Unfortunately today we see some modernists touting the following disorganised thought about usury:
– Interest on Paper money is differed on.
– Therefore it is not legislative ruling that is clear cut.
– Hence in Economics we do not have a clearly defined system in Islam.
Interest in Islam and its relationship to Paper Money
Riba linguistically is derived from an Arabic verbal root which means literally to exceed. It is clearly prohibited in the Quran and Sunnah. For example in the Quran we have this verse
“…This is because they say that trading is usury, but trade has been sanctioned and usury forbidden by Allah!” (2:276-277)
In the Sunnah we also have many traditions, and I will go into more detail inshallah but one of the most famous one is the narration By Ubada ibn al Samit.
“I heard the Messenger of Allah prohibiting the sale of gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt, except through equal measure and immediate exchange.” ( Muslim Vol 3. P 1211:81)
The Riba in the period of the jahiliyya is prohibited as they used to stipulate an excess in loans and allow a delay in the period of repayment ( in effect compound interest). The Prophet said
“Take heed, verily the riba of jahiliyya is annulled and the first claim of riba I cancel is that of Abbas ibn abd al-Muttalib.”
The scholars have unanimously agreed there are at least two types i.e Riba al nasi’a and Riba al Fadl except what has been narrated from Ibn Abbas about Riba al Fadl because of a mawquf narration “There is no riba except in delay(nasi’a)” (Bidayat al Mujtahid Volume 2, the Book of Sales)
Other categories included by the scholars are Riba al Duyun and Riba al Buyu, but the terms conflate into the two basic categories of note. (Riba in Islamic Jurisprudence, the role of Interest, in Discourse on Law and State MA submitted to the Fletcher school by Miriam Sophia Netzer. 2004)
The narration of Ubada Bin Samit
This is one of the standard hadiths used to prove that Riba al fadal is prohibited. There are other narrations but the principle here is the same. We have the Prophet forbidding the bartering goods of the same “jins” i.e. species and if they are to be bartered then they should be of equal measure, weight and immediately exchanged. At first glance one just wonders why such an exchange like this happens. Why would someone trade in dates for dates of an unequal measure and weight?
Well, no doubt it was a primitive bartering system but the Arabs in the jahillayah period used this as one way to gain better “quality” products of the same species. Hence if a person had dates of an inferior quality he would then trade them in for a smaller quantity of dates of better quality. The prophet forbade this because it would lead to gharar i.e. uncertainty in transaction and it would open the door for Riba in bartering. Riba now is really of the second type i.e. Riba al nasiaa (although Riba al Fadl still has a significant place in the modern world). Here identical species are exchanged over a period of time. In other words I deposit a certain amount of money in the bank and I get in exchange and added amount over a period of time. Interestingly loans have a fiqh of their own and Majid seems to have overlooked this. (The Nature of Riba in Islam Hamdard Islamicus Vol 7 issue 1, 1984, pages:2-24)
Now the question arises, can we extend the ruling of prohibition to include species that are not mentioned in the hadiths of note? The vast majority say that you can by analogy or by the general implication of the text. I will list the schools of thought.
1- The Hanfi school of thought have a compounded efficient cause i.e. Ilah. The object of concern has to be of the same species and it also has to have the ability to be measured or weighed
2- The Shafi school of thought divides the groups into two. The first groups include anything edible that is of the same species. The second group includes gold and silver because they are a “thaman” i.e. they are currency that is of value. It is an indirect way of saying they are a fiat currency that have values in their own right.
3- The Maliki school of thought again divides the groups into two. In the first category we have objects that are edible and can be stored (this is differed with the Maliki school) and in the second category we have an agreement with the Shafi school.
4- The Hanbali school seems to agree with the Hanafi school but Ibn Taymiaah and Ibn Qayyim place a special restructure on currency. In their eyes the efficient illah is the identical species and the thaman i.e. the currency value. The ability of the currency to buy commodities.
