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Assignment Prohibition of Riba in Different Religions(Islamic Finance)

Submitted By:Submitted to:Wajid AliHaifa SaleemNabita IshtiaqRana TassadaqShakeel AslamHassan Naseer333533363353331633383328

Dr. Salman Ahmad Khan

MBA (4TH Semester)

In the name of Allah, the Most Gracious, the Most Merciful.

Those who consume interest cannot stand [on the Day of Resurrection] except as one stands that is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or riba] - those are the companions of the Fire; they will abide eternally therein.(Quran 2:275)

Table of ContentsAbstract4Meaning of the word Riba4INTRODUCTION5Historical background6Prohibition in Hinduism & Buddhism7Manu Smriti7Vasishtha7Jatakas7Laws of Manu of that time7Prohibition in Judaism8The Hebrew word for interest is neshekh8Exodus and Leviticus8Deuteronomy8Levitical text8Prohibition in Christianity9Prohibition in the Holy Bible10Prohibition in Islam13Prohibition in the Holy Quran13Prohibition in the Hadith14Prohibition of Riba by Ancient Western Philosophers16Interest in Modern Reformist Thinking16Conclusion18

Abstract:Riba has been practiced in various parts of the world for at least four thousand years. During this time, there is substantial evidence of intense criticisms by various traditions, institutions and social reformers on moral, ethical, religious and legal grounds. The rationales employed by these wide-ranging critics have included arguments about work ethic, social justice, economic instability, ecological destruction and inter-generational equity. While the contemporary relevance of these largely historical debates is not analyzed in detail, according to our study their significance is greater than ever before in the context of the modern interest-based global economy.

Meaning of the word Riba:Riba literally means to grow or to increase. Technically, it denotes the amount that a lender receives from a borrower at a fixed rate in excess of the principal.

It is of two kinds: 1. Riba Nasi'a - taking interest on loaned money. 2. Riba Fadal - taking something of superior quality in exchange for giving less of the same kind of thing of poorer quality.

In English it is usually translated as Interest.

INTRODUCTION:The concept of Riba has a long historical life, throughout most of which it has been understood to refer to the practice of charging financial interest in excess of the principle amount of a loan, although in some instances and more especially in more recent times, it has been interpreted as interest above the legal or socially acceptable rate. Accepting this broad definition for the moment, the practice of usury can be traced back approximately four thousand years (Jain, 1929), and during its subsequent history it has been repeatedly condemned, prohibited, scorned and restricted, mainly on moral, ethical, religious and legal grounds. Among its most visible and vocal critics have been the religious institutions of Hinduism, Buddhism, Judaism, Islam and Christianity. To this list may be added ancient Western philosophers and politicians, as well as various modern socio-economic reformers. It is the objective of this assignment to outline briefly the history of this critique of Riba, to examine reasons for its repeated denouncement and, finally, to intuitively assess the relevance of these arguments to todays predominantly interest-based global economy. The scope will not extend to a full exploration of some of the proposed modern alternatives to Riba, except to describe the growing practice of Islamic banking as an example.

Historical background:Hinduism, Buddhism, Judaism, Christianity and Islam have been the most vocal critics of riba, to which a large number of philosophers and politicians in ancient Greece and Rome can be added. The oldest references to riba are found in religious manuscripts of India, dating back to 2000-1400 BC where the 'usurer' is associated with any interest lender. In the Hindu Sutra (700-100 BC) as well as in the Buddhist Jatakas (600-400 BC) there are many references to the payment of interest, along with expressions of disdain for the practice. Vasishtha, a prominent lawmaker of the era, drafted a law that banned the high caste Brahmans and Kshatryas from being money-lenders. In the second century AD, the term riba becomes relative, meaning that interest above the legal rate could not be charged; that would be a riba loan. The criticism of riba appears quite strong in Judaism in the Old Testament, where charging interest is prohibited and scorned. The Prophet Ezekiel includes riba in a list of abominable things, together with rape, adultery, murder, robbery and idolatry (Ezekiel 18:8, 13). In the Exodus (22:25) and Leviticus (25:35-37) texts, the prohibition of riba applies primarily to the poor and the destitute. But later on, in the Deuteronomy (23:19-20), the prohibition to lend at interest is extended towards all Jews, whereas it is specifically allowed towards foreigners. This will come to play an important historical and economic role in the Middle-Age Europe, when the Jews engaged heavily in occupations such as tax and rent collecting and money lending. Jews became active in one business where Christian laws actually discriminated in their favor in contrast with most other professions where their participation was banned by local rulers and the guilds (Johnson, 1987). Despite the prohibition on taking interest, there is evidence that this rule was not widely observed in biblical times. In time, as economic conditions changed, a standard form of legalization of interest was established known as hetter iskah meaning the permission to form a partnership. It has become so accepted that nowadays, all interest transactions are accepted by simply adding to the contract concerned the words al-pi hetter iskah (Visser and McIntosh, 2009).

