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

 

 

 

These details clearly establish that the Arabs in pre-Islamic Arabia were fully aware of the concept of commercial and productive loans. Their entire trade was financed through loans advanced on payment of interest. The affluent tribes of Thaqif and Banu Mughirah never needed loans for consumption purposes. The landed aristocracy of Madinah hardly needed consumption loans from the Jews. Most of their loans were either to finance their trade or to improve their agriculture. The claim that the Qur’an has condemned only the interest charged on personal or consumption loans is totally unfounded particularly in view of the unprecedented generosity of the Arabs in general and the Quraish in particular. Hashim ibn Abd Manaf, the

 

great grandfather of the Holy Prophet who had instituted the two celebrated trade journeys mentioned in the Qur’an as well was known for his unique generosity. The very name, Hashim, is indicative of that generosity. At the time of famine he would get the food prepared at his own expense and get it distributed among the poor of Makkah. Because of this he came to be known as Hashim or as “bread-grinder”. This habit of Hashim had percolated deep in all the members of the tribe of Quraish. Tabari has quoted a poet praising the Quraish for their generosity as saying:

 

 

 

These are the people who have mixed their poor with their wealthy so much so that their poor have become like the self-sufficient.

 

 

 

This being the habit of the Arab traders, no one can say that they would charge interest on consumption loans given to a poor and needy person. Dr. Muhammad Yusufuddin has recorded details of the corporate trade conducted by the Quraish in pre-Islamic Arabia. (See his book Islam ke Muashi Nazariyyea, (Karachi 1984, pp. 44---50).

 

 

 

Some other scholars have also studied trade and business prevalent in pre-Islamic Arabia and have concluded that every tribe or sub-tribe was like a business firm or investment company in which not only the members of that very tribe participated but also members of other tribes contributed with their funds and loans advanced either on the basis of profit-sharing or on the basis of interest. Even the ladies conducted their business and financed the business of the others both as creditors as well as in capacity of inactive partners. The Mudarabah-based business of Hazrat Khadijah in which the Holy Prophet participated sometime as an entrepreneur and sometimes as a managing agent is well-known. There were other ladies in Makkah whose funds were invested in international trade. The well-known trade caravan led by Abu Sufyan immediately before the Battle of Badr was funded among others by many ladies from Makkah. In his history, Tabari has recorded the details of these caravans under the third year of Hijra.

 

 

 

Another `argument’ advanced in support of this point of view is that the Qur’4n has not prohibited interest. It has prohibited only usury. It is in view of this consideration that some people translate the term Riba as usury. Let us examine the difference between the two. It may be pointed out that the distinction between interest and usury was made on a wide scab for the first time in the 17th Century when banking emerged as an organized institution. This distinction was made on the basis of the purpose of borrowing. Increase on the loans advanced for personal and consumption purposes was called usury while the increase on commercial and productive loans was known as interest. It is believed that the purpose of this distinction was to grant moral and legal legitimacy to usury and to satisfy the conscience of the common man who hated usury and interest as part of his religious belief. Since it had become the backbone of the modern capitalist economy it was felt that the economic system could not successfully work without interest. The rapid expansion of the West in the field of colonization and its advancement in scientific discoveries coincided with its dazzling economic progress. In fact, the advancement of the West in commerce and industry was the mainstay of its military power which, in turn, sustained the political domination of different colonial powers in the Muslim world. This created a slavish and -defeatist mentality in the mind of many Muslims particularly those elitists classes which had lost their power and prestigious positions to the new masters. They sharply reacted to the political defeat. economic downfall and social disintegration of their co-religionists Their sensitivity led them to believe that the power and prestigious of the West was drawn from its social, economic and political institutions. Despite partial truth in this belief, this added to the defeatist mentality of the former elitists classes. It also caused to weaken their confidence in their own values, history, civilization and religious foundations. Many of them did not wait long in subscribing to the idea that bank interest and capitalist economy was the penacea needed to cure their maladies and that Riba was different from interest, that Allah has prohibited only usury and that interest was not different from trade and profit. 1t was in this background that some Muslim leaders sincerely, though mistakenly, felt that if interest was declared to be prohibited it may cause insurmountable difficulties in the development of trade and industry in the Muslim World. Their concern with the welfare and future of the Muslims made them believe that bank interest was the only solution to the economic progress and welfare of the Muslims. They tried to satisfy their conscience by claiming that the Qur’anic Riba is not interest which was now allowed as lawful trade and business and what is prohibited is usury charged on personal loans, particularly usury charged at exorbitant rates. It is significant to note that those who fully subscribed to this way of thinking among the Muslims were those who had the first exposure with the West. A bulky literature came into existence as a result of their efforts in which the main concern was to portray the declining economy of the Muslim World and to play up the role of the banks in the development of the Western economies. Dr. Fazlur Rahman, a former Professor in the Faculty of Theology, Aligarh Muslim University has surveyed some such writings in his valuable book, Tijarati Sud: Tarikhi Awr Fiqhi Nuqtah-i-Nazar Se (Aligarh 1967, pp. 1--5). The crux of their arguments was their claim that the Arabs were not aware of commercial interest either during the days of the Holy Prophet (peace be upon him) or before him, and the Riba, according to them, was only that which was charged on personal and consumption loans. We will deal with the question of distinction between usury and interest.

