Dealing in riba is permissible | Are there any credible arguments? – Islamicfinanceguru

We all know that riba is haram in Islam. That is an uncontroversial statement given the Qur’an is really explicit about it:  

“But whoever returns (to riba), such are the dwellers of the Fire — they will abide therein” [2:275]  

“And if you do not do it, then take a notice of war from Allah and His Messenger” [2:279] 

But there are some who say: 

1. “Riba” does not mean the interest of banks today, and therefore it is halal to transact in bank interest today; or 
2.  There is no riba when transacting with a non-Muslim in non-Muslim lands.   

In this article we focus in on (2). We will address (1) in a future article. 

My argument in summary is: We do not live in dar al-harb, and so the point is a moot one. Even if we did, the classical Hanafi argument only allows for the taking of riba not the giving of it (e.g. taking out a mortgage).  

There is no riba when transacting with a non-Muslim in non-Muslim lands 

This is a famous historic debate where Imam Abu Hanifa (and some but certainly not all Hanafis) are of the view that there is no riba when transacting with a non-Muslim in non-Muslim lands.   

The crucial hadith that is at the heart of this argument is:  

لَا رِبَا بَيْنَ مُسْلِمٍ وَكَافِرٍ فِي دِيَارِ الحَرْبِ

“There is no riba between a Muslim and a non-Muslim in dar al-harb (a state of war).”  [Al-Ma’rifah (Bayhaqi) discussed in Hidayah (Al-Marghinani) and Al-Umm (Shafii)] 

This is a mursal hadith (where the Companion has been missed out from the chain) from Mak’hool[1], a Tabi’ and expert in fiqh (Islamic jurisprudence). The Hanafis have a principle that differs from others in methodology when it comes to ahadith narrated by experts – even if they are weak. They will accept such ahadith, or at the very least give them more credence than others who may dismiss them out of hand. 

But let us discuss the argument “is this even a reliable hadith” later. For now, let’s complete the Hanafi argument. 

There is some debate among the leading Hanafi Imams[2] on the exact position: 

• Imam Abu Hanifa: you can transact in riba in dar al-harb with a Muslim (who hasn’t made hijrah) or a non-Muslim 
• Imam Muhammad: you can transact in riba in dar al-harb only with a non-Muslim 
• Imam Abu Yousuf: you cannot transact in riba with a non-Muslim or a Muslim in dar al-harb or dar al-Islam. This is the position of all the other schools, prominent among them Imam Shafii. 
• Many of the most prominent Hanafi books will typically side with Imam Abu Hanifa on this issue[3]. This includes Imam Kawakiby in his Mandhumah[4] and Imam Marghinani in his Al-Hidayah. 

We’ll assume that the main Hanafi position is that of Imam Abu Hanifa. Let’s run through the arguments.

1. The principled argument 

The basic Hanafi argument is a principled one. The basic idea is that in a situation of warfare the enemy’s assets and wealth are permissible and available for one to take – and so the taking of them by any means – even if through an improper contract – is allowed.  

In our case the improper contract is a contract of riba – where £2 is being bought for £1. This “excess” £1 is riba and would usually be seen as a “faasid” or improper contract. 

However, when transacting with an enemy in enemy territory, the sharia attaches its ruling not to the basic form of the contract, but to the underlying state of the assets in question. They are acceptable and available for a Muslim to take and so the riba analysis is irrelevant. 
 

2. Abbas ibn Abd Al Mutalib’s riba 

Another argument put forward by the Hanafis is through the famous hadith of the Prophet when he announced in his farewell pilgrimage speech: 

“All matters of the Jaahiliyyah are abolished beneath my feet. The riba of the Jaahiliyyah is abolished, and the first riba that I abolish is that of al-‘Abbas ibn ‘Abd al-Muttalib; it is all abolished.” (Muslim 1218)  

The argument goes that Abbas became a Muslim after Badr (2 AH) and this speech was made in 10AH and in the intervening time the Prophet was aware of Abbas’s riba-based loans made back in Makkah and did not stop them (as Makkah was dar al-harb at that time) and it was only when Makkah became dar al-Islam that this statement was made banning interest entirely.  

In other words, Abbas was allowed to trade in riba (taking it) in dar al-harb. 

3. Abu Bakr & Prophet betting 

The Hanafis also point to two incidents where Abu Bakr and the Prophet (PBUH) made wagers with the non-Muslims and won.  

