P L d 2000 s c 225 (Riba prohibition stayed)

 

These last remarks of the late scholar show quite clearly that he himself was not convinced that his conclusions about the permissibility of bank interest were in conformity with the spirit of the Qur’an. Otherwise, there was no question of bank interest being rendered superfluous in the wake of the establishment of the economic system of Islam.

 

 

 

We may now examine the views of Dr. Muhammad Sayyid Tantawi, the Grand Shaikh of al-Azhar as contained in his Arabic book on Interest and Banking Practices. Apart from going through the book of the Grand Shaikh, we have also benefited from a summary containing his views made available to us through the good offices of the Embassy of Egypt in Islamabad. Here is the summary of his views:--

 

 

 

“Dr. Tantawi has made it clear at the very outset that his views on current bank interest and prevalent banking practices are his personal views based on his own understanding of the Injunctions of Shariah though in some respects these views were held by some earlier scholars of al-Azhar as well. Secondly, as Dr. Tantawi himself admits, his views are based on the situation prevailing in Egyptian society and the practice of the Egyptian banks. In the process of formulating his views, Dr. Tantawi benefited from the advice and expert opinion made available to him by a group of ‘Egyptian economists and bankers. A number of factors led him to study and keep in touch with the problems pertaining to the bank interest and other banking practices. The most important one is that irrespective of their size- the banks are working as financial institutions which circulate wealth and distribute profit. In addition, people have to enter into financial dealings in various forms, on which the Shariah does not place any restrictions. Shaikh Tantawi tries to develop some rules which, in his opinion, should not be transgressed and violated in the course of trade and business. According to him, all such commercial dealings are permitted in Shariah which are free from cheating, deception, greed and such other vices as these are prohibited by Allah. Likewise, any trade, business dealing or banking operation which involves any of these evils is prohibited. With these two basic principles in view, the study of the banking operations was undertaken with reference to Egyptian banks and opinion was expressed concerning each one separately. Before discussing the details of the banking practices he clarifies his views concerning “interest”. He admits that Riba has been expressly prohibited by the Holy Qur’an and Sunnah as is unanimously held by the jurists of Islam. He says: “No two people differ that `interest’ (sic) is one of the gravest vices prohibited by all revealed religions. All people hold this view. In fact, if a Muslim objects to this prohibition of Islam, he thereby defies a matter which is of necessity known to be a tenet of Islam and by this he will be crossing the boundaries of Islam. This shows that the difference of opinion between Dr. Tantawi and other jurists is not about any Injunction of Islam with regard to interest, This difference of opinion is, about the bank interest and the extent to which it is actually Riba. Such difference about the details one also finds in the writings of jurists of Islam of earlier period.

 

 

 

According to Dr. Tantawi, interest has been defined by the jurists in a number of ways but he has chosen the following definition: “It is the increase over and above the capital not in exchange for a lawful compensation”. The interest which is prohibited is the one which was known as Riba al-Nasiah referred to in the Holy Qur’an. This is the interest which increases with the passage of time. The Sunnah has also stated that interest is one in which the increase or ,surplus is reserved for a particular party to a contract without anything in exchange. For example, a man gives a loan of a 100 pounds to another but expect-, 120 pounds in return Two kinds of dealings fit the above example in the present age :

 

 

 

Firstly, what some construction firms do when they sell a building for 10000 pounds - for instance - and the buyer has to pay 1000 pounds in advance and the rest he pays in instalments with a certain profit or increase annually. This profit or increase is interest.

 

 

 

Secondly, What the richer states do when they give a loan to a poverty-stricken country which needs that money to fulfil its basic needs: a heavy interest is incurred on the actual sum making repayment an uphill task. This interest is also Riba.

 

 

 

Before proceeding to discuss bank dealings, Shaikh Tantawi defines four terms which he finds relevant to the discussion on bank dealings. These terms are:

 

 

 

(1)        Qurud (loans), plural of Qard or loan.

 

 

 

(2)        Duyun (debts), plural of Dayn or debt.