 

 

 

The writings and the literature produced in defence of bank interest also influenced a section of the Ulema who tried to legitimize Riba in the context of British India. They believed that since India was Dar al-Harb and since, according to the opinion attributed to Imam Abu Hanifah, there was no Riba between a Muslim and a citizen of the Dar al-Harb, therefore, bank interest should not be treated as Riba. Some of the Ulema issued Fatawa in support of this view. One such Fatwa was issued from Hyderabad Deccan which was published on a wide scale both within and outside the Indian Sub-Continent. It was this Fatwa which was sent to Sayyid Rashid Rida to; confirmation. The answer given by Rashid Rida was relied upon by Mr. Khalid M. Ishaque in his submissions before us. Several leading ulema of the Sub-Continent including Maulana Ashraf Ali Thanvi, Maulana Mufti Mahmood Hasan Tonki, Maulana Zafar Ahmad Usmani and Maulana Abul A’la Maududi came out with strong rejoinders and established that Ribabased transactions in India or elsewhere could not be justified or legalized on the plea that India was Dar al-Harb.

 

 

 

As pointed out earlier, before the industrial revolution in Europe, there was no distinction between usury and interest. This was made in the wake of industrial revolution and commercial expansion when money and capital acquired supreme importance in human societies. In this context interest was justified as rent of capital and was substantiated by a well developed philosophy. Before this revolution there was no such distinction between usury and interest either in the Islamic literature or in any other religious tradition of the East or the West. The definition given by almost every writer, of the term Riba included both usury and interest. Even the non-Muslim writers defined the term Riba as usury and interest. The Shorter Encyclopedia of Islam (1953, p. 471) has included both interest and usury within the ambit of Riba.

 

 

 

The historical evidence available to us establishes beyond any shadow of doubt that corporate financing in its rudimentary form was known to the Arabs even before Islam. The Qur’an refers to two annual trade caravans undertaken by the Makkahn traders. This was an international trade covering the vast areas stretching over large territories and long distances. These caravans needed several months of travel which was carried on extensively. This trade involved the production or import’ of goods, on the one hand, and their sale or export, on the other. This was done with the pooling of financial resources and trading and manufacturing skills. During the pre-Islamic period all financial resources were mobilized on the basis of either interest or Mudarabah and Musharakah. Islam abolished the interest basis and organized the entire production and trade on the basis of Mudarabah and Musharakah. With the abolition of interest, economic activity in the Muslim World not only did not suffer any decline but there was an unprecedented increase in prosperity:

 

 

 