The first was Abu Bakr’s bet with the Quraysh – following the revelation of the verses of Surah Room – that the Roman would be victorious over the Byzantine empire within a set number of years. Abu Bakr subsequently mentioned this bet to the Prophet who told him to increase the bet and lengthen the time period.  

The Prophet too made a bet with Rukaanah (a champion wrestler) that he would beat him and get a third of his flock in return. He beat him three times and took his entire flock, then returned the entire flock to Rukaanah. 

The argument being made from both these incidents is that to make improper contract with non-Muslims in non-Muslim lands is permissible.  

4. Some extend it to mean general benefit to Muslims 

The argument a modernist might make is that the rationale behind the allowance of riba in non-Muslim lands is to strengthen the Muslims and weaken the opposition. Therefore, in modern times, one of the key ways in which Muslims can strengthen themselves is by using conventional finance to become stronger and richer.  

Crucially, what these modernists would be arguing for is something that the classical Hanafis did not advocate for: they are saying that the taking and giving of riba is permissible.  

Their point would be simply that the operating reason why this hadith allows for riba in dar al-harb is so that Muslims are advantaged, and that in the modern economic reality we live in, the way to get ahead is to both give and take riba – particularly take it.

The nature of money and assets today are such that money is created through debt and therefore asset prices and inflation are on a constant upward trajectory. All this means is that for someone who doesn’t play the riba game, very quickly asset prices become so much that they priced out of the asset market entirely. 

The Response to the Hanafi Argument

1. Riba is in principle haram in all times and places 

There are many responses to this Hanafi position made by various schools. I’ll refer to them as the “Respondents”.  

The starting point is the strength of the prohibition of riba. 

The prohibition comes in multiple places in the Qur’an and is then emphasised in the sunnah – and in each statement of the prohibition the application is general.   

Where the sharia would like to allow for a particular carveout to a prohibition – it does that explicitly: 

This day [all] good foods have been made lawful, and the food of those who were given the Scripture is lawful for you and your food is lawful for them. (Qur’an 5:5) 

Here, there is a special mention of the meet of the People of the Book. Without this explicit statement, there would be no reason to suppose that their food would be halal. 

The Respondents argue that when there is such an explicit and overwhelming ban on riba (daleel qat’i)– without any exceptions – how can you take a weak or rejected hadith or a rational argument (daleel dhanni) as the basis for a very significant carveout? 

In the same vein, the Respondents also argue that the ban on riba should be seen alongside the ban on adultery and theft. This prohibition is general and applies to all times and places.
 

2. Even if the Hanafi argument works – you can’t give riba

The crucial bit of the Respondents’ argument in my view is that the classical Hanafis only allow the taking of riba – not the giving of it. They are premising their entire argument on the rationale of the hadith being that the excess in the transaction goes to the Muslim and this is permissible in a dar al-harb scenario as the assets of a non-Muslim are “halal” for a Muslim to take.   

The modernists of course go further. But what the modernist is doing here is the broadening of the rationale behind the hadith to general “benefit” – be that in taking or giving of riba.  

But the modernist can only make that move if they adjust the rationale of the hadith accordingly – because remember the basic Hanafi argument here is that the wealth of a non-Muslim is “halal” to take for a Muslim, no matter what the contract.  

The rationale would now need to allow the non-Muslim to take the Muslim’s wealth in a context of warfare (as that is what is happening when you give riba). The wealth of a Muslim for a non-Muslim in the context of warfare is not “halal” of course, and thus the argument runs into problems.  

The modernist might say “you’re stopping a step too short in your analysis. Ask “why” one more time. Why does the hadith make “halal” the wealth of a non-Muslim in non-Muslim lands? It is so that there is a net transfer of wealth to Muslims and Muslims become stronger. In the times of Imam Abu Hanifa the way this was achieved was just through the giving of riba not in taking it. Today that is different and thus the ruling needs to change.”

I find this a compelling argument save for two points. First, I don’t consider us to be living in dar al-harb and find that kind of categorisation in today’s world to be somewhat anachronistic and an inaccurate reflection of today’s reality. More on this in a later section. 

Second, the modernist should then also logically extend their rational argument to mean that Muslims can deal in riba in Muslim lands also (given the interconnectedness of the world’s financial system and its inescapable nature).

