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Prevailing Concept of Interest (Riba) in Islamic Perspective: A Critical Analysis.
In Qur'an the term riba is used for interest which is strictly prohibited by this wholly book. Muslim thinkers normally claim that “riba is that pre-decided excess amount which creditor receives from the debtor on his/her principal amount on maturity of loan. It is a well accepted definition of the term riba, but this definition restricts the concept of riba to debt transactions only, whereas the rent of all other assets except cash is considered as valid. It means that, reward of cash (one form of asset) is unlawful and rent of all other assets is legitimate. Muslim thinkers provide some justifications for this special treatment to cash. According to then if an item is depreciated with the passage of time then its rent becomes lawful. Moreover if during the transaction ownership of the asset will not change, nature of rented item will remains same then their rent is justified. In addition they said that, presence of element of risk and concept of badal (exchange), provide a legal base to rent. But the critical analysis of all of those reasons shows that none of them have any logical and religious base and the same situation is with this definition of interest, which can qualify any standard of reasoning.
Riba (interest) is an important Qur'anic term from economic point of view. A huge literature is available on the interpretation of this term. Instead of that, it is an open fact that, still a lot of confusion exist about the nature & meaning of this term. Different scholars have different point of views in this regard. But it may be said that there is a concept on which almost a consensus has been build up, and this concept is widely accepted and recognized. According to this concept riba is that excess amount of money which a creditor receives from the debtor on redemption of his / her loan and this additional amount should be the part of agreement. A prominent Muslim scholar has defined it in these words riba is the loan given for a specified period on condition that, on expiry of the period the borrower will pay it with some excess amount. All Jasses Abu Baker (1935) p. 470. It means that riba is possible only in debt transactions with that this addition should be part of agreement and received on redemption of loan, S. Abul A' la Maududi (1997) p. 20. It doesn't matter how small or large this excess amount may be and what is the purpose of loan and where this transaction has taken place PLD (1992) p.1.
According to this school of thought just excess amount on any debt transaction is termed as riba, whereas the reward of all other assets like houses, machines, offices and shops etc., is considered as lawful in the form of rent, M.N.. Siddiqui (1968) pp.126-130. This situation gives a special status to cash and bifurcates it from other assets, because according to this concept rent of cash (which is one form of asset) is considered as unlawful and rent of rest of the assets is assumed to be lawful. This situation certainly raises questions about this special treatment. The supporters of this concept produce five reasons, for its justification. These arguments are as follows:
It is said that, depreciation is the main cause of rent. It is claimed that, due to depreciation rent of all assets, becomes lawful. All those items which lose their value due to use can be given on rent, whereas the consumable things cannot be given on rent, M.N. Siddiqui (1968) p.p. 178-181.
2.2Changes in Ownership
It is assumed that rent of all those items is lawful whose ownership is not changed during transaction, e.g. ownership of all assets like houses, machines and offices etc., is not changed during the transaction hence these assets can be given on rent. Whereas in case of cash when it is given to others as loan then its ownership is changed hence its rent cannot be justified A.R. Killani (1991) p. 96.
2.3 Changes in Nature
Third arguments in this regard is that, rent of all those items is lawful which kept intact their nature during period of rent, e.g. machines, houses and offices, etc., remains in the same condition before and after letting, hence their rent is lawful. On the other hand if the situation is reverse then the rent of such items is prohibited,M. Taqi Usmani (1999)p.47.
2.4 Concept of Badal (Exchange)
A big argument in the favour of rent is badal. Under this concept it is agreed that since in case of letting any asset e.g. machines, houses, building, etc, the person who let these items receives rent in the form of cash and in exchange the person who hired these items get the temporary possession of these things. In this way they exchange the items or there is badal in the transaction. On the other hands in case of debt there is not any badal creditor pays a certain amount to debtor in the form of debt and did not receive anything in exchange, it means badal (exchange) is not completed hence this transaction is unlawful.
2.5 Presence of Risk
Propriety in this context is presence of risk. Since the owner of asset bare's the risk of damage and destruction of his/her asset, hence he/ she deserver's the reward of it which is rent. Moreover, in perspective of Islamic law profit is subject to risk, M. Taqi Usmani (1999) P. 47.
3Critical Analysis of Prevailing Concept of Riba.
Whereas this prevailing concept of riba is concerned, neither it has any logical base nor it fulfill any standard of reasoning. The basic reason of groundless is that artificial bifurcation by which cash is separated from other assets. No solid reason can be given for this meaningless division. In all subjects e.g. economics, accounting and commerce cash is considered as compulsory part of assets. The most authentic reason is that Qur'an does not accept this meaningless bifurcation. The simple proof is that, Qur'an has used the term mal for all assets including cash. Qur'an has used this term at almost 86 places in the sense of assets including cash. Some examples from this wholly book is as follow:
- Chapter 2 verse 171: for all those items which are liked by human being.
- Chapter 10 verse 88: for each and every asset including luxuries.
- Chapter 26 verse 88: for all those items which are beneficial for mankind.
- Chapter 104 verse 2: for the items which are countable and collectable.
- Chapter 90 verse 6: for the things which have a chance of wastage and destruction.
- Chapter 27 verse 36, and chapter 17 verse: for the items which can provide help of any kind.
- Chapter 68 verse 14: for the items used for affection.