Prohibition in Hinduism & Buddhism:Among the oldest known references to riba are to be found in ancient Indian religious manuscripts and Jain (1929) provides an excellent summary of these in his work on Indigenous Banking in India. The earliest such record derives from the Vedic texts of Ancient India (2,000-1,400 BC) in which the usurer (kusidin) is mentioned several times and interpreted as any lender at interest. More frequent and detailed references to interest payment are to be found in the later Sutra texts (700-100 BC), as well as the Buddhist Jatakas (600-400 BC). It is during this latter period that the first sentiments of contempt for usury are expressed. The expression of prohibition can be clearly seen from following references.

Manu Smriti: Defiling a damsel, interest, breaking a vow, selling a tank, a garden, one's wife, or child. (11:62)Manu Smriti: Stipulated interest beyond the legal rate, being against (the law), cannot be recovered; they call that a usurious way (of lending); (the lender) is (in no case) entitled to (more than) five in the hundred. (8:152)Vasishtha: A well known Hindu law-maker of that time, made a special law which forbade the higher castes of Brahmans (priests) and Kshatryas (warriors) from being usurers or lenders at interest. Jatakas: Refers interest to in a demeaning manner: hypocritical ascetics are accused of practicing it.Laws of Manu of that time: Stipulated interest beyond the legal rate being against (the law), cannot be recovered: they call that a usurious way (of lending) (Jain, 1929: 3-10). This dilution of the concept of interest seems to have continued through the remaining course of Indian history so that today, while it is still condemned in principle, riba refers only to interest charged above the prevailing socially accepted range and is no longer prohibited or controlled in any significant way.

