The logic as to why the Holy Quran has given such sever verdict against interest is that Islam is against all forms of exploitation, and pleads an economic system which aims to secure extensive socio-economic justice. Islam, therefore, condemns all forms of exploitation particularly the injustice continued in the form of lender being guaranteed of positive return without assuming the share of risk with the borrower; whereas the borrower takes upon himself all sorts of risks in addition to putting in his skills and labour. All business dealings have an inseparable risk factor. A person spends his labour and time and utilities his skills, when he invests money in trade, industry or agriculture, but there is no guarantee of profit or rate of profit on his investment. He also faces a risk of loss of capital or part thereof. But on the other hand, the money lender simply lends funds and does not invest his time or labour in the business but is guaranteed a fixed rate of profit in the form of interest. Islam says in clear terms that the lender is not justified in earning a fixed rate of profit, irrespective of the operational results of the business.
Interest charged on loans and advances, therefore, amounts to exploitation as the borrowers, particularly the small ones, are in a weaker position. (Shafe, 1411 H). The instances are not lacking where the debtor has paid the original amount of loan in full, but due to interest application, the amount outstanding cumulates to more than the principal amount advanced. There are countless instances of consumption loans, particularly in the third world countries, where interest charges render the full adjustment of loans almost impossible and the poor person continues taking one loan after the other to get out of the vicious circle without any success. He has already paid mush more than the original amount but the outstanding continues to rise due to the application of interest. In large number of cases, the payment of installments of loans, eat away a substantial portion of their income and the miserable persons (debtors) are unable to meet even their, basic needs and that of their families, leading to poor health, sub- standard living conditions and no education. All this gives rise to a never ending tussle between haves and have nots and results in tension, anxiety, frustration and hatred.
An instance of this sad state of affairs even in a western country was recently highlighted by the British media. According to details, David Taylor, who was a leukemia patient, had taken a loan from a major western bank. The bank overdraft was growing at a frightening rate due to bank’s high interest rate. The poor and sick man was worried that the longer he lived, the more of his life insurances money would be grabbed by the bank, leaving little or nothing for his family. Every additional day of his life meant less money for his wife and children. He was, therefore, not interested to prolong his life. This is not a solitary case but clearly explains the misery caused by charging interest on personal consumption loans. As no income is generated on personal consumption loans, Islam has laid down that only the principal amount should be recovered on such loans provided the borrower is in a position to repay. These types of loans are termed as Qard-Hasan.
Further, in case the borrower suffers heavy losses in business and his capital is fully wiped out, he may still be forced to sell his personal assets and belongings as the lender assumes no risk in the business losses. Islam condemns this state of affairs, as it tantamount to nothing but selfishness, exploitation and money worship (SEM).
There is a wide gap between the resources and economic conditions of developed, developing and underdeveloped countries of the world. In the early years of modern times, the rich countries provided development finances to underdeveloped countries as grants. Subsequently, there was a shift in policy and more funds were provided as interest-free loans and then long term loans at nominal rates of interest: The rate, however, continued to rise and presently huge funds are being given to other countries on comparatively higher rates of interest. An analysis of the economic conditions of many countries like Pakistan, India, Bangladesh, Mexico, Brazil, Argentine, Venezuela and Philippines etc. indicates that their pace of economic growth is very slow, as the burden of payment of interest cats away a very substantial portion of their revenues and these countries feel real pinch of debt and interest repayments.
It is important to appreciate that a loan of $100 at 10% per annum simple interest in 100 years comes to $1100 only, whereas at compound rate of interest, it comes to %1.378 million. This reflects the magnitude of the problems being faced by developing and underdeveloped countries of the world, which depend on foreign long term loans and are unable to pay the installments of interest and principal amount, due to poor economic conditions. Corey Aquino, the then president of Philippines’, equated the high interest rates under the capitalist system with a form of slavery and criticized the highly oppressive nature of the modern unfettered capitalist system. She observed that poor nations are unable even to service the loans advanced to them by major international banks and financial institutions.
This situation was envisaged by Islam 1400 years ago. The Islamic Law asserted that there should be no pre-agreed rates of interest on loans. Uzair (1978) says that Islam emphasizes on agreed rations of profit sharing rather than fixed and predetermined percentages. Instead, the transactions should be on profit and loss sharing basis. Islam, therefore, while opposing interest, encourages business partnership for growth of trade, industry and agriculture. This is also applicable to financial arrangements between states.
There is enough justification for prohibition of interest which appeals to the human mind, provided it is looked in to with an unbiased mind after freeing from pre-conceived motions. But for those parsons how are still unable to comprehend the logic, there is yet another argument. When Almighty Allah in all his wisdom has ordained something; this in itself is the greatest intellectual argument in its support and no main made arguments are needed to prove the logic. The Creator knows the nature of man better than he himself knows it, and for that matter, the psyche of all human beings better than anybody else. It is, therefore, imperative to have full and unshakable faith in the guidance provided by Allah. The guiding principle in all the religions of the world is that whenever there is a dictate of Almighty Allah, it has to be obeyed, irrespective of the fact that one is able to find any justification for it or not.
