(2:275) But those who devour interest315 become like the one whom Satan has bewitched and maddened by his touch.316 They have been condemned to this condition because they say, "Trade is just like interest",317 whereas Allah has made trade lawful and interest unlawfu1.318 Henceforth, if one abstains from taking interest after receiving this admonition from his Lord, no legal action will be taken against him regarding the interest he had devoured before; his case shall ultimately go to Allah.319 But if one repeats the same crime after this, . he shall go to Hell, where he shall abide for ever.
(2:276) Allah deprives interest of all blessing and develops charity;320 and Allah does not like an ungrateful, sinful person.321
(2:277) As to those who believe and do good deeds, establish the Salat and pay the Zakat, they will most surely have their reward with their Lord and they will have nothing to fear nor to grieve.322
(2:278) O Believers, fear Allah and give up that interest which is still due to you, if you are true Believers;
Riba (interest, usury) is primarily an economic issue in view of the fact that all religions and mythologies have prohibited restricted, discouraged, disliked, or degraded Riba in one way or the other since the inception of human interaction. All three major revealed (Ilhami) religions i.e., Islam, Christianity, and Judaism have strongly condemned and prohibited Riba in its original versions. Later, the clerics of Jews and Christian Church abandoned the prohibition of Riba (interest, usury) that led the mankind into the economic anarchy of the present era.
Islam - the most modern revealed religion is still upholding the righteous prohibition of Riba although not in practice in any of the Islamic country at governmental level but there is immense enthusiasm for Riba - Free financial system in Muslims. The western economists have discussed the issue at large in the twentieth century and many of them are also of the view that the religious prohibition should be brought back into the conscious of the people.
As long as Riba prohibition was enforced with religious zeal, people were prosperous and the wealth distribution was not abnormal as it is today, and obviously there was not much debate on the subject but since the Riba was made legal by Judo-Christian amendments in the divine law - its destructive fallouts earthed at large. The debate started on Riba for its literal interpretation to economic implications.
It is very unfortunate to observe that, in this debate, some misconception in Muslims led to a widely circulated explanation of Riba that divide Riba in to two types, one from Quran (riba-al-nasiah) and the other from Sunnah (riba-al-fadl or riba-al-buyu) and interpreted these as "riba in debt" and "riba in trade" respectively, this division which actually is not the case; is a direct conflict with basic faith of Islam (please see "Present Islamic understanding and misconception about Riba" for details). No clear concept and universal definition of Riba exists, different views and explanations have created much confusion in Muslims in the understanding of Riba. Unless, it is not found that Why Riba was declared Haram (prohibited), the definition of Riba is not possible.
At the outset of "HazaRiba.com", I am pleased to present my work specifically on two basic subjects i.e.,
· Why Riba was prohibited (declared Haram) in the divine law?
· The definition of Riba
Subsequently, have discussed few complementary issues, like:
· Significance of the most argued claim "riba and trade are same"
· Riba and Islamic Banking
· Present Islamic understanding and misconception about Riba
· Solutions to deal with Riba
Before I go, some related and useful definitions for quick reference and few examples on riba are included. Please go through all the pages preferably in sequence; any feedback and/or comments are welcomed to correct/improve.
Story of Riba Prohibition
Allah prohibited riba in three steps (as in the case of another big evil: alcoholism), taking into account the deeprootedness of this social illness in the Arabian society. Jahiliyya Arabian society was deep in the hold of riba at the time of the nubuwwah of the prophet (pbuh). Poor people suffered greatly because of the cut-throat attitude of the usurers who were the only social establishment for funding the needy. The Jewish community in Madinah and around not only gave approval for this but practiced it in the most notorious way. (Recall Shakespeare’s Jewish moneylender Shylock).
Its impact was quite visible in all walks of life. Even Muslims were not fully unaffected by the evil of ribah. Greed and avarice was widespread in the society in general. The urge and pull to amass wealth was widespread. People were not aware of the fact that wealth was something divinely released for each individual as part of his qadr depending on various factors that Allah has as criteria for this, again dependent on his great wisdom. They were persuaded to believe that it was the result of their efforts and cleverness. In fact, individual’s effort and cleverness are only instrumental reasons Allah bring in for giving or denying wealth to anybody. The Quran reminds us of this on several occasions.
