INTEREST- an ill-use of money

According to Peacetv, and philosophical traditions money was invented to serve as measure, medium of exchange of goods and services and ensure just measure of values. It was never desired for itself. But the practice of lending money on interest made the money a source of injustice and exploitation. So strict had been prohibition of interest in Islam that the question: Why interest arises and how its rates are determined became irrelevant to Muslim scholars. They only tried to visualize its ill effects and exploitative nature . They were also against making distinction between interest on consumption loan and interest on production loan. The imaginary time value of money is not acceptable in Islam. ‘The possibility of the lender investing his money and earning profit is a matter of conjecture; it may or may not materialize. To exact a higher amount over and above the sum lent, on that conjectural basis is a kind of injustice and exploitation”.

The alternative of interest for running the business has been provided by the provision of profit and loss sharing. No one is entitled to any guaranteed profit irrespective of the outcome of business. Profit is to be shared with a predetermined ratio, not on a percentage to be earned on the capital supplied. In case of loss, the capital owner bears the capital loss while the working partner bears the loss of his labour, that is, his labour goes ‘unrewarded’. He is held responsible if cases of ‘moral hazard’, sub statement of profit or negligence on his part are proved.

Riba’l-Fadl and Riba’l-Nasi’ah. A unique contribution of Islam to economic thought is that it envisaged occurrence of interest in certain cases of barter that involve exchanges unequal by way of quantity or time of delivery termed as riba’l-fadl and riba’l-nasi’ah respectively. Prohibition is based on a group of traditions that report the Prophet saying that “Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates and salt for salt be exchanged, like for like, equal for equal and hand to hand; one who demanded extra or paid extra, indulged in interest.

“….When these commodities differ, then sell them as you like (with the difference of quantity) provided that the exchange is hand to hand (i.e. the transfer of ownership takes place at once)”

Analyzing prohibition of such items , the reason is that they involve violation of the nature of functions of money . The prohibition is just a precautionary measure and it is therefore allowed in some cases of necessity . While analyzing evil of interest in riba’l- fadl and riba’l-nasi’ah, it is also aimed at providing facilities of exchange for those who do not usually have money and their exchange is mainly in the form of commodity for commodity. In exchange of similar commodities, possession at once is necessary because on the spot delivery is always preferable to deferred delivery, and that the deferred price is less valuable than the present one. Thus, the barter sale of these commodities should be hand-to-hand so that equality in exchange is maintained.

According to Peacetv, the purpose of this prohibition was to close the door of cheating that existed there in barter exchange of commodities and gold silver bullion and coins in a society which lacked standardization.

“It is clear from the Shariah that the purpose of prohibiting riba relates to the possibility of great cheating that exists therein. Justice in transactions lies in approximating equivalence. So, when realizing equivalence between different things was found to be almost impossible, dinar and dirham were made to evaluate them, that is, measure them. As between different kind of commodities, I mean those which can neither be weighed nor measured, justice lies in their being proportionate. The ratio of the value of one thing to its kind should be equal to the ratio of the other things to that thing’s kind. To give an example: when a man is selling a horse for clothes, justice requires that the ratio of the value of that horse to horses should be same as the ratio of the value of that piece of clothing to clothes. If the value of that horse is fifty, the value of those clothes must also be fifty. Let it be ten pieces of clothing, for example, that would ensure equivalence. So, these commodities have to be unequal in number from one another in just transactions, as one horse is equivalent to ten pieces of clothing in the example.”

2020-05-15T22:15:06+00:00 May 15th, 2020|Beliefs|