest-based transactions are covered by the prohibition of
‘riba’, yet the commercial interest is the back-bone of the modern economic activities, no country can
live without being involved in interest-based transactions. Islam, being a practical religion, recognizes the
principle of necessity and it has allowed even to eat pork in extreme situation where one cannot live
without eating it. The same principle should be followed, and on these basis of this necessity the laws
permitting the charge of interest should allowed.

STUDY OF QURANIC VERSES DEALING WITH RIBA

1) Surah Ar-Rum

“And whatever riba you give so that it may increase in the wealth of the people, it not increase with
Allah” (Ar-Rum 30:39)

2) Surah Al-i-Imran:

“O those who believe do not eat up riba doubled and redoubled” (Al-i-Imran)

3) Surah Al-Baqarah:

“Those who take interest will not stand but as stands whom the demon has driven crazy by his
touch.That is because the have said:’Trading is but like riba’. And Allah has permitted trading prohibited
riba.So, whoever receives an advice from his Lord and stops, he is allowed what has passed, and his

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matter is up to Allah.And the one who revert back, those are the people of fire. There they remain
forever.Allah destroys riba and nourishes charities.And Allah does not like any sinful disbeliever.”

3) Surah Al- Baqarah (cont...)

“O those who believe, fear Allah and give up what still remain of the riba if you are believers. But if you
do not then listen to the declaration of war from Allah and His Messenger. And if you repent,

Yours is your principal. Neither you wrong, nor be wronged. And if there be one in misery, then
deferment till ease. And that you leave it as alms is far better for you, if you really know. And be fearful
of the day when you shall be returned to Allah, then everybody shall be paid, in full, what he has earned.
And they shall not be wronged”. (Al-Baqarah 2;275-281)

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ANSWERS OF ARGUMENTS

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Answer Of First Argument

The Holy Prophet (SAW) announced the prohibition of riba in his last sermon during his last Hajj (10 th
year after Hijra).

He also declared that the first riba decreed to be void is the riba payable to his Uncle Abdul Muttalib
(RA).

A deeper study reveals that this argument is misconceived. In fact the prohibition of riba was effective at
least from the 2nd year of Hijra but the Holy Prophet (P.B.U.H) deemed it necessary to be announced at
the time of his last sermon which was the most attended gathering of his followers.

It is argued that:

Prohibition of riba should be restricted to limited transactions specifically mentioned in the Hdith.

Its prohibition cannot be extended to modern banking system.

The modern banking system was not imaginable at the time of revelation of verses.

ARGUMENTS IN FAVOR OF RIBA (Common Myths) AND THEIR REBUTTAL

TIME OF PROHIBITION OF RIBA:

The historical background of verses of riba proves that it was prohibited at least in the 2 nd year of Hijra.
Riba was prohibited from the very beginning but the severity of prohibition was not emphasized during
that period.

“O those who believe do not eat riba doubled and redoubled.”( Al-i-Imran 3:130)
The third verse is of Surah Al-i-Imran which is estimated to have been revealed sometime in the 2 nd year
after Hijra, because the context of the preceding and succeeding verses refers to the battle of Uhud which
took place in the 2nd year after Hijra.

Mutashabihaat:

Riba does not fall in the category of Mutashabihaat.

Allah Almighty declared war against those who indulge in the practice of Riba.

How Allah Almighty wage against a practice, which is ambiguous in nature.

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What is Mutashabihaat?

Some words in the beginning of different Surahs, the correct meaning of which is only known to Allah.

Some attributes of Almighty Allah, the exact nature is not imaginable.

Hazrat Umer’s Statement:

He stated that the Holy Prophet (SAW) passed away before giving any specific direction with regard to
this difference of opinion about Riba.

The Narration OF his Statement Clearly Reveals That:

All his concern about Riba was related to Riba al-Fadl and not to Riba al-Nasiah which was prohibited by
the Holy Quran.

Even for Riba al-Fadl he did not feel difficulty in many transactions which were clearly prohibited.

However, was doubtful only with regard to some transactions which were not expressly mentioned.

