Discussion on Bank Interest

There is Difference between Interest and Usury
Participants in a Discussion in Bangalore maintain that commercial loans must bear a cost for economy to flourish.

Quranic prohibition on usury does not apply to bank interest, opine Muslim intellectuals in a conclave on Riba, Interest and Usury in Bangalore

If fixed return on investments were religiously prohibited, how rents on buildings and machines be permitted, was the query from several participants.

By A Staff Writer

Bangalore: Several intellectuals, bureaucrats and activists who discussed the interest-based transactions in banks and other financial institutions in a rare one-day conclave stressed the need for maintaining distinction between interest and usury. The topic of the discussion was “Riba, Interest, Usury and the Quranic ethics”. The discussion was organized by the Centre for Contemporary Studies (CCS) at the Indian Social Institute, Benson Town on Sunday, March 17. A question from Mr. Daniyal Kazi and a reply by Maqbool Ahmed Siraj in the Islamic Voice a few months earlier had triggered a discussion among the readers. The CCS based in Koramangala which has been investigating several issues concerning Muslims and Islam for nearly a decade, took up the task of framing the issues in the light of the Holy Quran and organizing the conclave.
Key Observations
The participants made the following observations: The terms of borrowing of money have changed from one-to-one to lender-bank-borrower trinity. 2- The erosion of value of money over a period of time necessitates additional return of money i.e., coverage of inflation. If this does not happen, the lender is left in loss. 3- The money, the store of the value, today is paper currency and not the standard gold as it used to happen in olden days. 4- The credit transactions today are centred around commercial activity rather than consumptive purposes. 5- The Quran does not talk about predetermined profits being illegitimate and risk-bearing activity being the only legitimate way to earn. 6- The role of the banks in mobilizing the savings of the societies and nations and placing them at the disposal of wealth-generators against a price was a modern phenomenon of the society. 7- There were no financial institutions in medieval societies and subsistence economies were mainly centred around individual’s enterprise. 8- The Quran talks of sadaqa as an instrument for waiving off loans for people in financial straits. It may not be possible in strictly commercial activity where borrowers are the rich and the affluent members of the society or industrialists. 9- Usury is even today prohibited by law in India and many other countries while banking interest is tightly regulated by the Reserve Bank of India and other central banks which see to it that it does not go berserk.
Cost of the Money cannot be wished away
In a paper specially prepared by Mr. M. A. K. Tayab, the issues were framed in the light of the eight specific verses (ayats) of the Holy Quran which talked about the Riba. Tayab said though the issue of Riba, interest and Usury has been discussed since long, a workable understanding has never crystallized. The paper said the issue has assumed importance today as education that makes a person knowledgeable, has become necessary. Traditionally interest and usury has been looked upon by Muslims as being proscribed inasmuch as it has become a part of their belief system or dogma although it was hardly possible to carry on life without taking loan. “Not merely this, one needs to maximize his/her income, make legitimate consumption, save and invest a considerable income for his post-working life and leave some capital behind for his descendants” it added. He said Quranic injunctions that talked about the Riba were Surah Baqrah’s verses 275, 276, 278, 279, 280, verse no. 130 of Surah Al-Imran and verse. No. 161 of Surah Nisaa and verse no. 39 of Surah Rum.
It then laid out three imperatives that underlie the question of livelihood and economy today namely 1- No work, no food, 2- one could exchange what he has for what he requires i.e., exchange of goods of value, and 3- phenomenon of modern economies that require larger timeframes thereby requiring credits without which they would come to a grinding halt.
The paper inferred that the Surah Baqrah’s verses talked about interest being prohibited in transaction between individuals and borrowers being poor men whose dues could be offset through charity in case of straitened conditions. It further said the verse 3: 130 i.e., “O People who have believed: Do not devour usury that doubles and quadruples, and remain conscious of God, and obey Him, you shall attain to falah (success)” occupied premier position as it sets out that exorbitant and exploitative rates to the tune of a hundred percent and more was usurious and not the rate below this.
Combining the three imperatives set out earlier it argued that the Quranic prohibition applied to usurious transactions that charged exorbitant rates of interest. It also pointed out that the riba related verses were indicative of the moral-ethical nature of these guidelines and remedies being suggested were also in terms of moral-ethical measures as the issue has not been discussed in legal or penal terms.
Some participants observed that in the verse 3: 130, the doubling and quadrupling may refer figuratively to exorbitant rate of interest rather than fixing it above hundred percent. Another participant suggested why not look into the collection of Hadith to find out as to what riba actually meant and as to how it differed from banking interest. Yet another participant observed that today’s banks were merely service institutions and not business institutions and therefore Islamic banking may not apply to them at all.
Commenting upon the entire proceedings of the day, Prof. Abdul Aziz, formerly with Institute of Social and Economic Change, said, the discussion was impressive and he was convinced that the community had no deficit of intellectuals. He said the import of the doubling and quadrupling should not be missed as it holds the key to the understanding of the issue in the Quranic light. He said the banking interest should not be considered prohibited as it was regulated by the central bank. He also questioned the proposition that prefixed profit made any investment religiously prohibited. “Should then not the rents on buildings and home too should be prohibited”, he queried.
Following persons participated in the day-long deliberations:
Participants: M. A. K. Tayab (IAS-Retd), President, CCS; Prof. Abdul Aziz, formerly with Institute for Social and
Economic Change, Bangalore; Syed Fathaullah, former Director, Mysore Paper Mills; Azizulla Baig, IAS-retd; Daniyal Kazi, General Manager (retd) Himalaya Drugs Company, Bangalore; S. S. A. Abdul Khader, General Manager, State Bank of India, Bangalore; Md. Niazuddin (KAS-retd) and businessman; Maqbool. A. Siraj, journalist; N. T. Aabroo, KAS, Director Treasuries, Govt of Karnataka; Gulame Ghouse, columnist; Syed Shakiruddin, formerly with BHEL; Vikhar Ahmed, journalist, Frontline; Dr. Malik Ingalgi, Principal(retd.), Govt. College; D. M. Iqbal, formerly Manager with Canara Bank; Niaz K. Ghouri, Al-Ahmar Coop. Society, Bangalore; Azam Shahid, Economic lecturer; Dr. Md. Qaiser, Economics Lecturer, Al-Ameen College; Mohd. Umer Farooq, formerly with Aramco, Saudi Arabia; Rashid Ali Khan, investment consultant; Dr. Afrose Parveen, Professor of Dentistry, St. John’s Medical College, Bangalore; Dr. Musa Kaiser, investment consultant; Kaleem Khan, businessman; Md. Iqbal, Customs Officer (retd); Basheer Ahmed, Prof. Ismath Afshan, Professor of Economics, Bangalore University; M. H. Jaffery, formerly with BHEL; Syed Abdul Wali, mutawalli, Masjid Hilal, Kolar; Rafeeq Baig, businessman, Bangalore; Dr. I. M. Khan, K. M. Siddheeq,

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