A combination of several economic and political factors, including the ability to mobilize adequate financial resources, was responsible for this prosperity. All these factors together provided a great boost to trade which flourished from Morocco and Spain in the West, to India and China in the East, Central Asia in the North and Africa in the South. The extension of Islamic trade influence is indicated not only by the available historical documents but also by the Muslim coins of the seventh to the eleventh centuries which have been found in several outlying parts of the then Islamic world. Dr. Muhammad Umar Chapra has referred in one of his articles submitted to this Court that man) Muslim coins have been found in different parts of Russia. Finland, Sweden, Norway, the British Isles and Ireland. The great wealth of material goods which the enterprising Islamic world procured from far-distant lands were also exported to purpose. These consisted not only of Chinese, Indian and African products but also of the goods which the Muslim countries themselves produced or manufactured. The economic prosperity in the Muslim world had made possible a development of industrial skill which brought the artistic value of the products to an unrivalled height.

 

 

 

Mudarabah and Musharakah were the basic methods by which financial resources  were mobilized and combined with entrepreneurial and managerial skills for purposes of expanding long distance trade and supporting crafts and manufacture. They fulfilled the needs for commerce and industry and enabled them to thrive to the optimum level given by the prevailing technological environment. They brought to the disposal of commerce and industry the “entire reservoir of monetary resources of the medieval Islamic world” and served as a means of financing, and to some extent, insuring commercial ventures, as well as providing the combination of necessary skills and services for their satisfactory execution.

 

 

 

The legal instruments necessary for the extensive use of financing through Mudarabah and Sharikah were already available in the earliest Islamic period. These instruments, which constituted an important feature of both trade and industry and provided a framework for investment, are found in a developed form in some of the earliest Islamic legal works. Accordingly, Udovitch has been led to conclude that “some of the institutions, practices and concepts already fully developed in the Islamic legal sources of the late eighth century did not emerge in Europe until several centuries later. The efficacy and vitality of these legal commercial institutions endured for most of the Islamic Middle Agars”.

 

 

 

With moral decay and political and economic degeneration, the Muslim World lost its vitality in all those walks of life which had once contributed to its rise and glory. Foreign domination, played its own devastating role. Although Riba is still despised by Muslims, centuries of Western political, economic and financial domination has unwittingly caused the Muslim World to drift away from the pooling of financial and Entrepreneurial resources through the humane institutions of Mudarabah and Musharakah. These institutions need to be revived, activated, institutionalized and modernized in order to get rid of Riba. They can no doubt once again play the same invigorating role of stimulating investments, rewarding skills and entrepreneurship and accelerating growth for the benefit of the Muslim masses.

 

 

 

The discussion made in preceding paragraphs has established beyond any shadow of doubt that commercial and productive loans were known to the Arabs and that the Qur’anic prohibition of Riba does include every kind of increase or interest charged on loans advanced for commercial and productive purposes. This discussion also disposes of the contentions of Maulana Jafar Shah Phulwarwi and Syed Yaqub Shah.

 

 

 

Counsel for the Federation, Dr. Sayyid Riazul Hasan Gillani has stressed as his main argument that Bank interest is a form of Riba al-Fadl prohibition of which is not as strong as that of Riba al-Nasi `ah. Mr. Khalid M. Ishaque also indirectly but clearly suggested that bank interest was a form of Riba al-Fadl about which the Shariah is not so strict. In order to examine these submissions and also to understand the Shariah position about Riba al-Fadl in its true perspective, it is necessary that the question of Riba al-Fadl is studied in depth and examined in detail.

 

 

 