 

 

 

(3)        Deposits.

 

 

 

(4)        Investment.

 

 

 

Qurud is more particular than Duyun as it is that loan which a person gives to another as a help, charity or advance for a certain time. Duyun are those amounts or payments that one has in his liability but it does not belong to him. A Dayn is incurred either by way of rent or sale or purchase or in any other way which leaves it as a debt to another. Duyun (debts) ought to be returned without any profit since they are advanced to help the needy and meet their demands and, therefore, the lender should not impose on the borrower more than what he had lent. But if borrower volunteers to give something extra out of his own free choice to the lender then he is free to do so. Deposit is that amount of money or goods which one leaves with another person to preserve it for him as a trust and whenever he demands it back, it ought to be returned. All the jurists agree that the man who keeps the deposit has the right to ask for something in return as it might have engaged his efforts and money. Investment means making up wealth just as a farmer makes up his cultivation to get more production. It also means an endeavour to enhance wealth through various means and methods which conform to Allah’s Injunctions. Each of these terms refers to an activity which has its own principles and rules in Shariah to regulate it. The main consideration taken into account is the meaning and objective and not merely the words. Whenever words are misused mistake has to occur about the legal position of the transaction. In view of this discussion, Shaikh Tantawi classifies the practices, operations and functions of a bank into two main kinds:

 

 

 

(1)        Services.

 

 

 

(2)        Investment.

 

 

 

The most essential services include: salaries of workers and the funds they earn after retirement, arrangement for the transfer of money from one place to another, issuance and circulation of . currency. preserving valuable deposits and guaranteeing its safe hand over when demanded according to the system agreed upon by the hank and the depositors. In addition to these, there are other services offered by some social banks like granting easy-term loans to students, the needy and workers. For instance, Nasir Social Bank (of Egypt) offers these services. All these services are quite laudable and there is nothing wrong if the bank charges something in exchange for these services as service charges. In fact, all revealed religions encouraged these services as they cater for the welfare of a person. The second function of the bank is that of investment which means taking measures leading to the growth of wealth through profit permitted by Allah. It is for this very reason that trading companies and investment banks are established. Investment of surplus money, which is the main source of financiers and funds available to a bank, may be done in various ways:

 

 

 

(1)        Sharing which means that the bank shares with someone in enhancing its wealth according to agreed terms. The Islamic Shariah permits all this so long as it is free from cheating, embezzlement and untrustworthiness. A number of banks have invested their wealth and are sharing profit with others. The National Bank of Egypt has its shares with 64 firms which deal with agricultural, industrial and social enterprises.

 

 

 

(2)        Murabahah, which literally means mutual profit is defined as the resale of a commodity with an agreed ratio of profit. An example of this is that the seller (in this case the bank or any finance company) says that I bought a certain item for this much and will sell it with this much profit and the buyer buys it after fully satisfying himself about the original value of the commodity. Nasir Social Bank invests a part of its wealth by Murabahah.

 

 

 

(3)        Mudarabah.---It means that a man who has wealth but lacks expertise and skill offers his money to one who lacks the wealth but is an entrepreneur or an expert. The money is invested with the condition that the profit will be distributed according to the agreed ratio which should be in terms of a known percentage. This dealing was practised before Islam and was endorsed by Islam under a set of rules and conditions to systemize and regularize it.

 

 

 

The most important condition for this kind of a dealing to become lawful, according to Islamic law, is that the percentage of the profit should be known, beforehand to both the parties, such as half, a third or a fourth. But if a certain amount of money is fixed and predetermined beforehand, this dealing loses its validity. But Shaikh Tantawi here prefers the view of some modern jurists like Abdul Wahhab Khallaf who say that there is no argument in the Qur’an and Sunnah for this last-mentioned condition. Mudarabah is validated according to the terms agreed upon by both the parties especially these days when there is no mutual trust. If this kind of dealing is nullified owing to the absence of a certain condition, the entrepreneur should be treated like a hired worker or an employee who works and receives his remuneration in return of his labour and in this wav both parties receive the benefit. Allah has not prohibited anything which reaps benefit for the people. The opinion of Shaikh Tantawi of permitting the fixation of a predetermined amount beforehand is based on nine arguments presented by him in the book. Moreover, he agrees with Khallafs view on Mudarabah and considers it applicable to those who keep their wealth in banks and get a fixed profit out of its proceeds. The amount of profit may be fixed keeping in view the amount of the capital. The arguments given by Shaikh Tantawi may be summarized as follows:

 

 

 

(1)        Fixing the profit beforehand is not a matter of creed or worship so that it cannot be altered. Rather, it is a financial dealing which is based upon the agreement of the parties to the contract. His argument is the Qur’anic verse: “O ye who believe, devour not your property among yourselves vainly, unless it be a merchandise by mutual consent…………..” (al-Nisa: 29). This means that it does not befit a believer to devour the wealth of another through unlawful means.

 

 

 

(2)        Islamic Shariah is based on the principle of Maslahah or caring for the peoples’ welfare for all times and places. This gives the authority to Government to take steps to ensure the welfare of the people. This may apparently go against the express text of some Ahadith where the Prophet (peace be upon him) disallowed price fixing but a great many jurists allow it especially if the traders raise prices of commodities to exorbitant rates. So if the jurists considered the peoples’ welfare and did not abide by the express injunction even in its presence, then it is all the more befitting that fixing the profit, especially when it is in the interest of the people. should be allowed particularly when there is no express injunction on the matter. The maximum that can be said is that those who disallow this dealing do it on the basis of their own Ijtihad and analogical reasoning. They compare the contract of Mudarabah with the contract of Muzara’ah or crop-sharing.

 

 

 

(3)        There is no Islamic Injunction which prohibits any party to a contract of Mudarabah from fixing the profit in advance so long as it is agreed amicably by both the sides. Accordingly, there is nothing wrong if the bank where money is deposited for investment fixes the profit and uses the money for lawful investment.

 

 

 

(4)        The banks always fix the profit in advance after carefully studying the international and national markets and the economic conditions of the society. Moreover, the Central Bank regulates the fixation of these profits.

 

 

 

(5)        Fixing the profit brings benefit for both the investor/saver and the entrepreneur.

 

 

 

(6)        Fixing the profit in advance does not contradict the possibility of a loss on the part of the investor, whether a bank or individual. This is because if there is loss on one ground in a trade, one may gain on another ground. If the loss occurred due to external factors, the investor ought to shoulder the burden as a necessary consequence. This is decided by those responsible in this regard. This condition can also be mentioned in the contract. As for losses due to mishandling or bad administration they do not fall under this category and may not be discussed here.

 

 

 

(7)        Non-fixation of a particular amount as profit in these days when dishonesty and mistrust are the order of the day may put the owner of wealth at the mercy of the entrepreneur who might not be honest.

 

 

 

(8)        Another reason is that there is a rule in some factories that if there is any loss at the hands of a worker, he should be made responsible for it. The same losses can be shouldered by bank deposits for which the saver has the right to ask for steps to save and protect his capital. The Shariah does not mention any particular requirement in this regard but since they are for the welfare of the people they can be categorized under al-Masalih al-Mursalah.

 

 

 

(9)        Even if fixing the profit impairs the contract of Mudarabah, none of the jurists said that this condition turns it into an interest-based contract. Rather, they all agree that the entrepreneur becomes like a hired worker who will get his remuneration according to the market rate (or Ajr Mithl). The investor may take whatever remains of the profit. The position of the bank here, according to Dr. Tantawi, is like a hired worker for those who deposit their money in it and are satisfied with the profit they receive. In this way, this dealing will not be that of interest. Although it is true only through a Qiyas, because according to the jurists in a Mudarabah which is impaired the worker’s share is fixed and not the share of the investor.”