What the Quran does first to bring about the social atmosphere for prohibiting riba is to make people educated in the basic economic philosophy explained above i.e. economic prosperity is not the result of our cleverness or efforts. But Allah’s choice and discretion for reasons known only to him for giving opportunities for testing us. This is why he makes some of us rich and some others poor. Each of these states involves a test to the person concerned and for the rest of the society. Followed by this he taught mankind the value and greatness of charity and its benefits and the consequences of frugality and miserliness. Then he established the rights of the poor and the mahroom (the deprived) in the wealth of the rich and encouraged, persuaded and chastised the rich (step by step) for the carrying out of this responsibility.
It was followed by this that Allah revealed the first ayah on riba in surah Al Rum (30: 38) pointing out that the riba you give to your lenders for it to grow with their wealth will not make any growth (neither in the individual’s or the economy’s case) in their concerns. The basis of growth is the zakah (two kinds of charity) that you give to the needy seeking Allah’s pleasure. This is so because it’s not you but Allah who gives and who blocks. This was about 5 years before hija.
وَمَا آتَيْتُم مِّن رِّبًا لِّيَرْبُوَ فِي أَمْوَالِ النَّاسِ فَلَا يَرْبُو عِندَ اللَّهِ ۖ وَمَا آتَيْتُم مِّن زَكَاةٍ تُرِيدُونَ وَجْهَ اللَّهِ فَأُولَـٰئِكَ هُمُ الْمُضْعِفُونَ
Then after the defeat at Uhd, one caused by the greed to amass the ghaneemah / war spoils, Allah warned the Muslims in Surah Alu Imran (ayah 130 onwards) against the greedy or avaricious mentality of amassing wealth unmindful of the situation that one is in, the condition of those around us, and forgetful of what one’s own state will be in the coming days. Here again people are reminded of the source of wealth, their responsibility pertaining to it, and that Allah is who gives and who blocks. This was in the third year after hijra.
يَا أَيُّهَا الَّذِينَ آمَنُوا لَا تَأْكُلُوا الرِّبَا أَضْعَافًا مُّضَاعَفَةً ۖ وَاتَّقُوا اللَّهَ لَعَلَّكُمْ تُفْلِحُونَ
The final proclamation of the all time prohibition of riba comes after the victory of Makkah. At this stage it is in the form of a warning to the tribes in Arabia to end their practice of usury or be ready for a battle with Allah and his apostle. The Prophet (pbuh) carried out this instruction by including the prohibition of riba in his pact with all non-Muslim tribes who came for peace talks with him after Makkah victory. This occurs in Surah Al Baqarah (ayah 275 on), a little before the prophet’s (pbuh) demise.
