Interest in Islam

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Part 1 Description:  An introduction to the topic of ‘ riba ’ (interest). Objectives ·         To learn the effects of  riba  on an individu...

Part 1

Description: An introduction to the topic of ‘riba’ (interest).
Objectives
·       To learn the effects of riba on an individual and society.
·       To learn the definition of riba.
·       To identify the two types of riba.
·       To appreciate that riba was forbidden in previous scriptures.
·       To learn about the prohibition of riba in the Quran.
Arabic Terms
·       Hijrah - the act of migration from one place to another. In Islam, the Hijrah refers to the Muslims migrating from Mecca to Medina and also marks the beginning of the Islamic calendar.
·       Riba - interest.
·       Riba an-Nasiah - “riba of delay”.
·       Riba al-Fadl - “riba of surplus”.
·       Shariah - Islamic Law.
·       Sunnah - The word Sunnah has several meanings depending on the area of study however the meaning is generally accepted to be, whatever was reported that the Prophet said, did, or approved.
·       Surah – chapter of the Quran.
InterestinIslam1.jpgInterest is all about amassing more money without putting it at risk. That leads to an inequitable distribution of income. Interest puts the poor who fall into debt into a situation where they cannot advance socially or economically. Many times an individual simply cannot keep up with interest payments that one has to pay on his or her debt. Ribacreates parasites in society and thereby the gap between the rich and poor keeps on widening.
The major purpose of the prohibition of riba is to block the means that lead to accumulation of wealth in the hands of a few, whether they are banks or individuals. Take the US for example. The top 1% of Americans control 40% of the nation’s wealth.
On an international level, consequences of interest are more devastating. The interest paid by governments of poor countries on debt is so great that they must sacrifice essential health and nutritional needs. Some African governments are forced to spend more on paying interest than they spend on health or education.[1]  In simple words, interest kills. Ken Livingston, Mayor of London, claimed that global capitalism kills more people each year than were killed by Adolf Hitler. He blamed the IMF and World Bank for deaths of millions due to their refusal to ease the debt burden. Susan George stated that every year since 1981 between 15 and 20 million people died unnecessarily due to debt burden “because Third World governments have had to cut back on clean water and health programs to meet their repayments.”[2]
Additionally, as a whole, socio-economic and distributive justice, intergenerational equity, economic instability, and ecological destruction are also considered the basis of its prohibition.[3]  Prohibition of riba prevents hoarding, and leads to broad-based development. For more information, please refer to the following link:

Definition of Riba

Riba’ is the word used by Allah in the Quran and by Prophet Muhammad, may the mercy and blessings of Allah be upon him, in the Sunnah. “The literal meaning of ‘riba’ is excess and in the terminology of Shariah, means an addition, however slight, over and above the principal of a loan or debt.”[4]
Common examples involving riba are advancing money on interest, keeping deposits in a bank for earning interest, and interest paid on credit-card debt.
The most common application of riba is on loans and credits. Example: A lender gives $1000 to a debtor with an agreement that the debtor will return $1200 on a specified date. The extra $200 is riba in Shariah.
To be precise, riba in of two types, one from Quran (riba an-nasiah, “riba of delay”) and the other from Sunnah (riba al-fadl, "riba of surplus").

Types of Riba

1. Riba an-Nasiah (riba of delay):

It is a delay (nasiah) in the settlement of debts or loans involving more money than the principal or in the settlement of one or both countervalues. This is riba accumulating over a loan. It is the more prevalent form of riba today and what we will discuss in this lesson.

2. Riba al-Fadl (riba of surplus)

It is a surplus (fadl) in the amount of one countervalue over the other in barter transactions of specific commodities (non-monetary fungible items). We will not discuss it in these lessons.

