Interest, Riba, Usury - Printable Version

Interest, Riba, Usury - Printable Version

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Interest, Riba, Usury - amam_786 - 11-25-2003

 FOLLOWING HAS BEEN SUMMARIZED FORM http//www.lariba.com/financing/HistoricalCritiqueUsury.shtm


Usury (Riba, Interest) has been known to exist in various parts of the world at least four thousand years back (Jain 1929). The Usury has been subjected to criticism on grounds of social injustice, economic instability, etc. Among its most visible and vocal critics have been the religious institutions of Hinduism, Buddhism, Judaism, Islam and Christianity, ancient Western philosophers and politicians, as well as various modern socio-economic reformers.

HISTORY OF THE CRITIQUE OF USURY

Usury in Hinduism and Buddhism 
The Sutra text of Ancient India (700-100 BC) and Buddhist Jatakas (600-400 BC) expresses contempt for usury. Special law was made which forbade the higher class of Brahmanas (Priest) and Kshatriyas (warriors) from being lenders at interest. However up-till recent times concept of usury has been limited to charging interest at rate higher than what is legal.

Usury in Ancient Western Political Philosophy 

Ancient Western philosophers who condemned usury can be named Plato, Aristotle, the two Catos, Cicero etc. In Republican Rome (340 BC) interest was outlawed altogether. Under the banner of Julius Caesar, a ceiling on interest rates of 12% was set, and later under Justinian, lowered even further to between 4% and 8% (Birnie, 1958). With Christianity Church also assaulted Usury.

Usury in Islam 

The criticism of usury in Islam was well established during the Prophet Mohammed's life and reinforced by various of his teachings in the Holy Quran [Most notable of these is Surah 2 verses 188, 274-280; Surah 3 verse 130; Surah 4 verses 29, 161; Surah 9 verses 34-35, 43; Surah 30 verse 39]DATING back to 600 AD.A school of Islamic thought which emerged in the 19th Century, led by Sir Sayyed, still argues for a interpretative differentiation between usury, which it is claimed refers to consumptional lending, and interest which they say refers to lending for commercial investment (Ahmed, 1958).

Usury in Judaism and Christianity 

Criticism of usury in Judaism has its roots in several Biblical passages in which the taking of interest is either forbidden, discouraged or scorned, In the associated Exodus and Leviticus texts, the word almost certainly applies only to lending to the poor and destitute, while in Deuteronomy, the prohibition is extended to include all moneylending, excluding only business dealings with foreigners. Despite the prohibition on taking interest, there is considerable evidence to suggest that this rule was not widely observed in biblical times.

The critique of usury was most ferverently taken up as a cause by the institutions of the Christian Church where the debate prevailed with great intensity for well over a thousand years. In the eighth century Catholic Church declared usury to be a general criminal offence. This anti-usury movement continued to gain momentum during the early Middle Ages and perhaps reached its zenith in 1311 when Pope Clement V made the ban on usury absolute and declared all secular legislation in its favour, null and void (Birnie, 1952).

Usury in Modern Reformist Thinking 

Adam Smith, despite of his image as the âFather of the Free-market Capitalismâ and his general advocacy of laissez-fair economics, came out strongly in support of controlling usury. He was in favour of the imposition of an interest rate ceiling. Gesell, as a successful nineteenth century merchant in Germany and Argentina, condemned interest on the basis that his sales were more often related to the âpriceâ of money (i.e. interest) than people's needs or the quality of his products. Margrit Kennedy (1995), a German professor at the University of Hannover, criticized interest, believing that âinterest ... acts like cancer in our social structureâ. She takes up the cause for âinterest and inflation-free moneyâ by suggesting a modification of banking practice to incorporate a circulation fee on money, acting somewhat like a negative interest rate mechanism.

It was premised by a number of socio-economic reformists of the twentieth century that for banks to then charge interest on money which they had created out of nothing, having suffered no opportunity cost or sacrifice, amounted to nothing less than immoral and fraudulent practice.

RATIONALE FOR THE CRITIQUE OF USURY 
Usury as Unearned Income 

The Lateran council of 1515 clearly expressed âThis is the proper interpretation of usury when gain is sought to be acquired from the use of a thing, not in itself fruitful (such as a flock or a field) without labour, expense or risk on the part of the lender.â Birnie reinforces this point âto live without labour was denounced as unnatural, and so Dante put usurers in the same circle of hell as the inhabitants of Sodom and other practisers of unnatural viceâ (1952 4).