Prohibition in Judaism:Criticism of usury in Judaism has its roots in several Biblical passages in which the taking of interest is either forbidden, discouraged or scorned. The Hebrew word for interest is neshekh: literally meaning "a bite" and is believed to refer to the exaction of interest from the point of view of the debtor. Exodus and Leviticus: In the associated Exodus and Leviticus texts, the word almost certainly applies only to lending to the poor and destitute.Deuteronomy: In Deuteronomy, the prohibition is extended to include all money lending, excluding only business dealings with foreigners. Levitical text: In the Levitical text, the words tarbit or marbit are also used to refer to the recovery of interest by the creditor. In addition to these biblical roots are various Talmudic extensions of the prohibitions of interest, known as avak ribbit, literally "the dust of interest" which apply, for example, to certain types of sales, rent and work contracts. This is distinguished from rubbit kezuzah, interest proper in an amount or at a rate agreed upon between lender and borrower. The difference in law is that the latter, if it has been paid by the borrower to the lender, is recoverable from the lender, while the former, once paid, is not recoverable, although a contract tainted by the dust of interest will not be enforced. (The Jewish Encyclopedia, 1912). Despite the prohibition on taking interest, there is considerable evidence to suggest that this rule was not widely observed in biblical times. In addition to several references in the Old Testament to creditors being exacting and implacable in their extraction of interest, from the Elephantine papyri it appears that among the Jews in Egypt in the fifth century B.C. it was a matter of course that interest would be charged on loans (Encyclopedia Judaica, 1971). This charitable nature of the prohibition on interest suggests that its violation was not regarded as a criminal offense with penal sanctions attached, but rather as a moral transgression.The phenomenon of evasion can also be partly explained by changing economic conditions, beginning in the amoraic period in Babylonia when interest prohibition was held to no longer be compatible with the economic needs of the community. In time, a standard form of legalization of interest was established, known as hetter iskah, meaning the permission to form a partnership, which has become so accepted that nowadays all interest transactions are freely carried out in accordance with Jewish law, by simply adding to the note or contract concerned the words al-pi hetter iskah. (Encyclopedia Judaica, 1971)Prohibition in Christianity:Despite its Judaic roots, the critique of interest was most reverently taken up as a cause by the institutions of the Christian Church where the debate prevailed with great intensity for well over a thousand years. The Old Testament decrees were resurrected and a New Testament reference to interest added to fuel the case. Building on the authority of these texts, the Roman Catholic Church had by the fourth century AD prohibited the taking of interest by the clergy; a rule which they extended in the fifth century to the laity. In the eighth century under Charlemagne, they pressed further and declared usury to be a general criminal offence. This anti-interest movement continued to gain momentum during the early middle ages and perhaps reached its zenith in 1311 when Pope Clement V made the ban on interest absolute and declared all secular legislation in its favor, null and void (Birnie, 1952).Increasingly thereafter, and despite numerous subsequent prohibitions by Popes and civil legislators, loopholes in the law and contradictions in the Church's arguments were found and along with the growing tide of commercialization, the pro-usury counter-movement began to grow. The rise of Protestantism and its pro-capitalism influence is also associated with this change (McGrath, 1990), but it should be noted that both Luther and Calvin expressed some reservations about the practice of interest despite their belief that it could not be universally condemned. Calvin, for instance, enumerated seven crucial instances in which interest remained sinful, but these have been generally ignored and his stance taken as a wholesale sanctioning of interest (Birnie, 1952). As a result of all these influences, sometime around 1620, according to theologian Ruston, usury passed from being an offence against public morality which a Christian government was expected to suppress to being a matter of private conscience and a new generation of Christian moralists redefined it as excessive interest (1993: 173-4).This position has remained pervasive through to present-day thinking in the Church, as the indicative views of the Church of Scotland (1988) suggest when it declares in its study report on the ethics of investment and banking: We accept that the practice of charging interest for business and personal loans is not, in itself, incompatible with Christian ethics. What is more difficult to determine is whether the interest rate charged is fair or excessive. Similarly, it is illustrative that, in contrast to the clear moral injunction against interest still expressed by the Church in Pope Leo XIII's 1891 Rerum Novarum as voracious interest ... an evil condemned frequently by the Church but nevertheless still practiced in deceptive ways by avaricious men, Pope John Paul II's 1989 Solicitude Rei Socialis lacks any explicit mention of interest except the vaguest implication by way of acknowledging the Third World Debt crisis.The prohibition of interest was adopted as a major campaign by the earliest Christian Church, following on from Jesus' expulsion of the money-lenders from the temple. Some verses prohibiting interest from the Holy Bible are,Prohibition in the Holy Bible1. Do not charge your brother interest, whether on money or food or anything else that may earn interest. (Deuteronomy 23:19).

2. Do not take interest of any kind from him, but fear your God, so that your countryman may continue to live among you. (Leviticus 25:36)

3. If you lend money to one of my people among you who is needy, do not be like a moneylender; charge him no interest. (Exodus 22:25)

4. Righteous servant of God doesnt take interest

5. Righteous servant of God does not eat at the mountain shrines or look to the idols of the house of Israel. He does not defile his neighbor's wife or lie with a woman during her period.

6. Righteous servant of God does not oppress anyone, but returns what he took in pledge for a loan. He does not commit robbery but gives his food to the hungry and provides clothing for the naked.7. Righteous servant of God does not lend at usury or take excessive interest. He withholds his hand from doing wrong and judges fairly between man and man.

8. He follows my decrees and faithfully keeps my laws. That man is righteous; he will surely live, declares the Sovereign LORD. (Ezekiel 18:5-9)

9. But the violent one will take it."Suppose he has a violent son, who sheds blood or does any of these other things.10. He eats at the mountain shrines. He defiles his neighbor's wife.

11. He oppresses the poor and needy. He commits robbery. He does not return what he took in pledge. He looks to the idols. He does detestable things.

12. He lends at usury and takes excessive interest. Will such a man live? He will not! Because he has done all these detestable things, he will surely be put to death and his blood will be on his own head (Ezekiel 18:10-13)Jesus Christ came to fulfill the Law He said:13. Think not that I am come to destroy the law, or the prophets: I am not come to destroy, but to fulfill.

