In recent years, some people who are not well versed with the objectives of Islamic Law or do not have grasp on the subject of Islamic economic system, have argued, among other things, that bank interest is different from Riba and this should not be considered as prohibited by the Holy Qur'an. These arguments and comments thereon are summarized below.
Some people opine that prohibition of Riba in Islam is in respect of Riba transactions prevalent in Arab society at the time when these directives were issued. They say that since commercial loans were not in practice at that time, the interest on such loans does not tantamount to Riba and accordingly permissible. Further considering the fact that banking system did not exist at that time, it is argued that interest charged by banks on production loans for trade, industry and agriculture etc, does not come within the ambit of Riba, as prohibited by the Holy Qur'an. All these arguments, however, are not tenable as it is belying the history that commercial loans for productive purposes were not in existence during the time of the Holy prophet, peace be upon him, or even in earlier times. It is, however, conceded by them (persons denying existence of commercial loans at that time) that there were few instances of agriculture loans, like loans to trade and industry, are commercial loans for productive purposes.
Further, at the time of the dawn of Islam, some practices of Riba were common among the Arabs. These practices were,
1- A person would sell goods to another on the understanding that the price would be paid within an agreed period. If the price was not paid with in that period, an amount was added to the price and the period of repayment was extended.
2- A person would lend money to another on the understanding that a fixed additional amount would be paid besides the principal, with in a fixed period.
3- A rate would be agreed between the borrower and the lender according to which the principal along with the additional amount would be repaid. If a further period for repayment was required, then the rate was increased for the extended period.
The following are some glimpses from history (Federal, 1992:74-70) which also show that Arabs used to enter into money lending transactions for commercial purposes on fixed rates of interest.
a- In pre-Islamic days, it was in usage to take loans on Riba for commercial and consumption purposes for maintaining social life and growth of trade. The capitalists used to give loans on interest to traders.
b- When the Holy prophet, peace be upon him, signed a pact with the people of Taif, a condition was incorporated therein that Riba hearing business will be totally abolished and Riba due from either side will be waived. It is significant to note that the people of Taif were well-known for money lending based on Riba and they also used to give loans to some traders in Makkah on fixed rates (Riba).
c- Hazrat Abbas, a companion of the Holy Prophet, peace be upon him and a man from Banu Mughirah were partners in pre-Islamic days and were engaged in giving commercial loans on Riba to the people. When they embraced Islam, they had to recover substantial amounts of Riba from the people. The verse 2:278 of the Holy Qur'an was revealed at that time and Muslims were directed to forego Riba, due to be recovered.
Some people opine that prohibition of Riba in Islam is in respect of Riba transactions prevalent in Arab society at the time when these directives were issued. They say that since commercial loans were not in practice at that time, the interest on such loans does not tantamount to Riba and accordingly permissible. Further considering the fact that banking system did not exist at that time, it is argued that interest charged by banks on production loans for trade, industry and agriculture etc, does not come within the ambit of Riba, as prohibited by the Holy Qur'an. All these arguments, however, are not tenable as it is belying the history that commercial loans for productive purposes were not in existence during the time of the Holy prophet, peace be upon him, or even in earlier times. It is, however, conceded by them (persons denying existence of commercial loans at that time) that there were few instances of agriculture loans, like loans to trade and industry, are commercial loans for productive purposes.
Further, at the time of the dawn of Islam, some practices of Riba were common among the Arabs. These practices were,
1- A person would sell goods to another on the understanding that the price would be paid within an agreed period. If the price was not paid with in that period, an amount was added to the price and the period of repayment was extended.
2- A person would lend money to another on the understanding that a fixed additional amount would be paid besides the principal, with in a fixed period.
3- A rate would be agreed between the borrower and the lender according to which the principal along with the additional amount would be repaid. If a further period for repayment was required, then the rate was increased for the extended period.
The following are some glimpses from history (Federal, 1992:74-70) which also show that Arabs used to enter into money lending transactions for commercial purposes on fixed rates of interest.
a- In pre-Islamic days, it was in usage to take loans on Riba for commercial and consumption purposes for maintaining social life and growth of trade. The capitalists used to give loans on interest to traders.
b- When the Holy prophet, peace be upon him, signed a pact with the people of Taif, a condition was incorporated therein that Riba hearing business will be totally abolished and Riba due from either side will be waived. It is significant to note that the people of Taif were well-known for money lending based on Riba and they also used to give loans to some traders in Makkah on fixed rates (Riba).
c- Hazrat Abbas, a companion of the Holy Prophet, peace be upon him and a man from Banu Mughirah were partners in pre-Islamic days and were engaged in giving commercial loans on Riba to the people. When they embraced Islam, they had to recover substantial amounts of Riba from the people. The verse 2:278 of the Holy Qur'an was revealed at that time and Muslims were directed to forego Riba, due to be recovered.