Bank interest and Muslim society
By Abdur Rahman Hamza
There has been confusion about "riba"
(interest) among Muslims all over the world, especially among the
Indian Muslims. In spite of efforts of the ulama to find a solution, the
confusion remains. No consensus could be reached about the definition of
“interest” during the early period of Islam and till today there are
differences of opinion on the matter. On the one hand, interest is
important from economic view point, on the other, there is strong
warning against riba in the Qur’an. Many people and even ulama agree
that without finding a solution of the problem the economic condition of
Muslims is at stake.
We are compelled to take loans from banks because of commercial and
personal requirements. In big cities taking loans from banks and other
financial institutions for purchasing houses, cars and for higher and
professional education, have become a norm. People no longer have the
Islamic spirit of helping their needy brethren by giving interest-free
Falling value of currency notes and inflation have made the situation
extremely complicated. During the time of Prophet (pbuh) there was no
problem of inflation because in those days silver and gold coins were in
circulation. The purchasing power remained constant for centuries in
earlier times but in modern times paper currency is in use and its
purchasing value is continuously decreasing. What could be purchased for
Rs 100 a year ago, more money will be needed now to purchase the same
Let us take an example for properly understanding the issue of interest.
Consider, two colleagues, one Hindu and the other Muslim, retire from
government service and get Rs 0.5 million each in the form of Provident
Fund and Gratuity benefits. The Hindu colleague puts the entire amount
in fixed deposit for 12 years. After twelve years he will get a total
amount of Rs 1.8-2 million rupees as a result of compound interest. The
Muslim colleague, considering “interest” illegal, puts his entire amount
in a simple bank account. After 12 years he will get his principal
amount of Rs 0.5 million together with a meager amount as “interest”
which he prefers not to use because to him “interest” is unlawful.
Since the value of money is continuously falling, after 12 years the
value of Rs 1.8-2 million received by the Hindu colleague will be almost
equal to his principal amount of Rs 5 lakh or more in terms of buying
power. He can use the money for the marriage of his children or their
technical education. After twelve years the real value of Rs 0.5 million
received by the Muslim colleague will be equal to Rs 0.1 million or even
less in terms of its earlier buying power. The money will not be enough
to meet the expenses of marriage or technical education of his children.
In order to avoid the difficulties resulting from inflation, some ulama
have offered a solution that while giving a loan; an agreement should be
entered into with the debtor that repayment of the loan should be in
terms of gold. But there is a difficulty in such agreements, for this
type of agreement both the lender and debtor should be Muslims. This
type of agreement is not possible in case of bank deposits or loans. If
a person deposits Rs one million in a bank for five years on the
condition that after five years the bank would pay him the same amount
equal to its worth in gold. Obviously the terms would not acceptable to
the bank, because banks do not work on conditions put forward by
depositors. They work on their own rules and regulations as prescribed
by the government.
Muslims are left with only two alternatives: either they have to accept
the principal amount only and suffer a loss because of decreasing real
value of money or accept fixed deposit money along with compound
interest which is “unlawful” from Shari'a and Islamic point of view as
Some people debate whether different forms of interest were defined or
not during the times of the Prophet (pbuh). God knew about the different
types of interest and He declared a certain form as “illegal” through
his revelation. As a matter of fact “interest” (riba) in old or modern
forms can be declared illegal only when interest is clearly and
authoritatively defined and a consensus reached at about its legality.
Islamic jurists and ulama agree that there is neither any definition nor
any consensus or interpretation about “riba”. Right from the times of
the Prophet and Caliphs to the modern days, there are serious
differences among jurists and ulama about riba’s definition.
Traditions about “riba” are contradictory and
there are serious differences about the definition of “riba” among
jurists. After carefully examining all the definitions of “riba” it
becomes clear that these definitions do not apply to bank interest and
that riba is not the same as bank interest. Riba which has been declared
illegal by Qur'an, contains the element of exploitation and excessive
interest like the one demanded by money-lenders in our country (India).
On the contrary, banks give interest voluntarily out of the income they
derive from lending out deposits, in a way benefiting the banks as well
as the depositors.
Some people hold the view that since the unlawfulness and
impermissibility of “interest” is clear from Qur'anic injunctions;
exercise of judgment is not permissible about interest. But this is not
true because under certain compulsions, interpretations or judgments
have been exercised pertaining to illegal and impermissible cases. For
example, Muftis of the country have declared insurance permissible under
compulsive circumstances, though they made it clear that insurance too
contained the elements of interest and gambling, but today it is
permissible for the needy.
Similarly, the punishment of chopping off hands is prescribed in
Qur'anic injunctions but Hazrat Umar abolished the punishment during the
famine year. Qur'an has laid down eight heads on which the money of
Zakat should be spent but one of them was abolished by Hazrat Umar on
the plea that Islam had by then become powerful and widespread.
During the period of the Prophet (pbuh), female slaves who gave birth to
children fathered by their masters were allowed to be sold like other
slaves but when Hazrat Umar became Caliph, he found that the practice
was becoming a source of coercion and exploitation. Therefore, he banned
the sale of mother slave and prescribed the rule that such slaves could
neither be sold nor gifted to anyone and that after the death of their
masters they become free automatically. Some people described Caliph
Umar’s action as heresy and a deviation from religion and condemned this
action. Rationalists not only considered it permissible but also
essential for a just social system for the establishment of which
prophets are sent.
Finding a solution to the problem of bank “interest” is crucial for
Muslims. This issue should be settled at the earliest through
re-interpretation and serious discussion because due to the lack of a
clear definition, the economic condition of Muslims is deteriorating,
while that of non-Muslims is constantly improving. If the problem is not
rectified, the coming generations of Muslims will lead a life of
economic slavery. It is necessary to determine whether the existing
system of bank “interest” is the same riba or usury under which a loan
of Rs would go on multiplying and reach unimaginable proportions within
a few years and the poor debtor would be forced to sell his house and
other belongings. This “riba” has been forbidden by Quran.
If it is difficult to determine “interest”, can the Quranic injunction
not be interpreted on the lines of insurance so as to make bank interest
on deposits permissible as a matter of Milli necessity in modern
times and to save the community from economic deprivation. Such
interpretation, of course, should be within the limit of Shariah.