Answer of Second Argument:

Imam Abubakr Al-Jassas (D.380 AH) in his famous work Ahkamul Quran has explained riba in the
following words:

“And the riba which was known to and practiced by the Arabs was that they used to advance loan in the
form of Dirham (silver coin) or Dinar (gold coin) for a certain term with an agreed increase on the
amount of the principal advanced.”

“Do not sell my verses for a little price.” (Al- Baqarah 2:41)

Answer of Third Argument:

Holy Quran had prohibited to claim any increase over and above the principal in the case of consumption
loans only, where the borrowers used to be poor person’s who was borrowing money to meet their day to
day needs of food and clothes etc. Since no productive loans were in trend in the days of Holy Prophet
(SAW), it was not contemplated by the verse of Riba to prohibit a charge on the commercial and
productive loans.

The 3rd argument differences between consumption of loans and commercial loans.

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The word “Al-Riba” used in the Holy Quran is restricted to the increased amount charged on the
consumption loans used to be taken by poor people for their day to day needs and the rich people used to
charge heavy amounts from them.

They argued it is injustice to claim any additional amount on the principal from a poor person, but it is
not so in the case of a rich man who borrows money to develop his own commercial enterprise and earn
huge profits through it.

Therefore, it is only the consumption loans on which any excess is termed as Riba and not an increased
amount charged on the commercial loans.

Consumption And Production Loans:

The above argument is not valid basically due to three reasons:

1) Validity of a transaction is not based on the financial status of the party.

The validity of a transaction depends on the fundamental nature of the transaction, not on the status of
parties.

Sale and lease are examples of valid transactions regardless of the fact that the purchaser or the lessee is
rich or poor.

Same is the case of charging interest from a debtor.

Gambling and bribery are prohibited transactions due to their nature.Therfore will be unlawful for both
rich and poor.

Poverty of someone is a relative term, vary from case to case basis.

2) The nature of Quranic prohibitions

The verses which prohibit Riba do not at all differentiate between a consumption or commercial loan.

Nor this difference is found in the vast literature Hdith.

What is the justification of adding a new condition to the concept of Riba?

Prohibition of liquor and gambling are examples. These are prohibited in all forms.

3) Banking and productive loans in the age of antiquity.

It is not an invention of 17th Century A.C, but the history of banking transactions refers back to a period
not less than 2000 years B.C.

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Banking transactions were common in Greece in 5th Century B.C.

All types of Commercial, Industrial and Agricultural loans were prevalent in the Byzantine Empire close
to the advent of Islam.

The Arabs’ business relationship apart from Syria also extended to countries like Iraq,Eygpt and Ethopia.

The Holy Quran has specifically mentioned the term ilaaf which refers to the commercial treaties the
Arabs of Quraish had with different nations and tribes.

The caravan led by Abu Sufyan at the time of the battle of Badr consisted of 1000 camels and had
returned 100% profit.

Given the commercial atmosphere the Arabs used to borrow money for their commercial and productive
needs.

Ibn Jarir al-Tabari says:

“The tribe of Banu Amr used to charge interest from the tribe of Banu Al-Mughirah and Banu Al-
Mughirah used to pay them interest.”

These tribes used to work as a joint stock company to finance their trade-caravans.

Loans taken by these tribes were not for the purpose of consumption only ; rather these were commercial
loans.

Does Riba Only Refer to Excessive Rates of Interest?

It is argued that prohibition of Riba is applicable to only those interest transaction where the rate of
interest is excessive or exorbitant.

The verse of Surah Al-i-Imran is sought to support this argument that “O those who believe do not eat up
riba doubled and redoubled.”(3:130)

The words “doubled and redoubled” are implying that Riba is only forbidden when the rate is excessive
so as to make the payable amount twice that of principal.

Since the Banking interest is normally not so high it is not covered by this prohibition.

It is well established fact that different verses of the Holy Quran on a single subject must be studied in
combination with each other.

No verse can contradict another verse on the same subject.

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The verse 278 of Surah Al Baqarah clearly states that give up “whatever remains of Riba”.

Is Zulm the IIIat or Hikmat behind the prohibition of Riba?

It is argued that the IIIat of prohibition of Riba is Zulm and quote (2:279) :

“And if you repent than you are entitled to your principal. You neither wrong nor be wronged.”

