In the Bible, Jesus enters the Temple of God and smashes the moneylenders stalls.
St. Matthew 21: 12-13
“And Jesus went into the temple of God, and cast out all the that sold and bought in the temple, and overthrew the tables of the money changers, and the seats of them that sold doves, And said unto them, It is written, My house shall be called the house of prayer; but ye have made it a den of thieves.”
It is clear, that Jesus as Prophet of God, disdains the use of interest utilized by the money-changers for profit as it exploited the poor.
Let’s examine the concept of Riba in Islam
The Shari’ah allows for transactions where both counter-values are transacted at the time of the dealing or one counter-value now and one in the future, however, not both counter values in the future as this creates gharar (uncertainty) about the fulfillment of the contract. However, this is allowed where the benefit outweighs the harm.
Since in interest financing, one counter-value is certain, the interest on the loan, and one counter-value is uncertain, the yield from investing the loan by the creditor, interest finance is in fact an extreme case of gharar (uncertainty) and is prohibited under the Shari’ah as the harm outweighs the benefit. Saadallah says that in the case of riba (interest), the “variance in certitude between the two counter-values, the interest on the one hand and the opportunity cost on the other, constitutes the essence of the injustice of imposing interest on loans” (2009:111). Debt-finance replicates the result of interest based financing and does not fulfill the requirements of the Shari’ah. Dusuki says “For a contract to be valid, there should be Iwadh or counter value present. Three elements of iwadh that should exist are risk (ghorm), work and effort (ikhtiar) and liability (daman). In the majority of debt-financing contracts, one or more of these elements of Iwadh are missing. If there is no risk, effort and liability, then such a contract cannot be considered to contain any element of justice” (2011:3).
Ridha Saadallah states that an often-cited reason for the Qu’ranic ban on interest is to “forestall injustice, since increasing the amount is in return of the time-term” (2009:111). Islam does not recognize the time value of money as time cannot be the sole consideration for an excess amount claimed in an exchange. Saadaallah says the excess amount must be claimed against an asset or commodity and not time as this would result in a money-money transaction. Taqi Usmani explains “Time of payment may act as an ancillary factor to determine the price of a commodity, but it cannot act as an exclusive basis for and the sole consideration of an excess claimed in exchange of money for money” (2000:10). Commodity-commodity and money-commodity transactions are allowed, however, not money-money transactions as this may result in (riba) interest. Interest financing leads to a false economy, creating instability, inflation, unemployment, and cyclical crashes. Islamic finance is asset-backed, which creates a real economy with real assets and inventories and promotes stability as well as creates an economy where speculators and bankers cannot crash markets for profit through greedy and reckless behavior. According to Taqi Usmani “Interest-based financing does not necessarily create real assets, therefore, the supply of money through the loans advanced by the financial institutions does not normally match with the real goods and services produced in the society, because the supply is increased, and sometimes multiplied without creating real assets in the same quantity” (2011:10). Usmani explains that “This gap between the supply of money and production of real assets creates or fuels inflation” (2011:10). In contrast, Usmani says “Since financing in an Islamic system is backed by assets, it is always matched with corresponding goods and services” (2011:10).
In an interest- based loan, the creditor receives a fixed rate of return no matter how much profit or loss the venture makes. If the venture makes a lot of money, the creditor receives a fixed rate of return. It would be more just if the creditor shared in the profits rather than just receiving a low fixed rate of return in the form of interest. If the venture makes a loss, the creditor still receives a fixed rate of return and the debtor bears the risk of the loss. It would be more equitable if the creditor shared in the loss rather than receiving an abnormally high rate of return in the form of interest. Riba (interest) results in a financial system where the debtors bear the majority of the risk and the creditor most of the reward. According to Sheikh Wahba al Zuhayli, “Riba is a surplus of commodity without counter-value in commutative transaction of property for property” (2006:25). The intent of such a transaction is a surplus of commodities. Therefore, the definition of riba includes both credit riba and invalid sales, since postponement in either of the indemnities is a legal surplus without perceivable material recompense, the delay usually due to an increase in compensation (Zuhayli, 2006:25). In Islam, money – money transactions are not allowed and there is no time value of money concept. Taqi Usmani explains that “Any excess amount charged against late payment is riba only where the subject- matter is money on both sides” (2011:10). Furthermore, “Any excess claimed in a credit transaction (of money exchange of money) is against nothing but time” (Usmani, 2011: 10).