14. For verily I say unto you, till heaven and earth pass, one jot or one title shall in no wise pass from the law, till all be fulfilled.

15. Whosoever therefore shall break one of these least commandments, and shall teach men so, he shall be called the least in the kingdom of heaven: but whosoever shall do and teach them, the same shall be called great in the kingdom of heaven.16. For I say unto you, that except your righteousness shall exceed the righteousness of the scribes and Pharisees, ye shall in no case enter into the kingdom of heaven. (Mathew 5:17-20)

17. Take thou no interest of him, or increase: but fear thy God; that thy brother may live with thee. Thou shall not give him thy money upon usury, nor lend him thy victuals for increase. (Leviticus 25:36-37)

18. He that hath not given forth upon interest neither hath taken any increase that hath withdrawn his hand from iniquity, hath executed true judgment between man and man. (Ezekiel 18:8)

19. He that putted not out his money to interest, nor take the reward against the innocent. He that doeth these things shall never be moved. (Psalms 15:5)

20. In thee have they taken gifts to shed blood; thou hast taken INTEREST and increase, and thou hast greedily gained of thy neighbors by extortion, and hast forgotten me, saith the Lord GOD. (Ezekiel 22:12)

Prohibition in Islam:The criticism of interest in Islam was well established during the Prophet Mohammed (PBUH)'s life and reinforced by several of his teachings in the Holy Quran dating back to around 600 AD. The original word used for usury in this text was riba which literally means excess or addition. This was accepted to refer directly to interest on loans so that, according to Islamic economists Choudhury and Malik (1992), by the time of Caliph Umar (R.A), the prohibition of interest was a well established working principle integrated into the Islamic economic system. It is not true that this interpretation of usury has been universally accepted or applied in the Islamic world. Indeed, a school of Islamic thought which emerged in the 19th Century, led by Sir Sayyed, still argues for an interpretative differentiation between usury, which it is claimed refers to consumption lending, and interest which they say refers to lending for commercial investment (Ahmed, 1958). Nevertheless, there does seem to be evidence in modern times for what Choudhury and Malik describe as a gradual evolution of the institutions of interest-free financial enterprises across the world (1992: 104). They cite, for instance, the current existence of financial institutions in Iran, Pakistan and Saudi Arabia, the Dar-al-Mal-al-Islami in Geneva and Islamic trust companies in North America.Prohibition in the Holy QuranThe word Riba is used in the Holy Quran 8 times. In 30:39,4:161,3:130, 2:276,2:278 and 3 times in 2:275.

The Quran says,1. Those who devour riba will not stand except as stand one whom the Evil one by his touch hath driven to madness. That is because they say: "Trade is like interest," but Allah hath permitted trade and forbidden interest. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever). (Quran 2:275)

2. O ye who believe! Devour not interest, doubled and multiplied; but fear Allah that ye may (really) prosper. (Quran 3:130)

3. O ye who believe! Fear Allah, and give up what remains of your demand for interest, if ye are indeed believers. 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. (Quran 2:278-279)If you are dealing in interest, please do not expect angels to come down with swords to wage a war against you. It is talking about the severity of the sin. For other sins like alcohol, gambling etc. The Quran says,4. O ye who believe! Intoxicants and gambling, (dedication of) stones, and (divination by) arrows, are an abomination, of Satan's handwork eschew such (abomination), that ye may prosper. (Quran 5:90)Here the Quran says that intoxicants and gambling are Satans handiwork and abstain from it. In the case of Riba (Interest) the Quran does not only say that its a sin but it says that Allah (SWT) and his messenger Muhammad (PBUH) will wage a war against. Showing how grave this sin really is.Prohibition in the HadithProphet Muhammad (PBUH) classified it among the seven major sins

Narrated Abu Huraira (R.A):The Prophet said, "Avoid the seven great destructive sins." They (the people!) asked, "O Allah's Apostle! What are they?" He said, "To join partners in worship with Allah; to practice sorcery; to kill the life which Allah has forbidden except for a just cause (according to Islamic law); to eat up interest (Riba), to eat up the property of an orphan; to give one's back to the enemy and freeing from the battle-field at the time of fighting and to accuse chaste women who never even think of anything touching chastity and are good believers." (Volume 8, Book 82, Number 840)Some Muslims may argue that only the taking of interest is prohibited. But one Sahih Hadith says Hazrat Jabir (R.A) has reported that the Messenger of Allah cursed the devourer of riba, its payer, its scribe and its two witnesses. He also said that they were equal (in sin). (Mishkat-ul-Masabih)Though there are many hadith which condemn riba (interest) but these two are sufficient for now.

