Page 66 - CMA Journal (Mar-Apr 2025)

Riba (Usury) 1,400 Years Ago Focus Section

and Modern-Day Interest in

Banking and Finance

Historical Context of Riba and Its Prohibition in Islam instance, are ordinary
people — some of whom
Without any doubt, Riba (Usury), i.e., interest at an illegal and are poor—and there is no
exorbitant rate (doubled and multiplied), has been decreed a illegal, exorbitant, or
sin for Muslims in Islam. 1,400 years ago, during the time of exaggerated rate of
the Holy Prophet (PBUH), there was no economy, banking, or additional amount. This
finance like today’s. Even at that time, there were no such additional amount is
things as inflation, reduction in purchasing power, or consistent with inflation
long-term productive loans. This means that the purchasing and the reduction in
power of a particular currency unit at that time remained the purchasing power.
same even after one or two years.
Contrary to this, Riba is
Understanding the Impact of Inflation on banned in Islam, as it
involves the exploitation
Borrowed Currency of borrowers based on
Let us compare the prevailing situation 1,400 years ago with illegal and exorbitant Qasim Abbas, FCMA
the present time using a simple example. Say, 1,400 years ago, rates, and as per Divine Toronto, Canada
A borrowed 1,000 units of the prevailing currency from B and Order in Verse 130 of
returned the same amount after one year. In this case, the real Chapter 3 of the Holy Quran, believers are prohibited from
value, i.e., purchasing power, of 1,000 units of currency devouring Riba, i.e., Usury that is doubled and multiplied.
remained the same after one year. Now, let us see the scenario
in the present time. If, in the present time, A borrows 1,000 Insights from Islamic Scholars on the
units of the prevailing currency from B and returns the same Position of Riba
amount after one year, the real value—i.e., purchasing
power—of 1,000 units will change. Due to inflation, Now let us see what prominent Islamic scholars say about the
purchasing power will be reduced to, say, 980 or 990 units. actual position of Riba (Usury).
This is a phenomenon in the modern economy. Renowned Quran translator and commentator Abdullah
In other words, 1,400 years ago, if A was able to buy, say, 4 Yusuf Ali, in his Quranic translation of Chapter 2, Verse No.
camels with 1,000 units of currency, he would still be able to 275, in footnote No. 324 on page 111, writes the
buy 4 camels with 1,000 units even after one or two years. commentary of the above verse, inter alia: “When we come
However, in the present economy, the scenario would be to the definition of Usury (Quranic word Riba), there is room
different. If A can buy 5 kg of sugar with 1,000 units of for difference of opinion.” He also writes under the same
currency now, after one year, he will not be able to buy 5 kg of footnote 324: “My definition would include profiteering of all
sugar with the same amount due to inflation and a reduction kinds, but would exclude economic credit, the creature of
in purchasing power. He will need more than 1,000 units of modern banking and finance.”
currency, say 1,100 or 1,200 units, to buy 5 kg of sugar in Egypt’s senior Muslim cleric, Sheikh Mohammed Sayyed
today’s economy.
Tantawi, the Mufti of Egypt, issued a Fatwa on 27 Ramadan
Differentiating Between Interest and Riba 1423 Hijri (2 December 2002 AD) stating that interest paid by
banks on deposits used to finance national development
The above example proves that, based on the scenario of projects is accepted (i.e., legitimate).
1,400 years ago, a borrower in today’s modern economy must
return the real value of 1,000 units of currency after one year, Based on my personal experience as Finance Controller for
which will be more than 1,000 units due to inflation and a 25 years with a state-owned oil corporation in the UAE, I
reduction in purchasing power over time. This real value, in have personally observed in bank statements issued by
the modern-day economy, represents the original amount of banks in Arabic that they were using the Arabic word
1,000 units of currency plus an additional amount to adjust for “Faydah” (Profit) in the bank statements to describe/mention
inflation. This “additional amount” in the modern economy the amount of “Interest.”
can be termed as “interest.”
Our religious scholars must think deeply on this
In modern times, the term "interest" is mainly applied in the issue—particularly in light of what Verse 130 of Chapter 3
banking industry, where small depositors “lend” their money says about exploitation in the form of Riba (Usury) as
to banks, and in turn, banks “lend” this money to compared to the term "Interest" (Faydah), which is part of
entrepreneurs for national development. Banks return money the financial institutions' functions globally. These
to depositors, say after one year, with some additional institutions are the backbone of every country's economy,
amount to account for inflation and the reduction in and billions of people depend on them. They must
purchasing power. Similarly, entrepreneurs return borrowed differentiate between the illegal and exorbitant rates of Riba
money to banks after one year, with an additional amount to leading to exploitation and the minimal rate of Interest
account for inflation and the reduction in purchasing power. generated by today's economy, where no exploitation
This “additional amount” in the modern-day economy is occurs, and no doubled or multiplied Usury is involved.
termed as “interest.”
However, this “interest” cannot be classified as Riba as defined About the Author: The author is a retired senior FCMA and FCA, an Arabic
in Islam, since there is no exploitation involved, and no scholar, and a multi-language writer and columnist based in Canada.
doubled or multiplied amount is involved. Lenders, in the first

64 ICMA’s Chartered Management Accountant, Mar-Apr 2025