الَّذِينَ يَأْكُلُونَ الرِّبَا لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ الَّذِي يَتَخَبَّطُهُ الشَّيْطَانُ مِنَ الْمَسِّ ۚ ذَٰلِكَ بِأَنَّهُمْ قَالُوا إِنَّمَا الْبَيْعُ مِثْلُ الرِّبَا ۗ وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا ۚ فَمَن جَاءَهُ مَوْعِظَةٌ مِّن رَّبِّهِ فَانتَهَىٰ فَلَهُ مَا سَلَفَ وَأَمْرُهُ إِلَى اللَّهِ ۖ وَمَنْ عَادَ فَأُولَـٰئِكَ أَصْحَابُ النَّارِ ۖ هُمْ فِيهَا خَالِدُونَ
يَمْحَقُ اللَّهُ الرِّبَا وَيُرْبِي الصَّدَقَاتِ ۗ وَاللَّهُ لَا يُحِبُّ كُلَّ كَفَّارٍ أَثِيمٍ
إِنَّ الَّذِينَ آمَنُوا وَعَمِلُوا الصَّالِحَاتِ وَأَقَامُوا الصَّلَاةَ وَآتَوُا الزَّكَاةَ لَهُمْ أَجْرُهُمْ عِندَ رَبِّهِمْ وَلَا خَوْفٌ عَلَيْهِمْ وَلَا هُمْ يَحْزَنُونَ
يَا أَيُّهَا الَّذِينَ آمَنُوا اتَّقُوا اللَّهَ وَذَرُوا مَا بَقِيَ مِنَ الرِّبَا إِن كُنتُم مُّؤْمِنِينَ
فَإِن لَّمْ تَفْعَلُوا فَأْذَنُوا بِحَرْبٍ مِّنَ اللَّهِ وَرَسُولِهِ ۖ وَإِن تُبْتُمْ فَلَكُمْ رُءُوسُ أَمْوَالِكُمْ لَا تَظْلِمُونَ وَلَا تُظْلَمُونَ
وَإِن كَانَ ذُو عُسْرَةٍ فَنَظِرَةٌ إِلَىٰ مَيْسَرَةٍ ۚ وَأَن تَصَدَّقُوا خَيْرٌ لَّكُمْ ۖ إِن كُنتُمْ تَعْلَمُونَ
وَاتَّقُوا يَوْمًا تُرْجَعُونَ فِيهِ إِلَى اللَّهِ ۖ ثُمَّ تُوَفَّىٰ كُلُّ نَفْسٍ مَّا كَسَبَتْ وَهُمْ لَا يُظْلَمُونَ
Remember: the first issue that Abu Bakr ( r ) had to declare war with any was the denial of turning in Zakah. So is the seriousness of the evil of money and money matters on people of all societies. It is not easy to part with money. One should have good level of Iman to be able to dispense the rights of others and part with one’s own excess / surplus money.
The Logic of Zakah Being the Right of the Poor
Now the logic of the Zakah being treated as the right of the eight groups of people: Economic activity and growth in the society is solely because Allah has created men with different potentials, abilities, status and levels. If all were created with equal potentials, status, and facilities, there will be nobody to initiate economic activities. It is only because of all of us dependent on others for everything that we are pushed into economic activities. Therefore, it is easy to find that a rich man is rich only because Allah has made others poor. He is rich at the expense of others. And Allah has done this by giving the share of the poor to him. And when he gives the poor the portion of his wealth that is due to him, he is only giving his due which was the basic reason for his being rich and the latter poor. This Allah has done so because of his great wisdom for initiating economic activities on the earth. If all were in the same level of fortune in all respects, no economic activity will take place. Therefore, no doubt, there is a portion due to the poor in a rich man’s wealth. It is his right and not the rich man’s magnanimity. This is so because Allah has made human beings this way and made it as the basis of the economic growth.
Why Riba was prohibited (declared Haram) in the divine law?
It is worth to present an example to start with the subject, a factual example from existing interest based banking methodology that is valid and current, which can be well understood by a common person. One should consider the following facts before going through the example.
The facts are:
· Only Banks create money.
· The created money is then supplied in to the economy only in the form of loan at some specified interest.
· There are no other institutions that create money other than banks.
The example - an astonishing fact
As all the banks are creating money and supplying in to the economy on interest and without any doubt all of them are practicing the same technique, so let us consider there is only one bank in our example that creates some money and supply in to the people's economy.
Suppose Bank XYZ creates Dirhams 100,000 and supplies it at an interest rate of 10% per annum to several entrepreneurs and governmental units active in the economy, remember there is no money available in the economy from any other source. The bank has taken substantial collateral or guarantee as security of its money from each borrower. See in the following diagram - the borrower’s intake loan and repayment liabilities at the end of the first year:
It is very simple and clear that at the end of the first year, a combined sum of Dirhams 110,000 is due on all borrowers to repay to the loaning bank.
But the money available in the economy is only Dirhams 100,000 as the bank is only supplier of money, so from where the rest 10,000 would come that is the difference in the borrower’s intake and total repayment amount...... from NOWHERE. Yes, that is right from nowhere because that money does not exist in the economy.