Riba Was Prohibited in Previous Revelations

Islam is not the only religion that banned interest. The prohibition of interest is a well-known law in both the Old and the New Testaments of the Bible. Consider the following passages:
“You shall not charge interest on loans to your brother, interest on money, interest on food, interest on anything that is lent for interest. You may charge a foreigner interest, but you may not charge your brother interest, that the Lord your God may bless you in all that you undertake in the land that you are entering to take possession of it.” (Deuteronomy 23:19-20)
Also, see Exodus 22:25Leviticus 25:37Jeremiah 15:10, and Ezekiel 18:13. Early church councils forbade interest and Catholics banned it for a long time.

Riba in the Quran

There are several verses in the Quran that explain the prohibition of interest or riba. Two verses state that riba was prohibited to the People of the Book, in particular the Jews (4:160-161).
Verses on interest were revealed to Prophet Muhammad throughout his mission. The first verse of the Quran on interest is considered to be in Surah ar-Room, 30:39 that was revealed in the 6th year of the prophethood in Mecca. Verse 3:130 was revealed in the 3rdyear after the migration of Prophet Muhammad to Madina. Surah an-Nisa, 4:160-161 were revealed in the 5th year of Hijrah. Surah al-Baqarah, 2: 275-276 were revealed in the 9th year of Hijrah.
Further explanation on this section is in the continuing lesson.



Footnotes:
[1] The Debt Threat, Noreena Hertz, p. 3
[2] Globalisation or Reconolisation?  The Muslim World in the 21st Century, Ali Mohammadi and Muhammad Ahsan, p. 38.
[3] Understanding Islamic Finance, Muhammad Ayub, p. 54
[4] Understanding Islamic Finance, Muhammad Ayub, p. 52

Part 2

Interest in Islam

Description: An exploration of what the Sunnah of Prophet Muhammad states about interest and suggestions on how to avoid common forms of riba in modern life.

Objectives:
·       To understand several verses in the Quran on riba.
·       To learn some of what Prophet Muhammad said about riba.
·       To learn some tips on dealing with riba.
·       To learn about some alternatives to riba.
Arabic Terms:
·       Riba - interest.
·       Shariah – Islamic Law.
·       Shirk – a word that implies ascribing partners to Allah, or ascribing divine attributes to other than Allah, or believing that the source of power, harm and blessings comes from another besides Allah.
·       Sunnah - The word Sunnah has several meanings depending on the area of study however the meaning is generally accepted to be, whatever was reported that the Prophet said, did, or approved.
·       Zakah - obligatory charity

Riba in the Quran (continued)

Interest Verses Zakah

InterestinIslam2.jpg“That which you give in interest in order that it may increase on (other) people’s property has no increase with Allah; but that which you give in zakah seeking Allah’s Countenance then those, they shall have manifold increase.  (Quran 30:39)

Interest Is Consuming People’s Wealth Unjustly

“Because of the wrongdoing of the Jews we forbade them good things, which were (before) made lawful unto them, and because of their much hindering from Allah’s way.  And [for] their taking of interest while they had been forbidden from it, and their consuming of the people’s wealth unjustly.  And we have prepared for the disbelievers among them a painful punishment.  (Quran 4:160-161)

Prohibition of Accumulating Wealth by Consuming Interest

“O you who believe! Devour not interest, doubling and quadrupling (the sum lent), but fear Allah that you may be successful.” (Quran 3:130)

Interest Verses Charity, Riba Eaters on Judgement Day

“Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say: Trade is just like interest; whereas Allah permits trading and forbids interest.  He unto whom admonition from His Lord comes and (he) refrains (in obedience thereto), he shall keep (the profits of) that which is passed, and his affair (henceforth) is with Allah.  But whoever returns to [dealing in interest] – such are the dwellers of the Fire - they will abide therein.  Allah destroys interest and gives increase for charities. And Allah likes not the disbelievers, sinners.” (2:275-276)

Give Up Interest As Soon As Guidance Of Allah Reaches You, Declaration of War from Allah on Riba Dealers

“You who believe, fear Allah: give up any outstanding dues from interest, if you are true believers.  If you do not, then be warned of war from Allah and His Messenger.  You shall have your capital if you repent, and without suffering loss or causing others to suffer loss.  If the debtor is in difficulty, then delay things until matters become easier for him; still, if you were to write it off as an act of charity, that would be better for you, if only you knew.  Beware of a Day when you will be returned to Allah: every soul will be paid in full for what it has earned, and no one will be wronged.” (Quran 2:278-281)