Riba al-Fadl is also termed as Riba al-Hadith and Riba al-Bu vu. This category of Riba is different from the Riba par excellence in the sense that there is no direct increase on any deferred payment and, therefore, it does not fall directly under the category of Riba prohibited by the Qur’an. The prohibition of Riba al-Fadl is based on the principle of Sada al-Dhariah by the Holy Prophet (peace be upon him). There are many Ahadith reported by more than a dozen companions to the effect that the Prophet of Islam prohibited the sale of gold for gold, silver for silver, wheat for wheat, barley for barley, salt for salt and dates for dates if the two commodities are not exactly equal in terms of quantity and are not paid and delivered hand to hand. Apparently, it seems to be something very innocuous because even in a barter transaction no one would be tempted to sell a given quantity of wheat for a similar quantity of wheat paid and delivered then and there. But on a deeper examination it becomes clear that this prohibition was primarily to close the slightest possibility of increase on the principal amount which was possible if’ this backdoor was left open. The Hadith is, in fact, a discouragement to enter into this kind of transaction. If it were allowed to sell these commodities with a difference in the quantity or with a permission to make deferred payment there was a strong possibility of using this mode of transaction to legalise increase on the principal amount: For example, a person could sell wheat of certain quantity for a bigger quantity to be paid/delivered to him at a later date. Now, wheat being a medium of exchange in some societies even today, would have become a source of Riba when used as medium of exchange in this transaction. There are several other examples which establish the policy of the Shariah to prohibit all such transactions which may in any eventuality lead to Riba-generating dealing through such dealings. One such example of eating Riba through an indirect mechanism instead of charging interest on the money lent or loaned one could easily sell a commodity to the prospective borrower on a deferred payment and then immediately buy it back from him on the cash payment of lesser price. In actual terms it would mean that the commodity has been used merely to circumvent the Shariah about the prohibition of Riba. Otherwise, the net result was the receipt of a lesser amount by the borrower appearing in garb of a purchaser and buyer’s liability to pay a higher amount with a certain increase over and above the original or principal amount. This was also declared to be Riba pure and simple by Hazrat Aisha when it was’ reported to her that a person had contracted such a transaction with a companion. She immediately sent a message to the companion asking him to annul the transaction forthwith if he wanted to retain his reward as a companion of the Prophet.

 

 

 

In the Ahadith related to Riba al-Fadl, the `Prophet of Islam has mentioned only six commodities. It is historically established that these six commodities among others, were used as medium of exchange in different parts of Arabia. Some of them are still used in rural societies in many parts of the world particularly in sub-continent. However, there has been a slight difference of opinion among the jurists whether the prohibition be confined to these six commodities or be extended to other commodities as well. The overwhelming view of almost all the jurists barring very few exceptions is that the prohibition is not confined to these six. It is, rather, extended to other commodities as well. But the jurists disagree among themselves as to the grounds on the basis of which the prohibition is to be extended to other commodities. It is significant to note that the grounds suggested by different jurists to determine the common denominator for the application of prohibition include one or another ingredient of money as identified and explained by modern economists and experts of monetary and fiscal policies. For example, according to Imam Abu Hanifah, the common denominator is that the commodities should be fungible items, indicating thereby that the items may be used for counting of the units of the property or commodity purchased in consideration thereof. According to Imam Malik the common denominator is the storability of the items indicating thereby that it should be the store or repository of value.

 

 

 

This difference of opinion had started during the days of the companions themselves. Different companions tried to identify the common denominator and reached different conclusions. A great disciplinarian and superb systematiser as he was, Hazrat Umar felt uncomfortable with this difference of opinion on this important issue involving the trade and business in the fast expanding Muslim trade and finance. He regretted not to have been able to seek specific guidance from the Holy Prophet (peace be upon him) about the common denominator of these six commodities in the absence of which there was a possibility of a continuing difference of opinion on an issue of such a great importance. It was in this context that he said he did not have an opportunity to ask the Holy Prophet (peace be upon him) and that he recommended to avoid all doubtful transactions in order to avoid real Riba. This clearly shows that Hazrat Umar had no doubt or confusion about the Riba par excellence, its real nature, its prohibition or even about Riba al-Fadl in so far as it related to the six commodities. What he considered to be doubtful was the gray area beyond the six commodities where the identification of common denominator was subject of discussion among the companions. Now, it will be wrong to assume that the question of bank interest has any ambiguity or confusion and that this ambiguity and confusion should be taken to be a ground for concluding that it is not Riba.

