The Differences between Riba, Usury and Interest

The word ‘riba’ as appearing in Holy Quran is translated in English as ‘usury’ by some translators and as ‘interest’ by few. In Arabic language, it literally means an "increment” or “excess" but in essence it means unfair advantage or profiteering, which is prohibited by Allah (swt). For instance giving RS. 4800 for change of a RS. 5000 currency  note would be riba, even though there is neither interest nor  increase. Usury is not only unfair advantage but also excessive and wicked charge of interest and is condemned by Bible and Quran as also other faiths.  The Muslim economists, bankers and insurers who have intensely studied Quranic verses and hadiths find that among most of the ulema (clerics of Islam) and jurists of Islam considerable misunderstanding and misconceptions are found about banking interest and insurance. Quran like Bible prohibits usury and refers it as a kind of Riba.

Giving RS. 4800 for change of a RS. 5000 currency note would be Riba, even though there is neither interest nor increase. Usury is not only unfair advantage but also excessive and wicked charge of interest and is condemned by Bible and Quran as also other faiths.

Conventional Bank Interest and Profits  Banks provide a variety of financial services much different than the greedy and professional moneylenders and pawnbrokers of ancient times. Governments and laws lay down stringent requirements for their solvency and paid up capital and monitor and regulate their operations. When the bank pays you interest on your deposit they pay you out of their overall profits. When the bank charges you interest on the loan they charge it as the substitute for profit that they would otherwise make by investing in share market, real estate etc. Al Azhar's verdict for paying pre-determined profit (interest) is apparently based on the principle of pooling the overall profits of the bank on all types of investments plus their own flat fees for account handling, lockers, guarantees, monetary transfers etc. instead of the cumbersome and expensive procedure of sharing profits and losses under each transaction of debt separately. But Al Azhar's plea for Qarze Hasana (loan without interest or obligation to repay) to the poor and needy, is not commercially viable and only philanthropic and charitable institutions could do that or the government can do that on the lines of social security benefits for poor in US and Canada. Bank interest rate about equal to or less than likely profit on investment of the same amount as loaned cannot technically or logically be regarded as taking unfair or unethical benefit and thus it cannot be treated as usury/riba. It may be noted that under the sharia compliant modes of financing one often ends up paying higher profits to the lender than the regulated bank interest and the reason is said to be that risk of loss is there for the lenders. In view of the modern risk appraisal methods for granting loans and the laws that protect the interests of the borrowers and lenders it can safely be said that modern banking as regulated by the laws is serving the needs of the business and consumers in much better way and more economically than any other method in history. The Islamic theological research committee of Egypt's Al-Azhar institute - seen by many as the philosophical center of the dominant  Sunni strand of the faith - has in the recent past voted 21-1 to approve fixed interest rates or pre-determined rate of profit.. But orthodox ulema do not agree and forcefully rejected the Al Azhar verdict. It would be recalled that the judgment of Shariat Bench of Pakistan to abolish the interest dealings in Pakistan was not allowed to be implemented by the Supreme Court of Pakistan and it was directed that first the problem of inflation and reduction in purchasing power money be found. Despite lapse over 5 years there is no solution and the principal value of money as compared with gold, wheat and various other commodities continues to regress. Interpreting Verses of Holy Quran 004.161: That they took usury, though they were forbidden; and that they devoured men's substance wrongfully;- we have prepared for those among them who reject faith a grievous punishment. The words "devoured men's substance wrongfully" indicate exploitation. Logically nominal bank interest can not be deemed to be devouring men’s substance wrongfully. 002.278: O ye who believe! Fear Allah, and give up what remains of your demand for usury, if ye are indeed believers. 002.279: If ye do it not, Take notice of war from Allah and His Messenger: But if ye turn back, ye shall have your capital sums: Deal not unjustly, and ye shall not be dealt with unjustly. In verse 2.279 the words 'Deal not unjustly' refer to exploitation 003.130 YUSUFALI: O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper. PICKTHAL: O ye who believe! Devour not usury, doubling and quadrupling (the sum lent). Observe your duty to Allah, that ye may be successful. SHAKIR: O you who believe! do not devour usury, making it double and redouble, and be careful of (your duty to) Allah, that you may be successful. In verse 3.130 the words doubled and quadrupling are important in arriving at the definition of Riba. Does it mean that until the riba reaches the level of double and manifold it can be taken? Probably not but it does indicate excessive charge. The Nature of Usury at the dawn of Islam  In the following extract from Imam Malik’s Mutawat the practice of usury as prevalent at the dawn of Islam is described. Book 31, Number 31.38.84: Malik related to me that Zayd ibn Aslam said, "Usury in the Jahiliyya was that a man would give a loan to a man for a set term. When the term was due, he would say, 'Will you pay it off or increase me?' If the man paid, he took it. If not, he increased him in his debt and lengthened the term for him “ Malik said, "The disapproved of way of doing things about which there is no dispute among us, is that a man should give a loan to a man for a term, and then the demander reduce it and the one from whom it is demanded pay it in advance. To us that is like someone who delays repaying his debt after it is due to his creditor and his creditor increases his debt." Malik said, "This is nothing else but usury. No doubt about it." Please note that the above hadith does not distinguish between loan of cash or goods. Malik spoke about a man who loaned one hundred dinars to a man for two terms. When it was due, the person who owed the debt said to him, "Sell me some goods, whose price is one hundred dinars in cash for one hundred and fifty on credit." Malik said, "This transaction is not good, and the people of knowledge still forbid it." Malik said, "This is disapproved of because the creditor himself gives the debtor the price of what the man sells him, and he defers repayment of the hundred of the first transaction for the debtor for the term which is mentioned to him in the second transaction, and the debtor increases him with fifty dinars for his deferring him. That is disapproved of and it is not good. It also resembles the hadith of Zayd ibn Aslam about the transactions of the people of the Jahiliyya. When their debts were due, they said to the person with the debt, 'Either you pay in full or you increase it.' If they paid, they took it, and if not they increased debtors in their debts, and extended the term for them." Please note that the length of terms is not indicated but in those days the period did not usually exceed one year or so for which almost 50% excess is excessive. Further it appears that repayment of loan in installments was rarely practiced.

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