But if that is the full argument, then to try to prove it with a hadith that is narrowing down the scope of application to just dar al-harb, doesn’t make sense. The very hadith is narrowing the application so you can’t then use that to evidence a practice that would ignore that narrowing entirely. 

3. Is the hadith Sahih? 

The Respondents very strongly argue that the hadith of Mak’hool is weak or rejected, and it should not be relied upon for argumentation. They point to multiple scholars’ views[5]:  

1. Imam Shafii viewed the hadith as “not proven and “you cannot use it as evidence”. (Al-Umm (7/358-359) 
2. Al-Zila’ee viewed it as “unknown” (Nasb Ar-riwayah (4/44)) 
3. Bayhaqi agreed with Shafii’s analysis (Al-Marifah (13/276)) 
4. Ibn Qudamah regarded it as an isolated narration whose veracity we cannot determine (Mughni (4/47)) 
5. Nawawi regarded it as a mursal hadith that was weak and not to be used for evidence (Al Maj’moo (9/376)) 
6. Alalbaani viewed it as a rejected hadith (Al-Da’eefah 6533) 

The Hanafis do not disagree as to the strength of the hadith – they simply differ in their methodology on what can and can’t be used for evidence. They stress that Mak’hool, as a jurist, is particularly well-placed to narrate and apply these hadith. His pronouncements and actions will carry more weight than a hadith scholar does not know the fiqh well (Islamic law). 

Given this stance, let’s note what the Respondents say for now, but accept that saying “this isn’t sahih” isn’t a killer blow. 

4. Hadith can be interpreted in a different way 

The Respondents argue that even if we were to accept the hadith of Mak’hool, there’s actually a more elegant way of understanding it.  

Looking at the way the Arabic has been stated, the actual meaning of the hadith is: 

لَا رِبَا بَيْنَ مُسْلِمٍ وَكَافِرٍ فِي دِيَارِ الحَرْبِ

“No riba is allowed between a Muslim and non-Muslim in dar al-harb.” 

It is not:

“There is no riba between a Muslim and a disbeliever in dar al-harb.” 

This follows a similar pattern to the verse: 

ٱلْحَجُّ أَشْهُرٌۭ مَّعْلُومَـٰتٌۭ ۚ فَمَن فَرَضَ فِيهِنَّ ٱلْحَجَّ فَلَا رَفَثَ وَلَا فُسُوقَ وَلَا جِدَالَ فِى ٱلْحَجِّ ۗ وَمَا تَفْعَلُوا۟ مِنْ خَيْرٍۢ يَعْلَمْهُ ٱللَّهُ ۗ وَتَزَوَّدُوا۟ فَإِنَّ خَيْرَ ٱلزَّادِ ٱلتَّقْوَىٰ ۚ وَٱتَّقُونِ يَـٰٓأُو۟لِى ٱلْأَلْبَـٰبِ

The pilgrimage takes place during the prescribed months. There should be no indecent speech, misbehaviour, or quarrelling for anyone undertaking the pilgrimage- whatever good you do, God is well aware of it. Provide well for yourselves: the best provision is to be mindful of God- always be mindful of Me, you who have understanding- (Quran 2:197) 

So in fact the hadith is a negation of precisely what the Hanafis are arguing. This is an elegant argument as it allows us to reconcile the hadith with the vast corpus of textual evidences that go against what the hadith would otherwise be understood to be advocating.  

A second way to read the hadith could be that the hadith is not to be read literally and when it says “There is no riba between a Muslim and a disbeliever in dar al-harb,” what it is in fact saying is making an exhortation such as “you really should try to get the enemy wealth in a war context as much as you can” or “all contractual bets are off when in a war context with an enemy.” 

There are a number of other hadith that follow similar wording: 

لا صلاة لمن لم يقرأ بفاتحة الكتاب

There is no salah for the one who does not recite surah Fatiha. (Bukhari, Muslim)  

لا صلاة لجار المسجد إلا في المسجد

There is no salah for the neighbour to the masjid except in the masjid. (Darqutni, Haakim, Bayhaqi)  

لا إيمانَ لمن لا أمانةَ له ، ولا دينَ لمن لا عهدَ له  

There is no eman in one who is not trustworthy, and no religion in one who does not stay true to his words/contract.” (Ahmed) 

The Hanafis do not read the hadith on surah Fatiha literally, and scholars would generally understand all the remaining ahadith as exhortations or statements on the importance of an act or the immorality of a particular action, rather than a literal statement. 

