Podcast

E41: 5 reasons why interest is haram (Tafseer s.17)

 

We’re taking a look at verses 2:175-179 – the verses forbidding interest. The 5 reasons are:

1. It is exploitative of the poor (as they are generally those who require debt)

2. Interest gives rise to an exploitative economic system even if a specific instance of a loan may not appear to be exploitative.

3. Money has no intrinsic value and so cannot be rented.

4. To try to rent “the value imbued within currency by others in society” is not (a) clear/certain; and (b) appears to be renting out something a lender has no right to be renting out.

5. lending money leads to a devaluation of the very thing being loaned (due to inflation).

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3 Comments. Leave new

  • Essam Mahgoub
    July 27, 2019 10:49 am

    Salam Alikum,
    Jazak Allah Khair brother Ibrahim…
    In addition, I recommend people to read the following links:
    https://blossomfinance.com/press/18-reasons-why-riba-is-prohibited-3-of-28
    https://www.islamweb.net/en/article/147162/why-usury-is-prohibited
    Please download the PDF file in the following link for more in-depth: of the scholars’ opinions
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3036390
    Slam
    Essam

    Reply
  • Robert Hannah
    August 9, 2019 12:01 pm

    I was intrigued to listen to your piece on the subject of interest and riba. I understand and respect the fact that many Muslims accept the assertion that interest = riba. However I subscribe to the modernist Islamic view (scholars Fazlur Rahman and Abdullah Saeed, for example) that interest in modern regulated financial markets is not the same as the exploitive riba charged by unscrupulous moneylenders at the time of the prophet, and which he rightly condemned.

    I agree that Islamic finance usefully discourages excessive debt, and that finance (like business generally) needs a stronger dose of ethics. In his detailed discussion, Mr. Khan makes a very important point regarding the mis-alighment of incentives by financial market participants caused by excessive securitization and financial layering. Tying financial market activity more closely to real economic activity is an issue regulators still have not come to grips with successfully in my opinion. But this has little to do with the riba/interest debate. I will give my reactions below to the points raised in the video:

    Regarding exploitation – the idea that interest makes the rich richer and poor poorer: I don’t agree. Banks don’t lend to the very poor; that is the realm of loan sharks, pawn shops, and payroll lenders, who I would agree engage in riba (usury). Investors do not get rich by letting their money sit in a bank. Business fortunes are created by entrepreneurship. Many of those who do benefit from interest income are pensioners, whose pension plans and insurance annuities use bonds to provide the pension payments. These people are obviously not well placed to undertake risky equity investment. On the borrowing side, millions have benefited by buying homes and cars through loans and paying them off, and that is a good thing. For a better analysis of the dynamic of capital markets and income inequality, read Thomas Piketty’s work. His idea is that return on investment (including equity) tends to exceed the growth rate of the economy.

    Regarding money creation and inflation – controlling that is what central banks are for, and they have been doing a good job of it since Paul Volker’s war on inflation in the 1980’s. I agree that banks are in a privileged position because their liabilities are used for payments, and that is why they and the payments system are heavily regulated. Banks cannot create money without limit: they are constrained by their capital requirements, risk weighting and credit surveillance, loan loss surveillance, audits, and regulatory bank inspection as well as by central banks. But as we have seen, these systems are not perfect and struggle to keep up with innovation in finance.

    Reply
  • Robert Hannah
    August 10, 2019 1:39 am

    I have a minor follow-up after reading my comment – first, that the latter discussion in the video of money creation and inflation has little to do with riba, and secondly, the verses of the Quran noted in IFG’s text above are 2:275-279, not 175-179.

    Reply

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