 

 

 

Dr. Tantawi, thus, holds that bank dealings are allowed not only because they fall under Musharakah, Murabahah and Mudarabah, but also because, there are other forms of dealings as well which Allah has permitted. According to him, all bank dealings of investment are permissible. The bank exercises the power of attorney or legal representative. This is seen by him to be exactly in accordance with the Islamic framework. His view is manifest and clear: the saver assigns the bank and delegates to it total power of representation to invest his wealth in things permitted by Allah. The saver should be satisfied with the profit that the bank offers. .

 

 

 

The Shaikh’s views can be summarized as follows: Fixation or non fixation of the profit in bank dealings does not have any impact on the lawfulness or unlawfulness off the dealing as long as both the parties agree upon and as long as all dealings are done without any cheating, lie, deception, oppression or interest or anything which Allah has prohibited. One is, therefore, free to deal with banks whether they fix the profit or not. But it should be kept in mind that the standard requirement is that all dealings should be made free from the evils mentioned above. The Shaikh finally gives preference to the dealings which fix the profit saying that it is closer to the spirit of Islam as it clearly defines the rights of the parties and what they deserve. Added to this is the Saikh’s opinion concerning “Certificate of Investment” about which he says that it is permissible and so are the profits coming therefrom as long as the saver agrees to give full authority to the bank to invest his wealth where it wishes and be satisfied with the profit he receives whether monthly or otherwise.

 

 

 

The gist of this discussion is that Dr. Tantawi does not consider the present bank interest to be Riba. He treats it to be like the profit of a Mudaraba or Murabahah. However, on a closer examination the argument advanced by the Egyption Shaikh loses ground. Even if this logic is accepted for the sake of argument that the bank interest is like profit and it can apply only to the profit paid by the bank to the depositors. But it does not apply to the interest charged by the banks from the borrowers. Dr. Tantawi has not discussed this aspect of the operation in his book which deals only with one side of the coin. What the banks do with the savers money, how they lend it out and under what conditions and arrangements they charge interest? These questions have been ignored by the learned scholar. Unless these important questions are properly answered his arguments will remain incomplete. The learned Shaikh has missed the important fact that it is the lendings of the Bank which is the major factor and not the deposits it receives. It may be pointed out here that Shaikh Tantawi does not claim any direct knowledge, not to speak of any expertise about modern banking system. He has clearly and repeatedly said that his opinion is based on the understanding of the banking operations given to him by a group of bankers. However, it may also be noted that there was great uproar in the academic circles of Egypt when the book was published. Even the concerned bodies of Al-Azhar are said to have disowned the views expressed in the book. This is in addition to a number of rejoinders coming front many Egyptian scholars in refutation of the views of Shaikh Tantawi.

 

 

 

The most powerful and academically most sound rejoinder came from Dr. Yusuf al-Qaradawi, a renowned jurist from Egypt itself.

 

 

 

The most important question raised by some scholars which also finds its echo in the writings of Dr. Fazlur Rahman, Justice Qadeeruddin Ahmed and Dr. Shaikh Muhammad Sayyid Tantawi is that of any possible difference between consumption loans and production loans. It is vehemently argued by these writers that while determining whether any increase on a loan is Riba or not, the question of the purpose of the loan has to be kept into consideration. According to this opinion, a loan taken for commercial purposes should be considered different from the one taken for the purpose of personal use. While a demand to pay more over and above the principal amount of a loan taken for personal consumption is Riba, it is asserted that no justification is found to include the increase on loans taken for commercial acid investment purposes in the category of Riba. The upholders of this view mainly rely on the arguments contained in the writings of Maulana Jaafar Shah Phulwarwi and Mr. Yaqoob Shah, both published by the Institute of Islamic Culture, Lahore. We shall shortly examine this contention. During his submissions before this Court as well as before the learned Federal Shariat Court, Mr. Khalid M. Ishaque also advocated this point of view. He relied on the writings of a contemporary Lebanese author, Dr. Nabil A. Saleh and American Jewish author Dr. Abraham L. Udovitch. Mr. Khalid M. Ishaque also provided to us photo copies of the scholarly books of these authors.