Prohibition of Riba by Ancient Western Philosophers:Among the Ancient Western philosophers who condemned interest can be named Plato, Aristotle, the two Catos, Cicero, Seneca and Plutarch (Birnie, 1958). Evidence that these sentiments found their concurrent manifestation in the civil law of that period can be seen, for example, from the Lex Genucia reforms in Republican Rome (340 BC) which outlawed interest altogether. Nevertheless, in practice, ways of evading such legislation were found and by the last period of the Republic, interest was once again rife. It was the Democratic Party in Rome who rededicated themselves to the cause of those suffering the burden of debt, and under the banner of Julius Caesar, a ceiling on interest rates of 12% was set, and later under Justinian, lowered even further to between 4% and 8% (Birnie, 1958). Clearly, this left fertile ground for the assault on interest which the Church would mount following its Christianization of the Roman Empire.

Interest in Modern Reformist Thinking:Some may be surprised to discover that Adam Smith, despite his image as the Father of the Free-market Capitalism and his general advocacy of laissez-fair economics, came out strongly in support of controlling interest.(Jadlow, 1977 & Levy, 1987) The great twentieth century economist John Maynard Keynes held a similar position believing that the disquisitions of the schoolmen [on interest] were directed towards elucidation of a formula which should allow the schedule of the marginal efficiency to be high, whilst using rule and custom and the moral law to keep down the rate of interest, so that a wise Government is concerned to curb it by statute and custom and even by invoking the sanctions of the Moral Law (1936: 351-3). Another less well known anti-interest economic reformist was Silvio Gesell (1904), yet Keynes wrote that the world could learn more from him than from Marx. Gesell, as a successful nineteenth century merchant in Germany and Argentina, condemned interest on the basis that his sales were more often related to the price of money (i.e. interest) than people's needs or the quality of his products. His proposal of making money a public service subject to a use fee led to widespread experimentation in Austria, France, Germany, Spain Switzerland, and the United States under the banner of the so-called stamp script movement, but these initiatives were all squashed when their success began to threaten the national banking monopolies (Kennedy, 1995). Margret Kennedy (1995) a German professor at the University of Hannover, is one of the most vocal contemporary critics of interest who builds on Gesells ideas, believing that interest acts like cancer in our social structure. She takes up the cause for interest and inflation-free money by suggesting a modification of banking practice to incorporate a circulation fee on money, acting somewhat like a negative interest rate mechanism.Finally, another school of modern interest critics have their roots in the complementary work of several socio-economic reformists of the early twentieth century, namely Douglas (1924), Fisher (1935), Simons (1948) and Soddy (1926). Their chief common premise was that it is completely wrong and unacceptable for commercial banks to hold a monopoly on the money or credit creation process. Various alternative systems are proposed by the critics and carried forward by their modern-day torch-bearers, for example, the Social Credit Secretariat and the Committee on Monetary and Economic Reform.

Conclusion:All the arguments presented support the theological rejection of greediness and excessive accumulation of material wealth. In this context, riba is regarded as another means of getting rich at the expense of the poor. It is true that the case of charging interest for business purposes rather than survival needs is hardly considered, but even in this case the need to stay free from excessive enrichment and addiction to earthly possessions remains the guiding light. The fact that we live in a global economic system which is more interest-based than ever before begs the question, therefore, Are any of these criticisms of the past convincing enough or currently relevant enough to merit a legitimate challenge to the status quo? In our opinion, every one of the reasons cited in the critique of interest seems more pressing and relevant now than ever. In particular, it is the belief of the ours that individuals or organizations in the World with money to invest, especially those which like to consider themselves as being ethical, might have rather more to learn from Islam than is generally acknowledged. But first, society needs to be re-conscientised to the relevance of the age-old interest debate in modern times.

Prohibition of RibaHajvery University