Statements of Prophet Muhammad on Riba

1.  The Prophet said:
“Last night I saw (in a dream) two men who came to me and took me out to a holy land.  We set out until we came to a river of blood in which a man was standing, and on the riverbank there was another man in front of whom were some stones.  The man in the river came towards him, and when he wanted to get out, the other man threw a stone into his mouth and sent him back to where he started.  Every time he tried to get out, the other man threw a stone into his mouth and sent him back.  I said, ‘What is this?’ They said, ‘The one whom you saw in the river was one who consumed riba.’”[1]
2 .  The Prophet said:
‘Avoid the seven destructive sins.’
They said: O Messenger of Allah, what are they?’ He said:
Shirk, sorcery, killing a soul whom Allah has forbidden us to kill, consuming riba, consuming orphans’ wealth, running away from the battle field, and slandering chaste, innocent believing women.’[2]
3 .  The Messenger of Allah cursed ten people:
“The one who consumes riba, the one who pays riba, the one who writes it down, the two who witness it, the one who makes it lawful, the one for whom it is made lawful, the one who withholds charity, the one who does tattoos and the one for whom tattooing is done.”[3]
Therefore, all dealings of interest are forbidden.

What Should You Do?

1 .  Avoid direct involvement in any transaction based on interest especially at the job.
Solution: If your job requires you to deal with interest, look for another one.
2 .  Stay away from interest bearing checking account in a bank or a credit union.
Solution: Banks generally give a small amount of interest on checking and saving accounts.  Earned interest should be given away in charity to the poor, without intending any reward, but merely to rid yourself of unlawful wealth.  You can also contact your local mosque and buy toilet paper, etc for them with that money.
3 .  Do not take out a loan from a bank on interest for business. 
Solution: Explore Islamic financing options given below.
4 .  Avoid credit card debt. 
Solution: Pay the complete balance you owe on your credit card as soon as you get the monthly statement so you do not have to pay interest on it. You can also opt to get a pre-paid credit card, which most major banks do offer.
5 .  Avoid buying a house or car on interest.  Don’t take auto or house mortgage in which you will have to pay interest. 
Solution: One, you can rent, save money, and buy a house on foreclosure.  Two, you can consider Islamic financing options given below.  Three, sometimes a builder will directly sell you a house at no interest.  You can lease (rent) a new or near-new car.  You can also buy a used car.  If you are looking for a vehicle you may also consider an ‘in-house finance’ that is set at 0%. Always read the fine-print and take your time as you examine these contracts.
6 .  Avoid student loans.
Solution: Get more scholarships and bursaries, take a semester off to work, or take a smaller course load and work more while going to school.  If you have difficulty doing so, please consult a scholar on your options.

Islamic Financing Options

UK Islamic Home Financing

Manzil House Financing programme offered by the Islamic Investment Bank Unit (IIBU) who are part of the Kuwait Bank. 
HSBC’s Amanah house financing scheme.

US Islamic Home & Business Financing

www.guidanceresidential.com: is one of the largest US provider of Shariah-compliant home financing having provided over $3 billion in home financing to American-Muslim homeowners over the last 10 years.
www.devonbank.com: provider of faith-based residential and commercial financing in the US.  Their products consist of real estate financing covering real estate purchase, refinance, construction, and lines of credit, as well as business and trade goods financing.  They currently offer products in Illinois, Indiana, Wisconsin, Minnesota, California, North Carolina and Texas.
www.myuif.com: UIF serves the needs of the Muslim community by offering Shariah-compliant savings accounts through University Bank and Mortgage Alternative products, as well as Shariah-compliant commercial real-estate financing and home financing throughMurabaha and Ijara programs.


Footnotes:
[1] Saheeh Al-Bukhari
[2] Saheeh Al-Bukhari, Saheeh Muslim
[3] Saheeh Muslim

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