So one who is a neighbour and prays in his house has technically fulfilled his legal duty. One who might have cheated in his transactions here or there hasn’t now left the fold of Islam etc.

Similarly, it could be argued that the hadith doesn’t literally mean that riba is not applicable in a dar al-harb context, but is an exhortation similar to what I stated a few paragraphs earlier.

5. The hadith of Al Abbas is not relevant 

The Respondents point out a number of issues with the use of the hadith of Abbas as evidence.   

First, they note that there is no evidence that Abbas (r) knew of the prohibition of riba, or if he did know that he continued in dealing in riba after he found out. And the entire Hanafi argument is premised on the fact that Abbas knowingly (and with the Prophet’s knowledge) carried on dealing in riba in dar al-harb. 

Second, Makkah became dar al-Islam in 8 AH – not 10 AH when the farewell pilgrimage was held. So the argument that riba is allowed in dar al-harb and not in the other doesn’t follow from this hadith. 

Instead, the Respondents argue a number of ways to better understand the hadith of Abbas: 

1. Abbas didn’t know that riba was forbidden, or he didn’t know that riba al-fadl and nasi’ah[6] were both forbidden at that time. Ibn Abbas narrated a hadith that would seem to support this potential confusion:
   
                                                                              لَا رِبَا فِي بَيْعِ يَدٍ بِيَدٍ، إِنَّمَا الرِّبَا فِي النَّسِيئَةِ 
   
   There is no riba in hand to hand trade, there is only riba in deferred exchange transactions (Muslim)
   
2. The riba that the Prophet was forbidding was the interest payments due from his loans from pre-jahilliyah. This is how Imam Nawawi understood it.
   
3. This was a specific ruling for Abbas.  

The Respondents argue that any of these readings are a more understandable and cleaner way to understand this hadith rather than than the Hanafi approach which does not align up accurately with the broader corpus or history.  

6. The “gambling” of Abu Bakr and the Prophet is not relevant 

The Respondents point out a number of issues with this Hanafi argument.  

First, we might note the hadith in Tirmidhi (3194) where the narrator actually specifically mentions that this bet was made before gambling was made forbidden.  

Second, when these bets were made, Makkah was not then dar al-harb as that command came later. So the point of the Hanafi argument is not proven. 

Third, these bets are categorised as a permissible type of betting that is allowed where it is intended to support Islam. Indeed, the Prophet donated back the entire winnings to Rukaanah, which supports this reading. This is the approach taken by Ibn Taymiyyah and some of the Hanafi school. 

Indeed, if the reasoning that “we must take all wealth from non-Muslims in a dar al-harb scenario” was relevant, then the Prophet should not have donated the winnings back to Rukaanah. 

7. The Companions didn’t do it 

Shaykh Alsawy[7] makes an excellent point in his detailed analysis of this argument. He notes that we do not hear about any of the Companions who used to deal in interest with the non-Muslims in dar al-harb. 

Indeed, in those days there were regular and legitimate theatres of war that Muslims were engaged in, so if this was a teaching that was an established part of the sharia we would expect to have seen it practiced at least a few times. 

To my mind, this is the second-strongest rebuttal to the Hanafi position. If hundreds and thousands of early Muslims were engaged in warfare and we do not receive any such reports, then this practice doesn’t appear to be from the sharia as understood by them.
 

8. We are not living in Dar al Harb 

Perhaps the strongest argument the Respondents have is that the entire hadith is a moot point as we are not currently living in dar al-harb.  

Muslims live in non-Muslim majority countries peacefully. We study and work alongside non-Muslims and many of us are born and raised here over multiple generations. Some of us are involved in the running and policymaking around the governance of the country.  

Contractually, we can all be understood to be bound by a social or unwritten contract regarding what it means to be a citizens of a country. These are conditions of peace – not warfare.  

Economically, we transact with fiat currency – which directly derives its value from the strength of the sovereign that issues it as well as their broader economic policies. Our entire wealth is stated in the fiat of a non-Muslim country. To then say this is dar al-harb seems remarkable.  

The extreme results of certain articulations of the Hanafi position is that for new Muslims born in a non-Muslim land who do not make hijrah (migration) to Muslim lands – riba is acceptable for them to transact in with non-Muslims and Muslims.

