Riba (interest, usury)
is primarily an economic issue in view of the fact that all religions and
mythologies have prohibited, restricted, discouraged, disliked, or degraded Riba
in one way or the other since the inception of human interaction. All three
major revealed (Ilhami) religions i.e., Islam, Christianity, and Judaism have
strongly condemned and prohibited Riba in its original versions. Later, the
clerics of Jews and Christian Church abandoned the prohibition of Riba
(interest, usury) that led the mankind into the economic anarchy of the present
Islam - the most modern revealed religion is still upholding the righteous
prohibition of Riba although not in practice in any of the Islamic country at
governmental level but there is immense enthusiasm for Riba-Free financial
system in Muslims. The western economists have discussed the issue at large in
the twentieth century and many of them are also of the view that the religious
prohibition should be brought back into the conscious of the people.
As long as Riba prohibition was enforced with religious zeal, people were
prosperous and the wealth distribution was not abnormal as it is today, and
obviously there was not much debate on the subject but since the Riba was made
legal by Judo-Christian amendments in the divine law - its destructive fallouts
earthed at large. The debate started on Riba for its literal interpretation to
It is very unfortunate to observe that, in this debate, some misconception in
Muslims led to a widely circulated explanation of Riba that divide Riba in to
two types, one from Quran (riba-al-nasiah) and the other from Sunnah
(riba-al-fadl or riba-al-buyu) and interpreted these as "riba in debt" and "riba
in trade" respectively, this division which actually is not the case; is a
direct conflict with basic faith of Islam (please see "Present Islamic
understanding and misconception about Riba" for details). No clear concept and
universal definition of Riba exists, different views and explanations have
created much confusion in Muslims in the understanding of Riba. Unless, it is
not found that Why Riba was declared Haram (prohibited), the definition of Riba
is not possible.
Why Riba was prohibited
(declared Haram) in the divine law?
It is worth to present an example to start with the
subject, a factual example from existing interest based banking methodology that
is valid and current, which can be well understood by a common person. One
should consider the following facts before going through the example. The facts
- Only Banks create money.
- The created money is then supplied in to the economy
only in the form of loan at some specified interest.
- There are no other institutions that create money
other than banks.
The example - an
As all the banks are creating money and supplying in to the economy
on interest and without any doubt all of them are practicing the same technique,
so let us consider there is only one bank in our example that creates some money
and supply in to the people's economy.
Suppose Bank XYZ creates Dirhams 100,000 and supplies it at an interest rate of
10% per annum to several entrepreneurs and governmental units active in the
economy, remember there is no money available in the economy from any other
source. The bank has taken substantial collateral or guarantee as security of
its money from each borrower. See in the following diagram - the borrowers
intake loan and repayment liabilities at the end of the first year:
It is very simple and clear that at the end of the first
year, a combined sum of Dirhams 110,000 is due on all borrowers to repay to the
But the money available in the economy is only Dirhams 100,000 as the bank is
only supplier of money, so from where the rest 10,000 would come that is the
difference in the borrowers intake and total repayment amount...... from
NOWHERE. Yes, that is right from nowhere because that money does not exist in
Look at the scene, the bank is the only supplier of money, it creates and
supplies 100,000 in the economy and that is the total money available in the
economy, but as per loan agreements - these borrowers collectively have to pay
back 110,000. How is that possible? There is no way. Don't you believe, it is
100% like this - no less. This is cheating and criminal foul play.
So what will happen, at least one or more of these borrowers would default on
their loan(s) and would loose their personal assets or belonging that they had
put as security to the bank for the repayment.
The money creator has designed a mechanism that would force few of the borrowers
each year to default so that bank could forfeit the security assets and gain
wealth by foul play.
This is an eye opening example for those who previously had no idea about the
mechanism of banks as how they operate and cause artificial shortage (scarcity)
of the money in the societies. This is happening every where in this world from
USA to the smallest country on this beautiful planet. This artificial scarcity
of money is the root cause of people's problems from hard struggle for surviving
to the loss of happiness from their lives.
In a Riba (interest) based system, people are not aware of this foul play -
borrowers think that they will manage to repay the principal plus Riba
(interest) as they think it would be coming from some where else, but the fact
is - every borrower would be in battle with others where some borrowers have to
lose in order for others to win, some would fail to pay their loans in order for
others to get the sum they need to pay off the Riba (Interest). When seen in
totality, the supply side is always in deficit and the liability is always in
excess due to Riba (interest), the total combined supply cannot discharge the
After going through the above real example, I believe, now we are close to find
out why Riba was declared Haram in Quran and Sunnah.
Let us begin with the economic reasoning of WHY:
- The availability of each produce is limited, the
liability cannot exceed the availability limit.
- In any transaction, if a liability of produce "in
excess" of "the produce available" is created, that extra liability
would be artificial because excess quantity of produce does not exist.
This universal economic code applies to each and every type
of produce; to further get in to the explanation of the rule, let us now
identify what represents "the produce", "the transaction", and "extra
In its general expression "the produce" is any thing available to
human beings for their use or consumption, but here specifically those produce
that can be involved in a transaction, it is best to take historical standards
of transactions which are based on produce like gold, silver, grains, currency
etc. because throughout history all transactions are carried out in publicly
acceptable produce only. These produce have served the societies as "medium of
exchange", so it is more appropriate logically and historically to consider the
produce as "the medium of exchange" which is again a general expression
and can accommodate any other commodity/produce that may be used in a
In this universal economic principle, the transaction is based on a single
produce and naturally it can only be a transaction of loan or exchange
and nothing else. Although donations/grants also involve only one produce but
that is not a transaction because a transaction means exchange of good(s) and/or
service(s) either on spot or in any specified time frame involving one or more
types of produce.
Riba (interest, usury) is that extra liability created in excess
of the produce available and that does not exist. Every liability is a demand in
practice, the basic rule of economics known to every one is that to maintain
economic equilibrium (stability) in the society, the supply side should be equal
to the demand, if the demand is more than the supply - a shortage will occur.
Creating an extra liability means creating an extra demand without increasing
equal supply, this will start a never ending mechanism of perpetually increasing
the shortage of that produce in the society.
Riba was prohibited just to prevent the creation of "extra liability/demand"
because that is fake and "does not exist" physically, this artificial "extra
liability/demand" creates scarcity of the produce in the society and unjustly
accumulation of the produce in few hands. Riba (interest, usury) is a mechanism
and dangerous weapon that has a power to get hold of assets/properties of
individuals, enterprises, and nations deceitfully. This is unfair and against
the nature, so ALLAH banned Riba (interest, usury) very strictly to stop this
Nature is the Limit in Islam; any thing not natural is prohibited, stopped, and
declared illegal. The above economic reasons are the only base for the
prohibition of Riba, ALLAH has allowed everything that is natural but given its
strict judgment to stop any behavior, agreement, and practice that is not
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