Monday, 26 January 2009

Is interest the same as riba? A PRESENTATION TO A PANEL

The flow might not be well layout because i convert the talk from my PowerPoint presentation into plain word.

To a Muslim, interest is riba.
The task of unpinning the Islamic jurist views of riba prohibition is an ongoing task. Riba has been a clear and well documented subject in Islamic jurisprudence across time

The Qur’an stated that “riba is forbidden and sale is allowed”. And also “Oh ye who believe, fear Allah and abandon whatever remains of riba...” Qur'an
Muslim scholars never experienced a state of mixed feelings about the legitimacy of trade for profit.
—Indeed trade allows both parties, the investor and the entrepreneur to both share the risk. But few scholars argued in favour of interest due the low rates charged to borrowers for productive purposes.

—The questions requiring answering here is that, if interest is not riba because it is use for productive ventures now. Is there any evidence to suggest that riba was all for consumptions?
—Abu Zahrah stated that “there is absolutely no evidence to support the contention that the riba of al-Jahiliyya (pre-Islamic days) was on consumption and not on development loans.” The Pakistan religious ideology council equate interest with riba succinctly.

"Riba encompasses interest in all its manifestations irrespective of whether it relates to loans for consumption purposes or for productive purposes, whether the loans are of personal nature or of a commercial type, whether the borrower is a government, a private individual or a concern, and whether the rate of interest is high or low."

Interest in the main stream sense:

—Interest is regarded as a way of earning legitimate income.
—Most companies thrive of borrowing to finance their working capital.
—Interest is into every thing. To paraphrase the noble prophets hadith, “even if you don’t deal in interest, it’s dust will affect you”. Sadaqa Rasululah. (The prophet's word came true)

To illustrate how interest is entrench in modern capitalism:

—Every public company by law must prepare an annual financial report.
—The financial report contains the affairs of the company.
—The first items that the company shows are it’s profit and loss.
—Which consist of the following:

—Revenue xxx
The cost of sale (xxx)
Gross profit xxx
Other incomes xxx
Income b4 interest xxx
Interest or finance costs (xxx) important*
Then corporation tax is paid after deducting interest.

Is this a coincidence?

—The government regulators make the tax laws such that interest is not taxed for businesses. Why?
—Because riba here is a legitimate income for an investor who will be paying tax on his interest earnings.
—Many a Muslim are working for companies that are being finance through this kinds of sources.

What is riba then?

—Riba means an increase. To a Muslim economist, this increase is not legitimate neither justified. To his counter part in the main stream system, an economy cannot be seen to function without riba.
—What is interest define as then?
—It is in short payment for the use of money. Or something added in making a return.

—Fakhr al-Din al-Razi (d. 606/1209), a medieval Islamic Jurist questions the objection of the prohibition of loans for profitable venture, the rational rhetorical answer he gave was “while the earning of profit is uncertain, the payment of interest is predetermined and certain. The profit may or may not be realised. Hence there can be no doubt that the payment of something definite in return for something uncertain inflict harm."
The effects of Riba/interest today is businesses failures and financial ruins for many companies.

In conclusion:

The problem of differentiating between riba and interest is fundamental, as some Muslim cleric are of the opinion that interest is not riba.
Tabari explained that
—"Riba is prohibited (haram). Riba denotes the excess which the lender earns because the borrower extends the tenor of the loan and defers the payment of the principal”. Yet again, the deferment issues keep arising. The lenders charges the borrower the excess as a compensation for the use of his money, even though no actual transaction has taken place with regards to the excess amount charged. Riba is interest no doubt.

Many businesses are now operating base on the niche of extending other people’s borrowing. Companies like, money shop, providend, pay day loans, etc. All this companies give money to workers at lower amount than the cheque paid to them. This means charging interest for the use of money and also extending the pay date at a cost also.
May Allah provide us with halal earnings. Amen.

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