- Chapter 18 verse 34 & 39: in the sense of farms & gardens.
- Chapter 4 verses 10 & 161: in the meaning of general assets.
Moreover, in the same sense it is used in chapter 19 verse 77, chapter 74 verse 13, chapter 111, verse 2 and chapter 2, verse 155.
Not only in these verses but in this context many references of other verses can also be presented where this term is used in Qur'an for assets including cash. However, at any place Qur'an is not ready to draw any boundary line between cash and other assets, and gives them same treatment. The same situation is with Hadith, any single Hadith cannot be presented in which this artificial bifurcation is recognized. This is the simple proof that basic assumption of prevailing and traditional thought is completely wrong, and do not have any logical base. Moreover, all reasons which are presented in justification of this artificial bifurcation are unable to validate this concept. The critical analysis of all these reasons is as follows.
3.1 Depreciation: First Base of Rent
Whereas this most important argument is concerned its rebuttle is as follow.
3.1.1In this context first and the most important concern it that, this argument cannot be proved from any verse of Qur'an or Hadith. In the other words depreciation as the base of rent can be justified neither from Qur'an nor from Hadith. Without any justification how it can be said that it is the base of rent? This situation is not with just depreciation but with all other arguments which are presented in this regard.
3.1.2The reason that, due to depreciation rent becomes lawful is completely died when it is observed that paper money or currency is also depreciated. It is an open fact and no one can deny it. Since it is argued that on the basis of depreciation rent becomes lawful then on this basis rent of currency i.e. riba should also be recognized. Hence it can be said that, this concept or claim is self- contradictory.
3.1.3In the second chapter verse 27 (2:27) Qur'an has allowed trade and prohibited riba. For any trade transaction presence of a buyer, a seller and a commodity is must which is exchanged between buyer & seller. But in case of rent none of this condition is being fulfilled, on the other hand it has an extraordinary resemblance with riba. Hence, on this basis it cannot be acceptable.
3.1.4Another objection on this concept is that, any correct method of calculation of depreciation is not yet discovered. Throughout the world its calculation is based on estimation. Simple question is that, when exact calculation of depreciation is not possible then how rent can be charged on it?
3.1.5It is an open fact that with passage of time assets are depreciated and the amount of depreciation continuously decline. On this basis amount of rent should also be declined because according to this approach basis of rent is depreciation, but it is our common observation that, rent increases with passage of time which is quite opposite to this concept. Hence it can be concluded that rent is not charged on the basis of depreciation.
3.1.6According to the theory, rent is charged due to depreciation, and then on this basis charged rent should be in the proportion of depreciation. But in real life it is not so, rent is always charged on market and never on the basis of depreciation. This open contradiction invalids the whole concept.
3.1.7Another conflict between theory and practice is that, owner of the building receive separate amount of rent different parts of the building depending upon many factors. Whereas the whole building is depreciated at the same rate. Hence from theoretical point of view rent of each part of the building should be same because all parts are depreciating at the some rate. It means that rent is never charged on depreciation, and no reconciliation is possible between theory & practice, Farooq Aziz (2007) p.72.
3.2 Changesin Ownership: Second Proof of Rent
Just like first argument, this reason is also based on delusion. Under this point it is said that, in case of rent ownership is not changed in case of letting an asset whereas is case of debt it is changed. The real fact is, it is not so, in both cases situation is quite same both creditor and owner of asset temporarily lose the ownership of their assets and sooner or latter it will return to the owner. Hence there is no difference between these two transactions.
3.3 Change in Nature: Third Justification of Rent
It is just a baseless reason, because if it is accepted then on this basis bank interest will automatically become lawful which is considered as unlawful under prevailing concept. The reason is that, customers of the bank deposits money in the bank and bank returned them their principal amount and interest in the same form. During this whole transaction nature of item (currency) is not changed. Hence on this basis bank interest should be considered as lawful. Farooq Aziz (2004) pp 131 - 132.
3.4 Concept of Badal (Exchange): Fourth reason of rent.
Like the other arguments it is also depends on fallacy. Actual fact is that, in case of letting badal does not took place in its original sense because when any asset e.g. machine, house, or building is letting out by the owner, he / she receives the amount of rent and his right of ownership remains intact. Whereas the person who takes it on rent just get a temporary right of use, and did not get the right of ownership. In real sense of badal (exchange) right of ownership should be transferred which is not taken place hence this transaction is not qualifying the real sense of badal (exchange). On the other hand in case of debt, it is claimed in this case no badal (exchange) is taken place, because when creditor pays his cash to a debtor, he / she doesn't get anything against it, hence this transaction is unlawful. It is again a misconception that creditor gives loan to a debtor he / she at the some time creates which is an asset. It means that creditor has exchanged the form of his / her asset i.e. from cash to Account Receivable and debtor got noting. Hence the basic claim is not right.
3.4 The Factor of Risk: Fifth Argument of Rent.
It is said that due to element of risk rent becomes lawful, it is not true, because Qur'an has strictly prohibited gambling. Hence factor of risk cannot justify rent in any case.
On the basis of above discussion it can be concluded that prevailing concept of riba is quite baseless and doesn't have any logical base. The basic argument under which it is said that rent of cash is unlawful and rent of other non-perishable assets is lawful don't recognized by Qur'an and all reasons which are given in this regard don't fulfill any standard of reasoning.