10 Feb 2007
During a recent discussion on Islamic finance, a friend drew my attention to a quote on the meaning of 'usury' from an English dictionary: "The practice of lending money to people and making them pay excessive interest,"
He asked me to clarify whether only usury is prohibited and that normal interest is admissible under Sharia. Many of my colleagues are convinced that whilst usury may be prohibited, normal interest charged by the banks may be in order.
They usually draw a comparison of a bank's interest rate with the exorbitant interest rate charged by the private lenders, a practice rampant in many Asian countries.
Is it really the case that the excessive interest is forbidden and normal interest should be in order? Let's examine this interesting point from the Sharia perspective.
While defining riba (which literally means growth or increase in Arabic) at different places in the Quran, God has not used any other word. Arabic being a rich language, had it been God's intention to differentiate between usury and interest - i.e. forbidding usury and allowing interest - the Quran would have had different words to define them separately.
To understand this point further, God has used the word ra'ad in the Quran to describe the lightening with thunder, barq for lightening without thunder and sa'iqa for lightening which falls on the ground.
Similarly, the Quran contains the word uyoon for eyes at some places and absaar at some other. These have been used in different contexts according to different situations, evidencing the richness of Arabic language.
Considering the above, when it comes to interest or usury, any kind of increase over a principal amount of loan, calculated irrespective of with normal or excessive rate, is described only as riba in the Quran, clearly in order to avoid any confusion and to prevent any chance of manipulation.
Furthermore, assuming that the usury only represented 'excessive interest', who will be the judge to decide the rate to be 'excessive' since the borrower from a private lender willingly agrees to pay the exorbitant rate?
As such, if a borrower accepts certain interest rate, no matter how high it may be, it is an agreed rate between the two parties and hence should not be interpreted as 'excessive'.
Usury or interest is thus one and the same thing, with no boundary based on the lows or the highs of the rate. The definition quoted from the dictionary is therefore, in conflict with the Quran understanding of usury.
The Quran strictly forbids indulgence in usury or interest due to its exploitative nature and has encouraged trading. Based on the above, the Islamic financial institutions work on investing the risk capital rather than the loan capital.
The writer is vice-president and Head, Sharia Structuring, Documentation and Product Development, Dubai Islamic Bank.
By Sohail Zubairi
Gulf News 2007. All rights reserved.