This is also the rationale Ahmad uses to explain why in Islam God [vii] âpermits trade yet forbids usuryâ âThe difference is that profits are the result of initiative, enterprise and efficiency. They result after a definite value-creating process. Not so with interestâ; also âinterest is fixed, profit fluctuates. In the case of interest you know your return and can be sure of it. In the case of profit you have to work to ensure itâ (1958 25). Perhaps Aristotle had similar sentiments in mind when he argued that âa piece of money cannot beget anotherâ.

Keynesâ biographer, Skidelsky, intriguingly comments that âKeynesâs sense that, at some level too deep to be captured by mathematics, âlove of moneyâ as an end, not a means, is at the root of the worldâs economic problemâ (1992 454).

Usury is what marks the distinction between money being simply a socially contracted abstract mechanism to lubricate between supply and demand, and money as an end in itself. The true dignity and full reward of ordinary labour is compromised. Money thus becomes self-perpetuating power in itself rather than just a mediating agent of power.

Usury as Exploitation of the Needy
This reason is self-explanatory, how ever this concept needs to differentiate helping Interest from oppressive according to Sir Sayyedâs school in Islam. This idea can be elaborated to say that rich do nothing to earn their living and still earn this extra income in society results from the fact that the poor have to sweat doubly so that the rich might live on interest.

A parallel modern argument relates to the devastating social impact of the so-called âThird World debt crisisâ, a situation which even Pope John Paul II (1989) acknowledges in his Sollicitude Rei Socialis when he states âCapital needed by the debtor nations to improve their standard of living now has to be used for interest payments on their debtsâ. If the debt to debtor nations was advanced on equity basis in 70âs, the debtor nations would not have wrong footed by compound interest rate established by non-domestic macroeconomics factors.

Usury as a Mechanism of Inequitable Redistribution of Wealth
âInterest in any amount acts in transferring wealth from the asset less section of the populationâ (Choudhury and Malik, 1992 51). Kennedy (Germany) in 1992 show through empirical evidence that while the poorest 2.5 million households paid out net DM 1.8 billion in interested, the richest 2.5 million households received (net) DM 34/2 billion.
From marginal utility theory point of view, the utility gain provided by usury is marginal to the already substantial utility of the principle sum. For poor the loss in utility incurred by having to pay interest is qualitatively much greater than the gain to the rich. Thus permitting usury to operate in economy reduces overall utility in the economy. Any justification of interest as an efficient economic instrument would have to first demonstrate that it functions to increase total utility. In the absence of such demonstration, it can justifiably be condemned as a tool of tyranny.
Usury as an Agent of Economic Instability
Kennedy (1995)shows, for instance, how in Germany, while government income, Gross National Product and the salaries and wages of the average income earner rose by about 400% between 1968 and 1989, the interest payments of the government rose by 1,360% which she claims implies an inflationary effect.

Edited by - amam_786 on Nov 27 2003 111004 AM

Edited by - amam_786 on Nov 27 2003 111350 AM

- amam_786 - 11-27-2003

Some of the Quran and Hadith sayings about Riba

Surah/Chapter 002 - Al-Baqarah. Verse 275.
English Translation (The Noble Qur'an) 

Those who swallow USURY cannot rise up save as he ariseth whom the devil hath prostrated by (his) touch. That is because they say Trade is just like USURY; whereas Allah permitteth trading and forbiddeth USURY. He unto whom an admonition from his Lord cometh, and (he) refraineth (in obedience thereto), he shall keep (the profits of) that which is past, and his affair (henceforth) is with Allah. As for him who returneth (to USURY) Such are rightful owners of the Fire. They will abide therein.

Surah/Chapter 003 - Al-ImrÃ¢n. Verse 130.
English Translation (The Noble Qur'an) 

O ye who believe! Devour not USURY, doubling and quadrupling (the sum lent). Observe your duty to Allah, that ye may be successful.