Look at the scene, the bank is the only supplier of money, it creates and supplies 100,000 in the economy and that is the total money available in the economy, but as per loan agreements - these borrowers collectively have to pay back 110,000. How is that possible? There is no way. Don't you believe, it is 100% like this - no less. This is cheating and criminal foul play.
So what will happen, at least one or more of these borrowers would default on their loan(s) and would loose their personal assets or belonging that they had put as security to the bank for the repayment.
The money creator has designed a mechanism that would force few of the borrowers each year to default so that bank could forfeit the security assets and gain wealth by foul play.
This is an eye opening example for those who previously had no idea about the mechanism of banks as how they operate and cause artificial shortage (scarcity) of the money in the societies. This is happening every where in this world from
to the smallest country on this beautiful planet. This artificial scarcity of money is the root cause of people's problems from hard struggle for surviving to the loss of happiness from their lives. USA
In a Riba (interest) based system, people are not aware of this foul play - borrowers think that they will manage to repay the principal plus Riba (interest) as they think it would be coming from some where else, but the fact is - every borrower would be in battle with others where some borrowers have to lose in order for others to win, some would fail to pay their loans in order for others to get the sum they need to pay off the Riba (Interest). When seen in totality, the supply side is always in deficit and the liability is always in excess due to Riba (interest), the total combined supply cannot discharge the liability.
After going through the above real example, I believe, now we are close to find out why Riba was declared Haram in Quran and Sunnah.
Let us begin with the economic reasoning of WHY:
· The availability of each produce is limited, the liability cannot exceed the availability limit.
· In any transaction, if a liability of produce "in excess" of "the produce available" is created, that extra liability would be artificial because excess quantity of produce does not exist.
This universal economic code applies to each and every type of produce; to further get in to the explanation of the rule, let us now identify what represents "the produce", "the transaction", and "extra liability":
In its general expression "the produce" is any thing available to human beings for their use or consumption, but here specifically those produce that can be involved in a transaction, it is best to take historical standards of transactions which are based on produce like gold, silver, grains, currency etc. because throughout history all transactions are carried out in publicly acceptable produce only. These produce have served the societies as "medium of exchange", so it is more appropriate logically and historically to consider the produce as "the medium of exchange" which is again a general expression and can accommodate any other commodity/produce that may be used in a transaction.
In this universal economic principle, the transaction is based on a single produce and naturally it can only be a transaction of loan or exchange and nothing else. Although donations/grants also involve only one produce but that is not a transaction because a transaction means exchange of good(s) and/or service(s) either on spot or in any specified time frame involving one or more types of produce.
Riba (interest, usury) is that extra liability created in excess of the produce available and that does not exist. Every liability is a demand in practice, the basic rule of economics known to every one is that to maintain economic equilibrium (stability) in the society, the supply side should be equal to the demand, if the demand is more than the supply - a shortage will occur. Creating an extra liability means creating an extra demand without increasing equal supply, this will start a never ending mechanism of perpetually increasing the shortage of that produce in the society.
Riba was prohibited just to prevent the creation of "extra liability/demand" because that is fake and "does not exist" physically, this artificial "extra liability/demand" creates scarcity of the produce in the society and unjustly accumulation of the produce in few hands. Riba (interest, usury) is a mechanism and dangerous weapon that has a power to get hold of assets/properties of individuals, enterprises, and nations deceitfully. This is unfair and against the nature, so ALLAH banned Riba (interest, usury) very strictly to stop this criminal action.
Nature is the Limit in Islam; any thing not natural is prohibited, stopped, and declared illegal. The above economic reasons are the only base for the prohibition of Riba, ALLAH has allowed everything that is natural but given its strict judgment to stop any behavior, agreement, and practice that is not natural.
The definition of Riba
A forced "increase of value" in "the medium of exchange" that is loaned or swapped is Riba.
Below is explanation of different meaningful parts of this definition:
A forced means demanded, desired, claimed, requested, practiced, agreed etc.
Any of the above or similar words would fall under the "forced" category that define and create a liability on other party.
