Interest vs Riba - A layman's perspective

 Interest vs Riba - A layman's perspective

By: Khurshid Imam

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In the modern day, the term Riba is associated with various topics such as Interest, Loans, Banks, LIC, EMI, and Education loans.

The prevailing belief is that any interest is Riba. Any transaction involving a bank is considered Riba. Hence, it is asserted that working in a bank or dealing with insurance is Haram.

Just to add a point: Many items were initially declared Haram by scholars, but later this stance was changed. For example, Photography, Videography, Printing press, wearing Shirts, and Pants, etc.

Based on popular understanding, people have raised some arguments:

1. If I lend you 1 Lakh rupees as a loan, and you return the same amount after 5 years, is this a fair transaction? Am I not at a loss? 1 Lakh rupees will be equivalent to 70,000 or 80,000 after 5 years.

2. A mobile shop salesman says, "Purchase a mobile in 4 EMIs with just 10% interest. The total price is 10,000 rs."

"First Month 2500 Principal + 250 rs interest = 2750 rs"

"Second Month 2500 Principal + 250 rs interest = 2750 rs"

"Third Month 2500 Principal + 250 rs interest = 2750 rs"

"Fourth Month 2500 Principal + 250 rs interest = 2750 rs"

You end up paying 2750*4 = 11,000 rs

A Muslim says, "I don't want to indulge in interest."

The salesman (Next week comes up with a new advertisement) - "Interest-FREE EMI for mobile purchase"

"10,000 rs is the mobile charge, 1000 rs is the processing charge, you need to pay 11,000 rs"

Muslims ask, "There is no interest - right?"

Salesman - "Yes, Sir."

Muslims - "OK, I will take."

Moral - in both cases, the customer ends up paying 11,000 rs during 4 months. Words are different for the extra 1000 rs.

The above scenario itself requires a lot of discussion on Riba, interest, etc.

3. A person who has worked in the Gulf for 25 years does not require taking a home loan. He might have enough real estate (home, shops etc) properties to easily support his family.

However, a typical higher-middle-class person - who pays 30K - 40K rent in Metro cities will be allured towards purchasing a flat on loan.

Higher Middle-class Person - "I pay every year 4-5 Lakh rs just for rent. In the past 10 years, I would have paid 20-30 Lakh but I don't own even a brick."

Builder - "Fine. We have a flat - ready to occupy. Please pay 60 Lakh and shift."

Customer - "I don't have that much money. I can manage giving 20 Lakh now. Can I give you the rest of 40 Lakh over a period of 10 years?"

Builder - "Are you telling me that you will pay my 40 Lakh after 10 years? By that time, this money's value will be equivalent to 20 Lakh and your flat value will be 90 Lakh to 1 crore. Am I a fool?"

"I am giving you an option. Instead of paying 40 Lakh, you should pay me 60 Lakh in case the duration involved is 10 years. By this time, your flat value will also increase."

Some customers decide to buy because they find it just and practical, while some decide not to buy because they find it unislamic.

4. A widow has 2 Lakh rupees with her. Her sons have left her, and she is the sole person living in the house. At 65 years, she can't work. She wants some recurring money every month for survival. If she uses this 2 Lakh, then after some time, she will be penniless. What can she do? She decided to invest this money in a business.

Businessman - "You are investing 1 Lakh rs. You will be a 20% shareholder in profit and loss both."

Widow - "Son! I cannot afford a loss because I need money every month. Do one thing. Do not put my share to 20%. Just give me 5000 rs every month no matter what profit you earn or what loss you incur."

Businessman - "What you are saying is understandable and makes sense to me, but... it's unislamic to have only profit."

Widow - in a pathetic situation

I have presented only 4 examples. Many more can be given.

My point is:

1. Have we done justice in understanding the Quranic concept of Riba?

2. The topic of Riba is so severe and sensitive that Allah has declared war against people indulging in Riba. Is Allah referring to the people quoted in the above 4 examples? Or does Riba refer to a system of exploitation?

3. Have our Madarsa passed Ulemas who gave verdicts on LIC, Bank accounts, Insurance, Loans - well-versed in the economy, inflation, trade etc.?

4. The modern-day banking system was not present at the time of Prophet Muhammad. So, is the present banking interest the same as Quran's Riba? If yes, then how do we judge the above 4 examples?

5. Today we have paper-based currency, which, itself typically does not have intrinsic value. Intrinsic value refers to the inherent worth or value of an object, independent of its monetary or symbolic value. Earlier it was the era of gold and silver which had intrinsic value. Are we taking this crucial factor into account when discussing interest?

6. Pawnbrokers take excessive interest, in the range of 20-30%. Is that the same as usual bank interest?

7. Have you done some R&D on so so-called-islamic banks in Malaysia and Gulf? Things are not as pretty as they look. Is interest wrapped up in some Arabic terminology there?

Conclusion:

1. Do I have full clarity on Riba? Answer: No

2. Do I admit that modern interest is 100% not part of Riba? Answer: I don't know.

3. Do I admit that modern interest is 100% part of Riba? Answer: I don't know. Popular Islamic arguments do not answer several related questions.

4. Do I encourage dealing with interest? Answer: No.

5. What do I encourage - Within Islamic principles, with open eyes - grow towards a financially stable and influential position.

A non-influential and powerless community is destined to be downtrodden, humiliated, and trampled upon.