Khalid Chraibi - SaudiDebate.

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Muslim society issues - Islamic law –

Mixed message on 'riba' leaves Muslims

trapped between usurers and lenders
Tuesday, 24 April 2007

By Khalid Chraibi

The question put to scholar Yusuf al-Qaradawi at a youth gathering in Morocco, in the
summer of 2006, was innocuous enough: in the absence of Islamic banking in Morocco, is it
licit for a Moroccan to take an interest-bearing loan from a conventional bank to buy a home?

Al-Qaradawi referred his audience to a ruling by the European Council for Fatwa, which
authorized Muslim minorities living in Europe, with no access to Islamic banking, to take
such a loan, based on the rule that: “Necessity allows the use of what is illicit” (addarouratou
toubihou al mahdhourat).

He added that, since the Moroccans had no possibility to buy a home except through the
conventional banking system, their situation was comparable to that of Muslim minorities
living in countries in which Islamic banking was not the norm. The ruling applicable to the
latter was also applicable to them.

Al-Qaradawi’s fatwa raises the issue of the compliance of modern banking with the shari’ah, a
subject of continuing controversy between traditionalist and modernist religious thinkers.

Between usury and interest

Modern banking is inextricably linked with interest, which many contemporary Muslims
associate with riba. Since the Qur’an prohibits riba, explicitly and unequivocally, they are
convinced that modern banking activities are “illicit”. But the definition of riba is elusive. For
centuries, the ulema have been faced with the difficult challenge of sorting out, generation
after generation, what the riba prohibition should apply to, and they have not reached any
consensus on this matter to this day.

Of course, the ulema agree that riba refers, in the first place, to usury, i.e. “the lending of
money with an exorbitant interest charge for its use”. But a majority of ulema consider that
riba also refers, in a second meaning, to “interest under all its forms”. This was the position of
al-Azhar’s Research Council when it ruled, in 1965: “Interest on all types of loans is
forbidden Riba. There is no difference in this regard between so called consumption and
production loans. Moreover, Riba is forbidden (haram) in small as well as large quantities,
whether it is effected through time deposits, demand (or checking) deposits, or any interest-
bearing loan contract. All such dealings are among the forbidden Riba”.

This was also the position upheld, more recently, by the Islamic Fiqh Academy (IFA), an
affiliate of the Organization of Islamic Conference, which was established by its 43 member
States to try to develop an Islamic consensus about just such complex fiqh issues. In a 1985
resolution, IFA stated: “Any increase or interest on a debt which has matured, in return for an
extension of the maturity date, in case the borrower is unable to pay ; and the increase (or
interest) on the loan at the inception of its agreement, are both forms of usury, which is
prohibited under Shari’ah.”

Under this definition, conventional banking operations are all “illicit”, because they
incorporate interest, i.e. “a charge for borrowed money, generally a percentage of the amount
borrowed”. But, modern financial activities differ in kind from anything that existed at the
time of Revelation. One may wonder, therefore, with Abdullah Yusuf Ali, about the legitimacy
of extending to them the riba prohibition, based on “qiyas” and “ijtihad”.
Says Ali, best known for his classic translation of the Qur’an into English: “Our Ulema,
ancient and modern, have worked out a great body of literature on Usury, based mainly on
economic conditions as they existed at the rise of Islam. I agree with them on the main
principles, but respectfully differ from them on the definition of Usury… My definition would
include profiteering of all kinds, but exclude economic credit, the creature of modern banking
and finance.”

Modern banking structures and financial instruments were introduced in Muslim countries at
the time of their occupation by foreign Western powers, in the 19th and 20th Centuries. When
Islamic jurists saw how these modern banking institutions and their assorted financial tools
were used to develop the national economy, they understood the positive role that interest
could play in modern society. They realized that its total prohibition in economic and financial
dealings could conflict with society’s economic and social needs and aims, and could hamper
the country’s development.

The voices of al-Azhar

For these reasons, from the 19th Century on, Egyptian Grand Muftis and Sheikhs of al-Azhar,
as well as numerous religious leaders in various Muslim countries, have been earnestly
looking for ways and means to convert the total prohibition of interest into a selective one, in
order to reconcile the prevailing definition of riba with the economic and financial
requirements of modern society.