 

 

 

It is clear from a general look on the Ahadith dealing with Riba al-Fadl that these specifically refer to trading transactions of a barter type. Loan too is, in a way, like-for-like exchange. It is, therefore, desirable to begin the argument with a review of the Qur’anic Injunctions about loan. A loan transaction always carries with itself some costs for the lender. Depending on the matter of the case, there may be various kinds of costs. Yes in a like-for-like exchange of commodities the lender must concede his costs and the lender must ignore the qualitative differences between the thing given and the thing taken back, and treat the two as the same in terms of the relevant units of exchange-rupees in the case of rupee-denominated loans, tons of wheat lent by tons and so on.

 

 

 

With these two points before us, it should now be easy to see the message in Ahadith on Riba, which are about trading of gold, silver, wheat, barley, dates and salt. We select the cases of gold and dates to explain the main point. The prophet (peace be upon him) ordered that gold be traded for gold on the basis of equality in terms of weight and on spot. In spot trading, gold-for-gold transaction meant exchanging gold in one form for that in another. A voluntary gold-for-gold exchange is unthinkable otherwise. It may also be recalled that once Hazrat Bilal traded two weights, of poor quality dates for one weight of good dates. The most likely reason on Bilal’s part was that qualitative differences between the dates sold and those purchased justified their treatment as two different things and, hence, the exchange on unequal terms. But the Prophet (peace be upon him) declared the excess to be Riba. The point was: as long as Hazrat Bilal was transacting in a dates-for-dates framework, he ought to have ignored the qualitative differences between the two types of dates and traded them on a one-to-one and equal basis. Otherwise, the discrepancy in the give-and-take-back process came under Riba.

 

 

 

The foregoing illustrations establish that the fundamental position of the Ahkam in the Ahadith is that of rationalizing trading practices with the Qur’anic Injunction on Riba. In this perspective, we may now discuss the meanings of various restrictions on trading specifically mentioned in the Ahadith. Basically, three conditions are prescribed to govern like-for-like exchanges of gold, silver, wheat, barley, dates and salt: mithlan-bi-mithlin, sawa’an-bi-sawa’in and yadan-bi-yadin. Of the three conditions, yadan-bi-yadin and sawa’an-bi-saiva’in are clear-cut. Yadan-bi-yadin means “hand to hand” or “on spot”. Sawa’an-bi-sawa’in implies that there must be equality in the exchange. The Ahadith further state that the equality was to be observed in terms of weight for gold and silver and by measure for the other four commodities. The condition mithlan-hi-mithlin calls for extreme care in interpretation.

 

 

 

It is noteworthy that the Ahadith explicitly refer to “gold for gold”,  “silver for silver” and similar other exchanges. And, the condition mithlan-bi-mithlin comes in the Ahadith texts after the said mention. “Gold for gold” signifies that one is already talking in the framework of alike-for-like exchange. Thus, mithlan-bi-mithlin ought to mean something more than “like for like”- It cannot be translated as “same for same” either due to the following reason. If, for example, the gold to be given and that the gold to be taken back were identical in every respect, spot trading of gold for gold would become meaningless, and the decree in the Ahadith redundant. Thus, mithlan-bi-mithlin would mean that the unit of exchange must be one and the same for both buying and selling in like-for-like exchanges. That is, it should not be the case that one sells, say, wheat by some measure but buys it by a weight like kilograms; moreover, the chosen measure or weight must be the same for both buying and selling. This interpretation is supported by the fact that there were no uniform standards for weights and measures in Arabia during the early Islamic days. According to Abdullah ibn-i-Umar, the Prophet (peace be upon him) appreciated measures of the people o: Madinah as well as weights of the people of Makkah. Thus, for example, the mithlan-bi-rnithlin condition required the use of the same measures either that of Madinah or that of Makkah for both selling a product and buying its like. In other words, it was not to be the case that two Makkahn and Madinan traders exchanged their dates (of different qualities) with each one of them using a different measure to make his offer. This principle governed, among other things, trading transactions between Makkahn and Madinan businessmen in trade fairs at the time. The differences in the US and the UK measures of bushels, gallons and pints affirm the relevance of mithlan-bi-mithlin restriction even today. Together, the three conditions mithlan-bi-mithlin, satva’an-bi-sawa’in and vadan-bi-yadin firmly closed the doors of Riba in like-for-like trading exchanges.