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Western and Islamic Banking

Post by on Saturday, July 10, 2021

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The economy of the West is Capitalistic in which the trade and property belong to private owners whose main aim is to earn profit. At the other extreme in communism, the property is owned by the community, and each person is supposed to contribute according to his ability and receive according to his need. In Islamic economics, wealth belongs to Allah (SWT) who has entrusted it to human beings and requires that the guidelines and principles set by the final revelation of God be followed. While private ownership is allowed and encouraged the faith-driven generosity and charity take a central stage. Islam is categorically opposed to usurious economics, while usury and exploitation are ingrained into the contemporary economy with no regard for the divine law. The two are fundamentally irreconcilable.
Riba literally means “increase”. The technical meaning is “to attain an agreed-upon increase/gain while exchanging specific goods or certain transactions”. In the case of loans, it is a predetermined agreed-upon premium that the borrower must pay to a lender at the time of returning the loan. Riba is “predetermined and agreed upon” and not what a borrower may give to a lender spontaneously upon returning the loan, out of his sweet will without any demand from the lender. (Bukhari 1997, vol. 3, 283, Book no. 40, no. 2305). While the west tries to differentiate between usury and interest, the distinction is not acceptable economically. It is a trick of Satan to beautify things by calling them with another name. Satan whispered, “O Adam, shall I direct you to the tree of eternity…”. Thus, what was a forbidden tree became “the tree of eternity”. (Quran, 20:120).
The prohibition of Riba is unequivocally mentioned in Quran,
"Those who consume Riba cannot stand [on the Day of Resurrection] except as one who is being beaten by Satan into insanity. That is because they say, 'Trade is like interest.' But Allah has permitted trade and has forbidden Riba. So, whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [it] – those are the companions of Fire; they will abide eternally therein. Allah destroys Riba and gives increase for charities. And Allah does not like every sinning disbeliever.”(Quran, 2:275-6).
Furthermore, “O you, who have believed, fear Allah and give up what remains due of Riba, if you should be believers. And if you do not, then be informed of a war from Allah and his Messenger. But if you repent, you may have your principal – you do no wrong, nor are you wronged.”(Quran, 2:278-9).
The Prophet (SAW) cursed the one who accepts Riba, one who pays it. (Bukhari 1997, vol no.7,443-4, Book no. 77, no. 5962), one who records it, and the one who records his witness: saying that they are all equal. (Muslim, Book no. 22, Chapter no. 19, no. 1598, sunnah.com/muslim:1598).There is an Ijma (scholarly consensus) on the prohibition of Riba.
The Prophet (SAW) said, “There are seventy degrees of Riba, the least of which is equivalent to a man having intercourse with his mother”.(Majah, Book no. 12, Chapter no. 58, no. 2274, https://sunnah.com/ibnmajah/12/138). This Hadeeth shows that while some people may like to differentiate usury from interest such a distinction is unacceptable. It though makes it clear that some grades of interest may be more severe in sin than others. This shows that Riba, whether it be interest or usury or any other transaction that has the same legal ratio (‘Illah) as that of Riba is forbidden in Islam. The exceptions would be the matters of dire necessity, or the transactions that look like Riba but are trade transactions. 
The roots of the West are classically stated to be Greco-Roman and Judeo-Christian. It would thus be useful to look at what these two sources have to say about interest before discussing the current position of the west. The archaic meaning of usury is almost like what we have discussed above concerning Islamic teaching. Aristotle considered it contrary to nature(Vega 1987, 47), highly disliked (Scheinkman 1998, 21), that money was simply a medium of exchange, a sterile thing, and incapable of bearing fruit. The Torah forbids interest amongst Jews but allows charging interest from foreigners. 
We find similar prohibitions in other books like the Prophets and Psalms. This led to the abhorrence of usury or interest in Judeo-Christian tradition. In 325 C.E. the Council of Nicaea took a strong position against usury especially taking of usury by clerics. However, the religious morality clashing with economic realities, arising out of greed, presented a dilemma and the permissibility of charging Gentiles with interest came to the rescue. This legal ruse allowed the Jews to become money lenders and Christians the borrowers. The debate shifted from absolute abhorrence of interest to differentiation between interest (supposedly genuine compensation for lending money) and usury (an unjust excessive and exploitative charging). 
This would sometimes lead to the administrative annulment of supposedly exploitative percentage on one hand and violence or even massacre of Jewish moneylenders on other hand. The complete shift occurred in the nineteenth century – the century of Capitalism. It is important here to point out Islam does not consider the current Torah or Bible to be the same as revealed to Moses or Jesus – peace be upon them. So, any information from it cannot be taken as an authentic source in an Islamic sense. Still, it is evident that interest was either prohibited or abhorred in these traditions. Allah (SWT) says about the people of Scripture, “Woe to those who write the scripture with their own hands and then say, ‘This is from Allah.’ … (Quran, 2:79).
The decolonization was followed by usurious colonialism with world powers lending money to under-developed countries, trapping them in bone-breaking debts losing their hard-earned freedom. This makes a case for declaring usury a crime under international law. (Vega 1987, 45-59). When secular democratic principles of rational empiricism and discussion and consent can formulate laws and revelation is removed from the public sphere it should be very difficult to agree upon a non-exploitative genuine percentage of interest. One can easily realize that it is so while looking at the rising usury ceilings that were considered acceptable from 6% to 30% or 48% in Roman province during the epoch of Cicero or even the varying ceilings amongst different states at the same time. 
The restriction on maximum acceptable interest is exposing the economically weaker sections of society to Loan Sharks, rent to own shops, pawnbrokers, lotteries, and fringe banking throwing them out of the legal loan market because nobody wants to take a risk of lending to the poor. The poor in America pay more interest be it on credit cards or through fringe banking than anybody else and there is no concept of free loans even for the poor. This has led to the suggestion of micro lending at the government or religious institutional level to stem this tide and inspired studies on how the usury legislation creates black marketing in the loan sector.
It is important to understand that any law restricting the freedom of people cannot operate in a moral vacuum in a Godless society. It needs the religious morals of generosity, kindness, charity, and love for fellow human beings for the sake of God to make any such laws that forbid interest or restrict its ceilings. It is no surprise when such values are removed by relegating religion to the private sphere that such aberrations depriving the poor of any credit whatsoever should arise and a law that was supposed to protect them should result in further exploitation.
The catch phrase of secular democracy – consenting adults – is being invoked to do away with all ceilings on usury, the argument being that if the lender and borrower are adults, and they consent on a particular percentage howsoever high it maybe it should be legalized because they would only agree on a mutually beneficial transaction. Many attempts to harmonize Islamic Fiqh with Western thought are genuine attempts to differentiate usurious practices from genuine trade but some are probably to produce a blend. However, any analysis of such attempts is beyond the scope of this article.
The economy of the West is based on Capitalism while the Islamic economy is based on Quran and Sunnah. The attempts to find Islamic Banking windows in conventional banking are akin to like searching for halal in an ocean of haram with the sole aim of siphoning off the untapped Muslim wealth. Islamic banking is still possible. The effort must go on. While that is happening, we need more scholars to guide us to sift trade from Riba in an exceedingly complex world of economic transactions.
This article does not discuss the Islamic law related to interest in any depth. It does not discuss invalid legal ruses or valid trade transactions. It does not discuss the types of Riba nor does it discuss Riba in exchange for specific goods. The reader should consult a Fiqh scholar and not base any conclusions about his transactions after reading this article.
(Author is Cosmetic Dermatologist. Feedback: ibnibari@gmail.com)

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