Why is Riba Haram?

Published on November 4, 2020

Suad Hamid Bafagih
https://www.linkedin.com/pulse/why-riba-haram-suad-hamid-bafagih/.

Riba is an Arabic word for Usury. Linguistically it means increase.

Riba was explicitly prohibited in the Quran. It was heavily practiced in the pre-Islamic
times among the Arabs. The prohibition of usury was done gradually until finally
made haram. Some people during the times of the prophet Muhammad PBUH tried
to justify Riba to be same as trade and Allah revealed the verse below;

“That they say: ' Exchange is like usury', but Allah hath permitted exchange and
forbidden usury…' “(Quran 2:275).

There are different types of usury but this article will discuss Riba al- Qard i.e. loan
riba. In the current world, there are still people who believe that Riba is like trade.
How are the two different? Islam encourages trade but prohibits Riba, why is it so?

Despite knowing that Riba is Haram and is considered one of the major sins of
Islam, it is still treated as a lesser sin compared to murder and adultery. Muslims
consume Riba and justify the consumption to be a necessity. Did you know that all
Abrahamic faiths i.e. Judaism and Christianity at one point prohibited Usury? But
now, consumption of Usury has become normal and it's only Muslims that still treat it
as a sin. The prohibitions of taking Riba are viewed as a restriction and the society
feels that Muslims are disadvantaged through this prohibition. Whilst Muslims and
society do not realize that the prevention of Riba is a blessing to society and not a
hindrance.

One may wonder, how is trade better than Usury and both increase fortune? Trade is
encouraged in Islam, there is an exchange; where one party acquires goods and
services against money exchanged. It increases economic interdependence. This
justifies the profit earned. With trade, there is a risk taken and there is no guarantee
of an increase in wealth without a contingent liability and that makes it fair and just.

On the other hand, usury is where one earns more money by lending it. Money is a
medium of exchange, its role is to facilitate trade but when it's converted to be an
item priced and traded then the concept of a fair economy is distorted. In trade, there
are actual goods and services that are exchanged unlike in lending money, the
lender creates money from nothing i.e. no real goods and services produced or
exchanged. Usury takes away wealth from the real economy and allows the lender to
have money which ought to be used in the production of more goods and services.

Why is Riba detested in Islam that Allah and His Prophet declared war to a person
who consumes it? What harm does Usury bring to society?

It distorts the distribution of wealth, where the moneylender earns more money
without capital contribution to society. The moneylender becomes wealthier since his
wealth grows by the mere fact of lending it. Wealth circulates in a few people's hands
and makes the rich create more wealth and become richer while the poor are ripped
off their work and wealth and become poorer. Usury creates greediness since the
moneylender will continue wanting more money through lending while the poor
struggles to pay the debts.

A good practical example is the foreign debts that keep on increasing in Africa. Most
African countries are in debt crisis where the government debt to GDP ratios keep on
rising. The interest keeps on compounding and the debt never gets settled. The
lender gets wealthier and the African countries become poorer. This is the injustice
created by Usury. Global wealth is concentrated in a very small percentage of the
world's population and this creates the economic instability we witness today.

As earlier mentioned, Muslims deal in usury transactions in one way or the other.
Allah curses the one who consumes Riba, gives it, witnesses, and even the one who
records the transactions. And they are all equal in sin. With that in mind, Muslims
should strive to have alternative financing rather than giving in to interest-bearing
financial solutions. There have been huge improvements in the last decade in the
aspect of Islamic Finance where we see more Islamic banks, Takaful, and even
Islamic capital markets coming up. We do agree, these institutions need
improvement in their dealings and structure to ensure there is complete shari'ah
compliance especially since the world’s entire financial system is based on usury.
However, we do appreciate the effort and there is a need for Muslims to increase
experts in this field and look for innovative solutions that will be fully Shari'ah-
compliant In Sha Allah.

Do we loan money in Islam?

Loan in Islam falls under charity and it is not for an increase in wealth. Loans are
called Qard in Arabic and are free of any interest. Qard Hasan is a benevolent loan
in which the borrower is required to pay only the principal. This loan is meant to help
the one in need and never to earn the lender wealth. The Quran constantly
compares giving charity to charging usury.

"Allah will deprive usury of all blessings but will increase for deeds of charity.”
(Qur'an 2:276)

A financial system can survive and thrive without usury but it cannot be sustainable
with Riba. And we are living proof of that concept, the poverty level has increased
significantly, inflation is high, a lot of wealth is in the hands of a very small population
and the majority live in debts.

A financially weak and poor society is the source of many evils and usury is the main
cause of this weakness in our current financial system. This is why war has been
declared by Allah and His messenger to anyone who deals with usury.