It is said that there is no Zulm in charging interest from a rich person who has borrowed money to earn
huge profits therewith.

Since the basic IIIat is missing in the commercial interest charged by banks, it cannot be held prohibited.

It is further said that we should analyze every individual bank transaction separately for presence of
Zulm.

This argument is based on two assumptions:

1) The IIIat of prohibition of riba is zulm.

2) There is no Zulm in all or some of the modern interest based transactions.

We find that those who subscribe to this argument has confused IIIat with Hikmat of a particular Law.

The principle is that the application of a law depends on the IIIat and not on the Hikmat and this is true
for secular laws even.

Abolishing zulm is not the hikmat of the prohibition of Riba alone; it is the hikmat of most of the Islamic
injunctions relating to business and trade.

Answer Of Fourth Argument:

Account of Riba Al-Jahiliyya (RIBA AL-Quran)

“The Riba al-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.”

The seller used to keep on increasing the amount in exchange of additional time given to the buyer.

Also known as Riba AL Quran and Riba Al Nasiah.

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‘Riba al-Fadl’ or Riba al-sunnah:

It means that the quantity on both sides must be equal to each other and if the quantity of any one side is
more or less than this transaction is also a Riba transaction, because in the tribal system of Arab these
commodities were used as money.However, this transaction was termed as riba by the Holy Prophet
(SAW),and this meaning was not covered by the term ‘Riba al-Jahiliyya’.Therefore, it was called as
‘Riba al-fadl’ or ‘Riba al-sunnah’.

Six Commodities:

“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.Whoever pays more or demands more ( on either side) indulges in Riba.”

Bank Loans And Riba al-fadl:

It is argued that:

Bank loan is not Riba al-Jahiliyya but Riba al-Fadl since the interest charged on loan is known from the
outset.

However, if the debtor is unable to repay the loan plus interest in time,the additional interest charged for
time extention is Riba al-Jahiliyya.

Why do they say this?

Because, since the prohibition of Riba al-Fadl is not the concern of the State but rather of individual
Muslims, it is therefore not enforceable and should be excluded from the jurisdiction of the Federal
Shariah Court and the Shariah Appellate Bench of the Supreme Court of Pakistan.

This line of argument is incorrect:

Firstly, it does not matter whether Riba is charged at initial stage or after the maturity of the
loan.Secondly, the Hadith dealing with Riba al-Fadl is referring to a sale transaction and not to a loan.The
exact words of Hadith are:, “Do not sell gold for gold,except in equal quantities… and Do not sell the
deferred for the delivered on the spot,”

In a sale transaction on deferred payment basis, the seller cannot ask the buyer to pay the price before the
stipulated date; while in loan transaction, the creditor may ask the debtor to repay at anytime. The time
stipulated in a loan transaction is of moral value and is not legally binding.

Answer of Fifth Argument:

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We can compromise on extreme basis but not if we have a solution for it.

Islamic Banking should be implemented.

Quran has stated laws for economic transactions and Muslims should follow these laws to keep their
earnings riba free.

Money is a commodity (Nature of money):

It is 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 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 an interest upon it.

This argument is also imperfect, due to difference between money and commodity:

Money is a medium of exchange, while commodities are consumable goods or productive goods.

Money has no quality except that it is a measure of value or a medium of exchange; commodities can be
of different qualities; an old and dirty note of Rs.1, 000 has the same value as a brand new note of
Rs.1, 000.

Money cannot be pin-pointed in a transaction; in commodities the transactions of sale and purchase are
affected on an identified particular commodity.

Shariah has treated money differently on two scores:

Money is not held as subject-matter of trade, like other commodities; its use is restricted to as a medium
of exchange.

If money is exchanged for money or it is borrowed, the payment must be equal.

Bank interest is not ‘Riba’

There was no bank during the time Islam appeared on the scene. People used to borrow money
from private money lenders and return double or more than the actual amount.

A bank cannot be conceived as an exploiting institution.

Interest is not permissible as there is no element of risk in it and its rate is fixed.There is no such
argument in the Quran itself.

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In view of the above arguments it can be argued that banking interest cannot be treated as riba
and should be held permissible.

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