Interest: Need to redefine it

Q289 :May I appeal to you to redefine "interest" so that Muslim countries may be able to proceed with industrialization that will benefit them. Islam is a way of life which does not stop anything that benefits the Muslim community. I have in mind a certain case where a group of companies were about to set up a very large thermal power station at an estimated cost of $ 1.5 billion. Just before starting, a court verdict was issued that banned all interest-bearing transactions. This chilled the bankers away and the project did not materialize.

A289 : It is not for me to redefine interest. That is a task for economists. What is forbidden in Islam is that which is known in Arabic as "riba", which we often translate as usury. I realize that interest given or charged by banks is not exactly the same as usury, but there is sufficient similarity to make Muslim scholars consider interest as forbidden. Riba, or usury means the excess a lender receives over and above the principle amount he advances to a borrower. At the time when the Islamic message was vouchsafed to the Prophet Muhammad (peace be upon him) people used to borrow money for a specific term. When the time is due and the borrower does not have funds to settle his debt, he would go to the lender and ask him to put back the repayment date in return for an increase in the amount to be repaid. That is strictly forbidden. You will agree that there is a great similarity between this process and what happens when you borrow money from a bank. If the loan is to be repaid over a longer period, then what is actually repaid is larger than what would have been the case if the principal amount was repaid over a short period. Banks speak of "debt servicing" and the term is interest from the Islamic point of view. However, not many religious scholars have had the type of thorough knowledge of the banking system in order to reconsider the commonly known rulings which pronounce interest as forbidden, because it is a type of riba or usury. A couple of years ago, the Mufti of Egypt appealed for a redefinition of banking terms. This should be done by bankers and economists who should come forward and tell us in simple language what is involved in every sort of banking transaction. When they do it, religious scholars will be able to make a more scholarly and well considered ruling about every type of transaction. But I must point out that even the greatest project should be stopped if it involves disobedience to God. Material prosperity should not be at the expense of our more important duty of obeying God. If we place material prosperity at par with our duty of obeying God, then we are grossly mistaken. I should emphasize that this is a totally separate question from that of redefining banking terms. I am here stating a principle. We do not approve of disobedience to God to achieve prosperity. That prosperity is bound to be short lived and accompanied by social evils. The prosperity we look for is the one achieved through maintaining Islamic principles which are sure to give us the progress we aspire while enabling us at the same time to maintain an attitude of obeying Allah.

Our Dialogue ( Source : Arab News - Jeddah )