If the verdict of Allah appears to be in conflict with a scientific theory, one must still have total faith in the directives contained in the Holly Book as the Creator has infinite wisdom. The human mind, wisdom and knowledge being inadequate and limited, no directive of Allah can be said to be unjustifiable because one is unable to find an acceptable logic. While one should continue to find out a justification for the guidance provided be Almighty Allah, its compliance should not be refused or even deferred.
Interest charged on loans and advances, therefore, amounts to exploitation as the borrowers, particularly the small ones, are in a weaker position. (Shafe, 1411 H). The instances are not lacking where the debtor has paid the original amount of loan in full, but due to interest application, the amount outstanding cumulates to more than the principal amount advanced. There are countless instances of consumption loans, particularly in the third world countries, where interest charges render the full adjustment of loans almost impossible and the poor person continues taking one loan after the other to get out of the vicious circle without any success. He has already paid mush more than the original amount but the outstanding continues to rise due to the application of interest. In large number of cases, the payment of installments of loans, eat away a substantial portion of their income and the miserable persons (debtors) are unable to meet even their, basic needs and that of their families, leading to poor health, sub- standard living conditions and no education. All this gives rise to a never ending tussle between haves and have nots and results in tension, anxiety, frustration and hatred.
An instance of this sad state of affairs even in a western country was recently highlighted by the British media. According to details, David Taylor, who was a leukemia patient, had taken a loan from a major western bank. The bank overdraft was growing at a frightening rate due to bank’s high interest rate. The poor and sick man was worried that the longer he lived, the more of his life insurances money would be grabbed by the bank, leaving little or nothing for his family. Every additional day of his life meant less money for his wife and children. He was, therefore, not interested to prolong his life. This is not a solitary case but clearly explains the misery caused by charging interest on personal consumption loans. As no income is generated on personal consumption loans, Islam has laid down that only the principal amount should be recovered on such loans provided the borrower is in a position to repay. These types of loans are termed as Qard-Hasan.
Further, in case the borrower suffers heavy losses in business and his capital is fully wiped out, he may still be forced to sell his personal assets and belongings as the lender assumes no risk in the business losses. Islam condemns this state of affairs, as it tantamount to nothing but selfishness, exploitation and money worship (SEM).
There is a wide gap between the resources and economic conditions of developed, developing and underdeveloped countries of the world. In the early years of modern times, the rich countries provided development finances to underdeveloped countries as grants. Subsequently, there was a shift in policy and more funds were provided as interest-free loans and then long term loans at nominal rates of interest: The rate, however, continued to rise and presently huge funds are being given to other countries on comparatively higher rates of interest. An analysis of the economic conditions of many countries like Pakistan, India, Bangladesh, Mexico, Brazil, Argentine, Venezuela and Philippines etc. indicates that their pace of economic growth is very slow, as the burden of payment of interest cats away a very substantial portion of their revenues and these countries feel real pinch of debt and interest repayments.
It is important to appreciate that a loan of $100 at 10% per annum simple interest in 100 years comes to $1100 only, whereas at compound rate of interest, it comes to %1.378 million. This reflects the magnitude of the problems being faced by developing and underdeveloped countries of the world, which depend on foreign long term loans and are unable to pay the installments of interest and principal amount, due to poor economic conditions. Corey Aquino, the then president of Philippines’, equated the high interest rates under the capitalist system with a form of slavery and criticized the highly oppressive nature of the modern unfettered capitalist system. She observed that poor nations are unable even to service the loans advanced to them by major international banks and financial institutions.
This situation was envisaged by Islam 1400 years ago. The Islamic Law asserted that there should be no pre-agreed rates of interest on loans. Uzair (1978) says that Islam emphasizes on agreed rations of profit sharing rather than fixed and predetermined percentages. Instead, the transactions should be on profit and loss sharing basis. Islam, therefore, while opposing interest, encourages business partnership for growth of trade, industry and agriculture. This is also applicable to financial arrangements between states.
There is enough justification for prohibition of interest which appeals to the human mind, provided it is looked in to with an unbiased mind after freeing from pre-conceived motions. But for those parsons how are still unable to comprehend the logic, there is yet another argument. When Almighty Allah in all his wisdom has ordained something; this in itself is the greatest intellectual argument in its support and no main made arguments are needed to prove the logic. The Creator knows the nature of man better than he himself knows it, and for that matter, the psyche of all human beings better than anybody else. It is, therefore, imperative to have full and unshakable faith in the guidance provided by Allah. The guiding principle in all the religions of the world is that whenever there is a dictate of Almighty Allah, it has to be obeyed, irrespective of the fact that one is able to find any justification for it or not.
If the verdict of Allah appears to be in conflict with a scientific theory, one must still have total faith in the directives contained in the Holly Book as the Creator has infinite wisdom. The human mind, wisdom and knowledge being inadequate and limited, no directive of Allah can be said to be unjustifiable because one is unable to find an acceptable logic. While one should continue to find out a justification for the guidance provided be Almighty Allah, its compliance should not be refused or even deferred.