There are two types of riba forbidden in Islam, credit and surplus riba. “Credit riba is taken against a delay in settlement of a due debt, regardless whether the debt be that of goods sold or a loan” (Zuhayli, 2006: 26). Therefore, “Credit riba occurs due to their inclusion of an increase in one of the two exchanged goods without any counter-value (Zuhayli, 2006: 28). The impermissibility of exchanging equal amounts is due to the resulting increase in value. Zuhayli explains that this is because neither of the contracting parties would usually accept to postpone the receiving of the payment save if there were some benefit by increase in the value thereby (Zuhayli, 2006: 28). Credit riba represents a violation of the ‘hand to hand’ rule when one or both counter-values of a transaction are postponed to a future date (of goods of same genus). Riba of delay or credit riba prohibits sale of commodities in the future even if the counter- values are equal (Ahmed, 2011:32).
Ubida b. al-Simit (Allah be pleased with him) reported Allah’s Messenger (may peace be upon him) as saying: Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and salt by salt, like for like and equal for equal, payment being made hand to hand. If these classes differ, then sell as you wish if payment is made hand to hand (Muslim, book 10, number 3853) (Visser, 2009: 34).
The six goods mentioned in this hadith are ribawi goods. Violation of “same for same” can lead to riba of excess (riba al fadl) or surplus riba and not fulfilling “hand to hand” (i.e. spot transaction) would constitute riba of delay (riba al nasi’ah) or credit riba (Ahmed, 2011: 31). Furthermore, “gold for gold” and “silver for silver” provides the rules of monetary exchange (sarf) during this time (Ahmed, 2011:31). If there is exchange among the same specie of ribawi goods, it has to be done on the spot and should be of equal quantities (Ahmed, 2011:31). If the quantities exchanged differ, even in spot transactions, then it will constitute riba of excess (riba al fadl) or surplus riba (Ahmed, 2011:31). Rules of riba of excess also prohibit exchange of dissimilar quantities of a genus with different qualities (such as exchanging one unit of high quality dates with two units of low quality dates) (Ahmed, 2011:31). According to Visser, there is a ban on exchanging, for example, two low-quality dates for one high-quality date, even if it is permitted to sell the low-quality dates for money and use the receipts for buying a high-quality date (2009: 35).
Zuhayli says that “Surplus riba is the sale of similar items with a disparity in amount in the six canonically-forbidden categories of goods; gold, silver, wheat, barley, salt, and dry dates” (2006: 26). It is the violation of the ‘equal for equal’ rule in spot transactions of the same goods of a particular genus. Zuhayli explains that “This type of riba is forbidden in order to prevent it being used as a pretext to committing credit riba, such that a person sells gold, for example, on credit, then pays back in silver more than the equivalent of what he had taken in gold” (2006: 26). To avoid riba, the commodity has to be exchanged with some other genus and then traded with the desired commodity (high quality dates with wheat or silver and then wheat or silver with low quality dates) (Ahmed, 2011: 32).
Narrated by Abu Said Al-Khudri and Abu Huraira: Allah’s Apostle appointed somebody as a governor of Khaibar. That governor brought to him an excellent kind of dates (from Khaibar). The Prophet asked, ‘Are all the dates of Khaibar like this?’ He replied, ‘By Allah, no, Oh Allah’s Apostle! But we bartered one Sa of this type (type of dates) for two Sas of dates of ours and two Sas of it for three of ours.’ Allah’s Apostle said, ‘Do not do so (as that is a kind of usury) but sell the mixed dates (of inferior quality) for money, and then buy good dates with that money’ (Bukhari, vol. 3, book 34, no. 405; see also Muslim, book 10, number 3875)(Visser, 2009:34).
The legal cause for the impermissibility of exchanging different amounts of edibles is, according to the Hanafi and Hanbali Schools, volume and weight; according to Imam Malik, its qualities being nutritious and storable; and for Imam Shafi, the mere fact that it is edible (Zuhayli, 2006: 39).
All of the Prophets of God have disdained usury.
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