Vol 3, Book 34. Sales And Trade.
Hadith 344. (Shahi Bukhari)

Narrated By Az-Zuhri from Malik bin Aus That the latter said, "Who has change?" Talha said, "I (will have change) when our store-keeper comes from the forest."
Narrated 'Umar bin Al-Khattab Allah's Apostle said, "The bartering of gold for silver is RIBA, (usury), except if it is from hand to hand and equal in amount, and wheat grain for wheat grain is usury except if it is form hand to hand and equal in amount, and dates for dates is usury except if it is from hand to hand and equal in amount, and barley for barley is usury except if it is from hand to hand and equal in amount."
Vol 3, Book 34. Sales And Trade.
Hadith 382. (Shahi Bukhari)
Narrated By Ibn Shihab That Malik bin Aus said, "I was in need of change for one-hundred Dinars. Talha bin 'Ubaid-Ullah called me and we discussed the matter, and he agreed to change (my Dinars). He took the gold pieces in his hands and fidgeted with them, and then said, "Wait till my storekeeper comes from the forest." 'Umar was listening to that and said, "By Allah! You should not separate from Talha till you get the money from him, for Allah's Apostle said, 'The selling of gold for gold is RIBA (usury) except if the exchange is from hand to hand and equal in amount, and similarly, the selling of wheat for wheat is RIBA (usury) unless it is from hand to hand and equal in amount, and the selling of barley for barley is usury unless it is from hand to hand and equal in amount, and dates for dates, is usury unless it is from hand to hand and equal in amount."

Vol 3, Book 34. Sales And Trade.
Hadith 386. (Shahi Bukhari)

Narrated By Abu Salih Az-Zaiyat I heard Abu Said Al-Khudri saying, "The selling of a Dinar for a Dinar, and a Dirham for a Dirham (is permissible)." I said to him, "Ibn 'Abbas does not say the same." Abu Said replied, "I asked Ibn 'Abbas whether he had heard it from the Prophet s or seen it in the Holy Book. Ibn 'Abbas replied, "I do not claim that, and you know Allah's Apostle better than I, but Usama informed me that the Prophet had said, 'There is no RIBA (in money exchange) except when it is not done from hand to hand (i.e. when there is delay in payment).'"

Vol 3, Book 38. Representation, Authorization, Bus....
Hadith 499. (Shahi Bukhari)

Narrated By Abu Said Al-Khudri and Abu Huraira Allah's Apostle employed someone as a governor at Khaibar. When the man came to Medina, he brought with him dates called Janib. The Prophet asked him, "Are all the dates of Khaibar of this kind?" The man replied, "(No), we exchange two Sa's of bad dates for one Sa of this kind of dates (i.e. Janib), or exchange three Sa's for two." On that, the Prophet said, "Don't do so, as it is a kind of usury (RIBA) but sell the dates of inferior quality for money, and then buy Janib with the money". The Prophet said the same thing about dates sold by weight. (See Hadith No. 506).

Vol 6, Book 60. Prophetic Commentary On The Qur'an....
Hadith 067. (Shahi Bukhari)

Narrated By Ibn Abbas The last Verse (in the Quran) revealed to the Prophet was the Verse dealing with usury (i.e. RIBA).
Book 16. Commercial Transactions.
Hadith 3325. (Abu Dawud)
Narrated By AbuHurayrah The Prophet (pbuh) said A time is certainly coming to mankind when only the receiver of USURY will remain, and if he does not receive it, some of its vapour will reach him. Ibn Isa said Some of its dust will reach him.

Book 16. Commercial Transactions.
Hadith 3327. (Abu Dawud)

Narrated By Abdullah ibn Mas'ud The Apostle of Allah (pbuh) cursed the one who accepted USURY, the one who paid it, the witness to it, and the one who recorded it.

Some of Practical disadvantages;
As you know that schemes, like National Savings Schemes, are believed to increase Business activities through induced savings, but unfortunately these schemes are not helping large businesses. Instead they are harmful for small businesses.
A friend ne showed this position in the following way.
"My father got his retirement early and invested his Money in National Savings Schemes. I wanted to do my own business. But as I do not have money, I discussed some of business opportunities with my father. But he always sees the darker side of these plans as he feels unsecured in any of the businesses. He is satisfied with his safe though lesser earnings in the form of interest. Now he is worried about declining rate of interest of banking system. This is a case where a business activity or productivity is being sacrificed, for small amount of interest, not benefiting our family or any one else."

Edited by - amam_786 on Nov 27 2003 112925 AM

- jbladeus - 11-28-2003

Good work Amam... thnx

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Arrrgh... it sure's gonna be mighty rough sailin' today ... mates!