Muhammad Abduh, the mufti of Egypt and Sheikh of al-Azhar, was a pioneer in this field,
when he wrote a fatwa to the effect that interest paid by the Egyptian Post Office on “personal
savings accounts” was lawful.

He also explained to the readers of “al-Manar” that the use of interest could be quite licit in
some financial dealings, and have nothing to do with a riba situation. He wrote: “When one
gives his money to another for investment, and payment of a known profit, this does not
constitute the definitely forbidden Riba, regardless of the pre-specified profit rate… This type
of transaction is beneficial both to the investor and the entrepreneur. In contrast, Riba harms
one for no fault other than being in need, and benefits another for no work except greed and
hardness of heart. The two types of dealings cannot possibly have the same legal status
(hokum).”

Another Sheikh of al-Azhar, Mahmud Shaltut, wrote a fatwa in which he declared that interest
paid on State bonds was licit, when issued by the State to meet public needs, and to further the
country’s economic development. He even asserted that any transaction which was offered by
the State, with a fixed interest in advance, was licit, since there was no exploitation of either
party in such cases.

Muhammad Sayyed Tantawi, the present Sheikh of al-Azhar, though a traditional, orthodox
scholar, worked for decades along the same lines as his predecessors, to try to disentangle
interest from riba. As Grand Mufti of Egypt (1986-96), he ruled that fixed interests on bank
deposits were “halal”, even suggesting that the legal terminology used for bank interest and
bank accounts be changed, to avoid their assimilation to riba.

Furthermore, in 2002, the ulema of Al-Azhar, working under Tantawi’s direction, revised the
1965 stand of the institution on riba. They approved a fatwa which stated that “investing
funds with banks that pre-specify profits or returns is permissible, and there is no harm
therein.” For Tantawi: “…the bank investing the money for a pre-specified profit becomes a
hired worker for the investors, who thus accept the amount the bank gives them as their
profits, and all the excess profits (whatever they may be) are thus deemed the bank’s wages.
Therefore, this dealing is devoid of riba.” He adds : “We do not find any Canonical Text, or
convincing analogy, that forbids pre-specification of profits, as long as there is mutual
consent.”

Bankers and shari’ah

One could quote many other efforts by distinguished Muslim jurists, aiming at separating
interest from riba. For instance, Abd al Mun’im Al Nimr, a former Minister of Awqaf in
Egypt, explained in a 1989 article that the prohibition of riba was essentially justified by the
harm caused to the debtor. Therefore, since there was no harm caused to depositors in banks,
the prohibition of riba did not apply to bank deposits.

Explains Nasr Farid Wasil, Tantawi’s successor as Grand Mufti of Egypt: “So long as banks
invest the money in permissible venues (halal), then the transaction is permissible (halal)...
The issue is an investment from money. Otherwise, it is forbidden (haram)...” He adds: “There
is no such thing as an Islamic or non Islamic bank. So let us stop this controversy about bank
interest.”

The banking debate revolves, therefore, essentially, around the definition of riba. A
conservative definition of riba equates it with banking interest. On that basis, modern banking
systems in Muslim countries are described as “illicit”, because they use interest in their
operations.

But, according to a number of Grand Muftis of Egypt, and Sheikhs of Al-Azhar, this is an
outdated view of the banking issue. In their opinion, riba should be equated with usury only.
Since modern banking does not use usury in its operations, it is not concerned with the riba
issue, and raises no problem of compliance with the shari’ah.
Explains Moroccan law professor Ahmed Khamlichi, in this respect: “The ulema don’t have
the monopoly of interpretation of the shari’ah. Of course, they must rank high in consultations
on shari’ah issues. [But] they don’t make the religious law, in the same way that it’s not the
law professors who make the law, but the parliaments”.

Sovereign States have promulgated their own national codes, whose contents take into
account the specifics of the country, which may differ considerably from one country to
another, and over time. One shouldn’t be surprised, therefore, to discover that what’s licit in
one country may be considered as illicit in another, and that the items in these categories may
also change over time. The important thing to remember is that, in each country, it is the law
of the land which applies, as defined by its national institutions. That’s what’s “licit” in that
particular country, at that particular time.