Increase in value means the increase in terms of value which comprises the quantity and the quality, there is no issue of the minimum or maximum increase, fixed or variable increase, just increase no matter how small or large it is and how that increase is defined.
The medium of exchange means any thing that can serve the purpose of exchange of good(s) and/or service(s) in the society at any level i.e., international, national, or local. We all know and recognize currency and gold etc. as the best examples of the medium of exchange, but still for instance in some parts of the world, agro-labour are paid in grains from the harvest they had worked upon, and that grains serve as the medium of exchange on a very localized level and certainly that would fall under the classification of "medium of exchange". Other than this, any thing would become a "medium of exchange" if the loaning party forces the borrower to pay in extra on return.
That is loaned or swapped means the same medium of exchange that was given as loan or used in the exchange. It is generally understood that exchange is "on spot" and loan is "time related" but both the transactions are based on a single produce, no increase either on spot or in a time frame is allowed because there is a definite potential of using the exchange mechanism for riba if it were only banned in loan transaction. Some people question about the sense of allowing exchange of equal quantity and quality on spot, why some one would do that? The answer is very simple, if one has a currency note of 100 and need to change it into lower denominations, what he gets must be equal to 100 in any combination of lower denominations.
Summarizing the rules for the analysis of riba in a transaction, we might conclude the following:
· Riba is only present in a transaction of single produce, generally "the medium of exchange".
· Riba is not necessarily time related; it can be on spot or in any time frame.
· Riba is the "increase", not the "decrease".
· Riba is forced; volunteer extra return from the beneficiary shall not be regarded as Riba.
Significance of the most argued claim "riba and trade are same"
A transaction is defined as the exchange of good(s) and/or service(s) either on spot or in any specified time frame and that may involve one or more types of produce.
Trade is a transaction where minimum two different types of produce are involved; where one produce is always "the medium of exchange" and the other may be any type of goods.
Barter is a transaction where minimum two types of produce are involved in the absence of "the medium of exchange", in a barter transaction; at least two types of goods are involved.
In a Service transaction, again there are two produce involved, one might be "the medium of exchange" or any type of goods, while the other is a service or labour.
In a Rental transaction, again there are two produce involved, one might be "the medium of exchange" or any type of goods, while the other is usage of assets/property.
It is very obvious in all above transactions that these involve at least two different elements, hence according to the definition of Riba the possibility of Riba does not exists in any of the above.
The basic division lies in the number of elements in a transaction, if there are minimum two elements in a transaction i.e., trade, barter, service contract, rental agreement, there is no Riba in such a transaction, while it is must for riba that the transaction is based on single element. This is fundamental difference in Riba transaction and trade transaction because it is only possible to create an artificial shortage in a transaction involving one produce only.
Riba and Islamic Banking
Islamic banking, which principally should be completely free from Riba (interest), is practiced under the same "fractional reserve" banking system that has to maintain a minimum "capital adequacy ratio" instructed by central bank of the country they are operating in.
Capital Adequacy Ratio (CAR) is a defined percentage of customer's deposit that goes to the central bank while the customer's bank is free to lend/invest remaining part to its other customers, also it is the main constituent of formula that define the "money multiplying factor" in monetary terms. The banks to create money use "Money multiplying factor". One of the simplest formula for money multiplying factor is:
MMF = DEPOSIT/CAR
An important observation
In the existing system of money creation by the banks, what an Islamic Bank would be doing? If they are also involved in the creation of money and issuing banking instruments based on the newly created money, then they must be extremely conscious in designing financial and investment instruments, a wrong assessment or interpretation of Islamic principles may create the same effect of the instrument in the society and the economic system as Riba (interest) is doing. This is extremely sensitive subject. This is not the problem of Islamic directives on financial dealings, but it's the limitation imposed by the controlling master economic system that is ruling and is non-Islamic. There are certainly many questions regarding this system of money creation like who should create money and when? Unless, Islamic spirit of financial system is not inducted at the governmental level, there cannot be a true Islamic economic society.
