PART-2: EXPLAINING RIBA - MISCONCEPTIONS

Author: Ismail Nizam

The prohibition of Riba is clear-cut in Shari'ah. Riba is very clearly explained and prohibited in the Qur'an and Sunnah. Muslims unanimously accept that Riba is haram.

The issue is whether bank interest is Riba or not. Shari'ah scholars (except view modern scholars) agree that bank interest and Riba are same and prohibited. However, many Muslims do not think that bank interest is similar to Riba and it is prohibited. This attitude towards interest can be seen in almost all societies. The main reason for this is the lack of proper knowledge and understanding of interest and Riba.

Following are some of the misconceptions about Riba and interest;

(1) Bank interest is not prohibited because it is not excessive (usurious).

(2) Riba should be allowed under dharurah (necessity).

(3) Riba accrues only in consumption loans, not in production or commercial loans.

(4) Riba should be prohibited only when there is injustice.

(5) Interest should be allowed because of inflation.

(6) Interest is justified on the grounds of default risk.

(7) Banks are justified charging interest as they expend effort in providing financial intermediation services.

The above mentioned 7 are some of the reason used by the critics of Interest-Riba Equivalence teaching of Islam. It is worth evaluating them to see how far they hold logical and applicable. Let me address each misconception one by one;

Bank interest is not prohibited because it is not excessive (usurious)

People who raises this argument base their reason on a Qur'anic verse (Al-'Imran 130) which states "O you who believe! Do not eat Riba doubled and redoubled."Based on this verse they say that if the interest is not excessive, it is not Riba.

The very first remark I would like put forward is that they are in error. They are using a wrong methodology in understanding and practising the Qur'anic teachings. A thorough analysis of the verses of the Qur'an would very clearly show that 3:130 is not the last verse of Qur'an on Riba. Rather, it is a verse in the third stage of prohibition of Riba according to Scholars. Riba, like wine, is prohibited in stages. The verses revealed later on Riba gives a clear ruling that anything above the principal amount of a loan is Riba. (to be continued...)