Why Islamic banks frown at interest

Interest in Islam is regarded as a religious and moral imperative. Islam forbids interest in all its forms as prescribed by the Qur’an using the strongest terms for its prohibition – (“those who gorge themselves on riba behave as might behave whom satan has confounded with his touch; for they say “buying and selling is […]

Interest in Islam is regarded as a religious and moral imperative. Islam forbids interest in all its forms as prescribed by the Qur’an using the strongest terms for its prohibition – (“those who gorge themselves on riba behave as might behave whom satan has confounded with his touch; for they say “buying and selling is but a kind of riba” – while God has made buying and selling lawful and riba unlawful.) Hence, whoever becomes aware of his Sustainer’s admonition, thereupon desists from riba, may keep his past gains, and it will be for God to judge him; but as for those who return to it – they are destined for the fire, therein to abide. – Qur’an 2:279

Christianity also shares the principles of ethical financing underlying Islamic banking and financing and so does Judaism since usury, the lending of money on interest rates, is forbidden in religions based on the Abrahamic traditions.

Technically, interest (riba) refers to the addition in the amount of the principal of a loan according to the time for which it is loaned and the amount of the loan. While earlier there was a debate as to whether riba relates to interest or usury, there now appears to be consensus of opinion among Islamic scholars that the term extends to all forms of interest.

Interest is fixed and predetermined with an obligation to pay regardless of the performance of the borrower or the business.

Based on Islamic belief, money by itself cannot be used to create additional money. Money should be used for productive purposes that serve the market, not hoarded or used for speculation. Money is a medium of exchange rather than a product. Wealth creation should benefit not just a few who have money to lend but should improve society as a whole.

Usury (in the original sense of any interest) was at times denounced by a number of religious leaders and philosophers in the ancient world, including Plato, Aristotle, Cato, Cicero, Seneca, Plutarch, Aquinas, Muhammad, Moses, Philo and Gautama Buddha.

The following quotations are from the Hebrew Bible, 1917 Jewish Publication Society translation:

“If thou lend money to any of My people, even to the poor with thee, thou shalt not be to him as a creditor; neither shall ye lay upon him interest (Exodus, 22:25).”

And in the New Testament: “Luke 6:35 says, “But love ye your enemies, and do good, and lend, hoping for nothing again; and your reward shall be great”. Many interpret this as condemning usury, while others see it as a call to personal altruism and not a general prohibition on usury, which they see as a wise business practice that is not referenced in this verse.

Then the Qur’an: “God condemns usury, and blesses charities. God dislikes every disbeliever, guilty. Lo! those who believe and do good works and establish worship and pay the poor-due, their reward is with their Lord and there shall no fear come upon them neither shall they grieve. O you who believe, you shall observe God and refrain from all kinds of usury, if you are believers. If you do not, then expect a war from God and His messenger. But if you repent, you may keep your capitals, without inflicting injustice, or incurring injustice. If the debtor is unable to pay, wait for a better time. If you give up the loan as a charity, it would be better for you, if you only knew. (Al-Baqarah 2:276-280)”

But one must always consider that usury, in historical context, has always been inextricably linked to economic abuses, mostly of the masses and of the poor.

The main moral argument is that usury creates excessive profit and gain without “labour” which is deemed “work” in the Biblical context. Profits from usury are argued not to arise from any substantial labour or work but from mere avarice, greed, trickery and manipulation. In addition, usury is said to create a divide between people due to obsession with monetary gain.

Shittu wrote in from Kaduna and can be reached at [email protected]