It has been clearly mentioned in Quranic verses and Hadiths that Riba relates to the increase, and surely that is the truth because only increase can create artificial scarcity of the produce in the society, while if we see the discounting, it does not depict any artificial behavior rather more precisely it has a basic sharing behavior.
The prevailing misunderstanding in the concept of Riba (Interest) that relates it with time as stated by many economists and scholars, has created unrealistic confusion between banking Interest and discounting, most people think that both are same things but actually they are not. The reason of this confusion comes from the practice of applying time-based rate in both cases. Riba is independent of time, it can exist in a hand-to-hand exchange in zero time frame to any large time frame incase of loans, but it is surely an increase not the decrease.
It is a well thought and thoroughly researched conclusion that discounting of financial instruments/bills does not come under the prohibition of Riba. The discounting mechanism inherits a strong characteristic of keeping the circulation of money natural and is an alternative driving force for economic activity for banks and thus for capital.
Discounting is opposite of a Loan transaction (rather one may call it a negative of interest/Riba mechanism), the following comparison may be helpful to emphasize on this difference :
When : Capital is in-hand
When : Capital is not in-hand
Scenario : I give you an amount of 100, after one year, I receive 110
Scenario : I give you a Bill of 100, I receive 90 on spot, after one year, you receive 100
Analogy : I sold 100 for 110
Analogy : I sold 100 for 90
An increase of 10 is noticed
A decrease of 10 is noticed
This increase of 10 is an extra liability created on the borrower
This decrease of 10 is basically sharing of what is available
Nature : A loan is required when the wealth has to be created.
Nature : Discounting is required after the wealth is created.
Activity is dependent on loan
Activity is already done.
beside above tabulated differences, there are other differences in nature of these two types of transactions, but the below are two basic differences further explained as :
1. The increase of 10 in loan is artificial and does not exist in the transaction cycle as part of the principal transacted amount rather is an extra created liability on the part of the borrower, while -10 in discounting is a sharing part of the transacted amount.
Please refer to the page Why Riba was prohibited...? - the subject of artificial increase is discussed there in detail. Additionally, to emphasize on this difference, we must keep in mind the concept of equity which is the base of specific modes of Islamic financing, where labour, capital, knowledge, capability, need, availability etc. have respective values and any combination / agreement is allowed to share these assets between the players of wealth creation activity.
2. I give 100 and receive 110 in loan, while I give 100 and receive 90 in discounting. (The analogy to this is - I sold my 100 for 110 in loan and my 100 for 90 in discounting)
Obviously both can not be same. Some people may ask that who gave me 90 on spot would actually get 100 after one year and that is an increase in his money. This is a very common misconception that is noticed and therefore must be replied accurately. Please review :
1. The capital is not rejected in Islam or in nature, the role of capital is guided with the prohibition of riba and some other ethical and social limitations, otherwise there would be no meaning to Islamic modes of financing. The benefits of capital can not be rejected out rightly, but definitely all those benefits must be permitted which are lawful.
2. It must be noted here, I am giving him 100 for discounting and not that way as he is giving me 90 as loan. These are two completely different situations.
3. Although already mentioned above but to emphasize again it is repeated here that only the similarity of time based rate as practiced these days in loan and discounting transactions can not become the reason for equating the loan and discounting transactions and classifying both as riba transaction, whereas these are two completely different types as tabulated above.
In short, discounting by any means does not have the must elements of riba as discussed and defined here earlier, it is a real and much powerful mechanism that can be explored as the lawful driving force for the capital in the Islamic banking industry.
Present Islamic understanding and misconception about Riba
Being a Muslim, it is our faith - what said in Quran is true and what does Prophet Mohammed (P.B.U.H) said in Hadith is the explanation and logical continuation of Quranic verses. How is it possible that any Hadith can be different in its sense from Quran on same subject? Impossible.