 

 

 

Dr. Nabil A. Saleh in his book Unlawful Gain and Legitimate Profit in Islamic Law: Riba, Gharar and Islamic Banking has examined the concept of Riba and its application to the financial system developed by the Muslims both in the past and in the contemporary Muslim World. As a balanced and judicious author, he has tried to discuss all possible aspects of the question of Riba as discussed in Muslim history and has referred to different views on the subject. The difference between Riba al-Nasi’ah and Riba at-Fadl has also been discussed by the author. While he faithfully records that there is no doubt that the majority of Muslim scholars and modern men have interpreted and continue to place a wide-range interpretation on the prohibition of Riba. A few of them have endeavoured to confine such prohibition within more restricted limits. The learned author has noted that since these few scholars and men of learning include some most eminent scholars, their views carry some weight and deserve to be reported. It is clear from his treatment of the views of this minority group that he is reporting them because they deserve to be taken notice of in view of the eminence of their upholders. The author’s own findings on the basis of which his entire book has been developed are exactly the same as held by the overwhelming majority. The author also records  that each of these minority views has been the subject of incessant discussion and, of course, harsh criticism. The personalities to whom this minority ‘view is attributed are the well known companion of the Prophet (peace be upon him) and his cousin Abdullah ibn Abbas, the renowned jurists and thinkers of the 14th Century C.E. and a Hanbali theologian Ibn Qayyim alJawziyyah, the renowned Egyptian scholar and leader of modern renaissance Mufti Muhammad Abduhu, his celebrated disciple Sayyid Rashid Rida, the renowned modern Egyptian jurist Abd al-Razzaq Sanhuri, the contemporary Syrian scholar and statesman Dr. Maroof Daoualibi, the well known Egyptian jurist Shaikh Abdullah Draz and one Mr. Zaydan Abu al-Karim Hassan.

 

 

 

Let us discuss the views attributed to these luminaries. It has been reported in some earlier writings of the subject that Hazrat Abdullah ibn Abbas was initially of the view that the only Riba which was declared unlawful by the Prophet of Islam was the Riba al-Jahiliyyah as was practised by the Arabs before Islam. It has been attributed to Hazrat Abdullah ibn Abbas that he did not consider Riba al-Fadl to be the Riba prohibited by the Prophet (peace be upon’him). It is contended by the author and also endorsed by Mr. Khalid M. Ishaque that Abdullah ibn Abbas held a liberal view of Riba and relied on a Hadith reported by himself which, in his opinion, as understood by Dr. Nabil Saleh and Mr. Khalid M. Ishaque, superseded the Ahadith about Riba al-Fadl. These Ahadith being the last ruling of the Prophet (peace be upon him) on the subject of Riba say: “No Riba except in the Nasi’ah”. The author also records the interpretation given to this Hadith by the upholders of the majority view who see it as putting more emphasis on Ribd al-Nasi’ah and not .as superseding the earlier Ahadith. The author also acknowledges that there are reports that Abdullah ibn Abbas had later reviewed his earlier interpretation.

 

 

 

The question of the views of Abdullah ibn Abbas about Riba al-Fadl had been the subject of long discussions in the academic and juristic circles throughout Islamic history. Almost all the major writers on the subject have dealt with this question. There is almost a consensus that Abdullah ibn Abbas had retracted on his earlier views and had adopted the majority view that both kinds of Riba (Riba al-Nasi’ah and Riba al-Fadl) were prohibited in Islam. We shall refer to these findings of the renowned writers on the subject separately. However, even if it is conceded that Ibn Abbas continued to stick to his original interpretation and continued to exclude Riba al-Fadl from the Qur’anic prohibition of Riba, it will serve no purpose as far as the question of bank interest is concerned. The transactions of the banks can in no way be considered to be in the nature of barter sales and hence, subject to Riba al-Fadl. As we have already pointed out, Riba al Nasi ‘ah means increase on the principal amount in a deferred payment, as the word Nasi’ah (deferred payment or deferment) clearly and unequivocally shows.