But this leads to a remarkable conclusion that today entire generations of Muslims could grow up and live and die and the Islam they practice would be one where “riba” is completely permissible.  

Indeed, by extension, we should be able to argue that the trade of pork, alcohol and gambling would all also be permissible along the same lines of reasoning, and the establishment of Friday prayers is also not necessary. There are well established scholarly positions that hold this to be correct in a dar al-harb scenario. But that then seems a spectacularly odd result for the practical life of Muslims here in the West.

Additionally, to make the argument that the West today is dar al-harb is an extremely problematic approach politically. In a post 9/11 world that is globalised and unsettled, such aggressive speech – that has the potential to be badly misinterpreted – is deeply irresponsible. 

Finally, dar al-harb and dar al-islam is nomenclature from a different era. The reality is that there is no dar al-Islam with a caliph and Islamic judiciary in the way that there was when these terms were originally used, let alone a dar al-harb.  

Today the world is divided up and categorised in a different way – often through the framing of a geographically defined nation state. Indeed, the nation state as a concept is only a few hundred years old, and the modern nation state concept is no more than a hundred years old with organs like the United Nations a product of the last century.   

Islamic scholars have historically begun, and continue to, theorise a new fiqh of aqilliyat (minorities) and theorising of a new concept of dar ul aman (the abode of peace) or dar ul ahd (the abode of truce).

There is much more work to be done to properly flesh this out, but I believe this is the work we should do – rather than fitting anachronistic terms that are not suited for our time and deriving odd rulings from them. 

In defence of the Hanafis: we are not in dar al-harb and this is a comment on political theory  

Now, as someone who has primarily been trained in the Hanafi school, I want to make sure that this article is not misunderstood as an attack on the Hanafi school.   

In Badai’ Al-Sanai, Imam Kasaani argues that the reason why the treatment for sins like theft, drinking alcohol and falsely accusing a Muslim attract a different punishment (they do not attract any hadd’ penalty) in a non-Muslim land is simply because the governance of that land is not Muslim.  

So these Hanafi articulations are primarily articulations of political theory and jurisprudence; they are not saying that a Muslim resident in the UK or USA can now sinlessly go ahead and start drinking alcohol and committing adultery.   

Now you layer onto that the fact that we are not realistically in dar al-harb, and suddenly it becomes very clear that the Hanafi argument is just being grossly misapplied. And when you misapply something where it shouldn’t be, you can get crazy results.   

But that is not to say that the Hanafi view is crazy. Indeed, when properly (and very narrowly) applied, it has a lot of intuitive strength.  

Conclusion 

To wrap things up then, it is possibly arguable that in a true dar al-harb scenario, the taking of interest (not the giving of it) might be a permissible act based on the arguments made. Even that, given the weaknesses discussed above, would be a stretch. 

However, we do not live in dar al-harb, and even if we did, the giving of interest is certainly impermissible. So for our purposes, we can’t use this argument to justify taking mortgages. Sorry folks. 

N.B. I am still reading around the topic, in particular around the dar al-harb concept, and the thoughts expressed in this article are liable to evolve over time.

References & Notes

[1] For wider readings on Mak’hool see here.

[2] 1. انظر : الهداية شرح بداية المبتدي 3/ 64 ، فتح القدير لابن الهمام 7/ 38 ، البناية على الهداية للعيني 6/ 570 ، الفتاوى الهندية 3/ 121 ، تبيين الحقائق شرح كنز الدقائق للزيلعي 4/ 97 ، المبسوط 14/ 69 ، شرح العيني على الكنز 2/ 62 ، فتح باب العناية بشرح النقاية للقاري 2/367 ، رد المحتار على الدر المختار لابن عابدين 7/ 422 ، شرح منلا مسكين على الكنز / 196 ، كشف الحقائق للأفغاني 2/ 34

[3] Typically, where the 3 imams of the Hanafi school are in disagreement, the view of the madhab will go to Imam Abu Hanifa’s position. 

[4] 42/الفوائد السمية للكواكبي 2

[5] Various additional references can be found here. 

[6] These are the two main classifications of riba. Really simply, riba al-fadl is to do with exchanging items of the same type but in different values. Riba al-nasi’ah is the riba charged on top for a deferred payment of a loan. 

[7] See here.