I have intensely investigated Quranic verses and Hadiths on Riba and found that the meaning and sense of both sources is the same, the most popular Hadith on Riba, i.e., hand to hand and equal for equal, had in fact helped a lot in the understanding and defining of Riba. The prevailing misconception aroused from the fact that Islamic scholars and economists were not trying to establish a link between the sense of two sources. This has given birth to very strange definition of "riba-al-fadl or riba-al-buyu" that means "Riba in trade". I said strange because when ALLAH has prohibited Riba and allowed trade then what does it mean "Riba in trade" and one should be careful in giving such title because this is a direct conflict with the verses of Quran. If we look at the terminology of transactions, trade has nothing to do with Riba and it is not possible that Riba could exist in trade, and therefore trade is allowed in Quran.
As stated earlier, the most popular Hadith on Riba, i.e., hand-to-hand and equal-for-equal transaction of few mentioned commodities, basically defines following things:
· Increase of value - i.e., demands more
· The medium of exchange - i.e., gold, silver, dates etc.
· Transaction of single produce/element - i.e., gold for gold, silver for silver etc.
· Exchange on spot - i.e., hand-to-hand means in zero time frame
There are many other misconceptions about Riba; like it is mostly related to poor, needy, exploitation of individuals, unearned income, lack of risk taking etc. and such week arguments are given for these concepts that in most of the cases we can justify Riba because in those transaction none of the subject is true. Mostly, the implications of Riba are discussed and those implications are presented as the reasons for the prohibition. Implications are the result and results can be controlled with trimming and redefining policies and this has been done in many parts of the world, but reasons are logic and the science that can not be changed like nature.
Keeping the ideology of why Riba was prohibited and the definition of riba as stated in above, the same reasoning and philosophy is justified on all Hadiths & Quranic verses on Riba. It is my belief that Islam is a religion of logic and clarity, but it is observed unfortunately that some interpretations of its instructions by some people have created confusion and illogical arguments in the society, that must be addressed properly. Some people are not responsible enough to deal with sensitive subjects and because they have a weight in the society, their sayings are propagated in the society. For instance, one of my recent observation about a magazine issue of August 2002, a very prominent Islamic scholar propagated proudly the concept of two types of Islamic economic system, I read that very carefully which negates itself in its own content therein, but the scholar is proud of putting his concept. The Islamic and economic mechanics does not support the idea on very logical and natural grounds but his idea is well circulated in the society.
Keeping the spirit of the religion on top of the mind, we must differentiate divine law (Ilhami qanoon) from ethical preaching and teachings. For instance, the divine law about Riba is its prohibition; we can not make a preaching or practice - a part of this law, like treating the borrower gently is a preaching, to give him relief in time/value if he needs/demands is also a teaching of ethics, the best would remain if one donates him the money the borrower is in need of, but under any circumstances these teachings cannot become a part of the law.
This is the beauty of Islam; it rejects un-natural things, it encourages gentle and ethical approach and relates the reward with the level of ethics one shows. Every human has got a different nature, acts and thinks in a different way, no two are 100% equal. The law is equally applicable to all of them, but the reward is in proportion of the fineness of their treatment and behavior in the society.
Few examples of Riba
To demonstrate the devastating power in the mechanism of Riba and the ignorance on the subject, following are few examples.
1. Suppose, if just One Gram of Gold (i.e., one millionth of a metric ton) was loaned at an interest rate of 2% p.a. at the time of first Hijri year (Islamic calender), then today (after 1422 Islamic years) the quantity of gold required to repay that loan would be 1,696,071.847 metric tons of gold, while the total gold reserve of the world known today (explored or unexplored) are less than 160,000 tons.
2. If a nation takes a loan of say US dollars one billion at an interest rate of 3% p.a., it would have to repay US dollars 4.3839 billion after fifty years. One can imagine the multiplying rate of Riba mechanism that had badly affected the economies of already weak nations.
3. The president of a country while targeting his predecessors asking publicly that his country is under plenty of debt and where that money had gone? He was unaware of the fact that despite paying more than the actual amount the country took as loan, they are still under debt by more than the amount they had taken as loan. The fact is, the money he is talking about gone somewhere or eaten up by the politicians never existed and is only present in accounting figure of liabilities. It is the dilemma that even heads of the states are not clear about the artificial behavior of Riba so what to talk about a common person.