Islamic Finance: A Question of Law or Justice?

Islamic Finance: Riba, Tarbit, and Fa’id:  A Question of Law or Justice?

by Dr. Robert Dickson Crane, J.D.

  The position one takes on the legitimacy of charging “interest” provides a classical test for whether one prefers superficial or profound interpretation of scripture.  This was my conclusion as long ago is 1982, a quarter century ago, when I wrote a 110 page book on Islamic commercial law. 

  This test is valid in any religion, simply because at the level of the superficial or external (the dhahira) charging anything at all for a loan is prohibited, whereas at the level of the inner meaning of words (the batina), the criterion is justice.  This means, according to perhaps the greatest modern scholar of the Qur’an, Muhammad Asad, that the issue is not strictly legal, but moral, and that law either is an expression of morality or is itself unjust.

  The term about which scholars have debated for 1400 years is riba, a term that can be interpreted as any interest whatsoever or merely excessive interest The two most useful quotes from the Qur’an are the first and the last revealed on the subject. 

  The first revelation is recorded in Surah al Rum (the Byzantines), 30:39.  Most simply this is translated as “The usury (riba) that is practiced to increase some people’s wealth does not bring (you) increase in the sight of God.”  Muhammad Asad translates it more literally as “Whatever you may give out in usury [i.e., loan in a sum of money] so that it might increase through other people’s property [mal, pl. amwal] will bring (you) no increase in the sight of God.”). 

  This is usually interpreted as applying to the case where the borrower carries total responsibility for losses, whereas the lender has a guaranteed profit, because they have not equally shared the risks of business.  Private property is sacred, according to the human responsibility and right embodied in the legal term haqq al mal.  The property bought by the borrower with the money loaned belongs to him, not to the lender.  Therefore the lender should not have any claim that would derogate from this property right.  The lender has a property right only in the money loaned, and, modern economists would say, in the opportunity value of what the lender could have earned by loaning his money to someone else.  This, however, begs the question of whether loaning money should be a source of earning money.  The question about whether money is merely a medium of exchange or a good that can be bought and sold at a profit can be avoided either by a partnership or nowadays by investment banking with stock ownership.

  The second most debated verse is the last verse revealed to the Prophet Muhammad before he died, so the Companions never had a chance to ask him what it means.  This verse, in Surah al Baqara 2:275, reads as follows in English translation: “Those who charge usury (riba) are in the same position as those controlled by the devil’s influence.  This is because they claim that usury is the same as commerce.  But God permits commerce and prohibits usury.”

  Scholars consider that both of these verses deal with the immoral hope of increasing one’s own substance through other people’s possessions, that is through the exploitation of others.  The question remains, however, what is exploitative and what is not.  Usury (riba) is based on an expectation of gain without any corresponding effort or commitment on the part of the lender.  In commerce, profit and loss are shared equally as a result of bargaining or bidding on a commodity or service, each person in the transaction hoping to make a profit and each bearing sole responsibility for one’s own gain or loss.  In loaning money, however, one party, the lender, has an advantage over the other, the borrower, because the borrower carries a greater risk.  This can be overcome by stipulating that the “interest” due must be only a percentage of the profits.  But, this is similar to investment, not a loan, because the profits are shared and the lender can not recover even his principal if there are no profits.

  Linguists and grammarians are highly valued in scriptural interpretation because they can explore the root or inner meanings of words.  The term riba comes from the root verb raba, which means merely to grow or increase, as well as to teach and educate.  The third form raaba means to practice usury.  This odd use of the word is the opposite of a cognate word, Rabb, which refers to God as our Sustainer, Who educates us by bringing out what is good and latent in every human being. 

  Hebrew scholars use the basic root meaning in their term tarbit, which means “to take legitimate increase.”  This is the same as the Arabic term tarbiya, which means education.  In the Zhamiat Malik al Sa’ud in Riyadh twenty years ago, I studied in the Kulliya Tarbiya or College of Education.

  Linguists compare the term riba in its connotation of injustice, with fa’id (pl. fawa’id), which also means “interest” on money loaned, coming from the verb fada, meaning to be abundant or plentiful.  The related word, fuyud means stream, something much valued in desert lands.  This term designates transactions in which both parties benefit from the goodness of God.  Since there is a term for non-exploitative lending of money, it follows that riba refers to exploitative relationships.  Riba or usury thus could or should mean exactly what it does in modern usage, namely, interest so excessive that it is immoral.

  Another similar word is fadl.  The verb fadala means both to be in excess or surplus and to be good or better.  For example, the standard Arabic word for “please” is tafaddal, which means “Would you please be so good as to ... ”  The title of the Shaykh al Azhar is Sahib al Fadila, or Your Excellency.  Of course, derived from its first meaning, fadla also means feces or excrement.  And fudala means both surplus and refuse or scum.  The context shows which of the two basic meanings is meant.  All Arabic verbs and their dependent nouns have multiple meanings, because the root of any verb can be expanded in meaning depending on the prefix that one attaches to it and on the internal changes of vowels.

  This extreme flexibility of the Arabic language unfortunately can be exploited by unsubtle people, both Muslims and non-Muslims, to distort the Qur’an for their own nefarious purposes.  At the same time, the subtlety of Arabic is what makes Arabic poetry so beautiful (to Arabs).