5- The Dhahari view rejects that Interest can be extended into the other categories because they reject analogy in the first place. They allow it to be general to include all species when it applies to loans. It is restricted to the six categories in Riba al fadl. Taqiuddin Nabahani rejects it because of his rejection of Qiyas al Shubha (this is an analogy based on the similarity of different species alone irrespective of a textual cause. For example one could say that one could do ablution with different liquids because they share that same common property. This is considered to be the weakest of analogical reasoning). He also forbids in all categories when it applies to loans ( Qard).
6- Qadi Abu Bakr al Baqillani extends it by using a different analogy i.e. Qiyas al Manah (analogy using the meaning of the term discussed). Imam Shawkani also extends it by using the general implications of other hadiths in question
7- There are those who use Zakah as an analogy. Hence any species subject to Zakah are also subject to the laws of Ribaa
(See Nayl al Awtar by Imam Shawkani, Al Mughni by Ibn Qudammah al Maqdisi, Bidayat al Mujtahid Volume 2 the Book of Sales, The Concept of Paper Money in Islamic Thought Nikolaus A. Siegfried Arab Law Quaterly Vol 16, No 4. (2001), pp319-332), )
Paper money and its implication in Riba
A brief history in Classical Islamic Economics
Modern paper money differs from the classical monetary exchange i.e. the dinar and dirham in one essential way. The intrinsic material value of the currency to be exchanged (i.e. the value of the paper that it is printed on) is less than the actual value in the market. In Islam historically you had a number of currencies that fell into this same camp.
The Copper Fals
Copper coins were exchanged in the Islamic State and in fact pre Islamically as a numeraire due to the poor intrinsic value of the metal that made these coins. Allah says in the Quran that Yusuf was sold for a few counted coins hence this concept of money as numeraire was very early. In fact an interesting attack by a modern evangelical Christian at the supposed “anachronistic” of the story of Yusuf had revealed interesting historical details. see the article on Dirhams and the Prophet Yusuf on the Islamic-awareness site (i.e. Islamic-awareness.org) Fulus became especially prominent in the times Mamluk government in 809 AH.
Now Fals and maghshush (dirhams and dinars with low precious metal alloys) money have been discussed by the scholars and there is disagreement whether these currencies are Mal Ribawi. This of course depended on the view of the classical scholars towards currency. Those who saw it as indexed i.e. weighed and measured would forbid it on the concern for Gharar. For example this is the position of Imam Shaybani. Shafi in his “pragmatic” streak did not allow it as it was not a currency that was accepted by everyone. In his eye, currency is on par with say language. It is the social acceptance of its value as the social acceptance of the meaning of words that gives it “thaman”.
Kasani does allow the use of Maghshush currency if it is accepted as legal commodity. In his eyes if everyone accepts the value of something despite its low intrinsic value then it can be accepted. Here Kasani again is adopting a Shafi understanding of “thaman” So one could see a shift among some of the ahanaf between taking currency on a “thaman” paradigm or taking it on a “weighted” paradigm. Interestingly you can’t have it both ways, this where modernists fail in a miserable way! Inshallah, this will be discussed later (see The concept of Paper Money, and an excellent introduction to Mamluk introduction of Fulus and the resultant hyperinflation ; The Economic Thought of Al-Maqrizi: The Role of the Dinar and the Dirham as Money . Proceedings of the 2002 International Conference on Stable and Just Global Monetary System Saiful Ashar Rosly & Emad Rafiq Barakat)
A bill of exchange i.e. what was seen as the precursor to paper money that was strictly indexed to dinars and dirhams. This facilitates the ease of transfer over long distances and it could be easily exchanged for the currency of choice once the traveller reaches his destination. Generally this was allowed. In 1294 the Mongols tried to introduce paper money but this was rejected by the population as a whole (not surprisingly) because neither backed by trust or intrinsic value it was bound to fail.
Modern Islamic answers to the notion of Paper Money.
Ever since upheaval by Nixon in 1971 paper money has lost its value as an indexed currency. In its own right it would be considered as a “commodity” and hence of value despite its lack of intrinsic worth. I am not concerned about the detailed economic theories behind this but more concerned about how the Islamic scholars have approached it in modern times.
There are basically six approaches in the Muslim world.
1-This was an early fatwa by a number of scholars in Azhar. Here paper money was equated with a bond that could be exchanged for a fixed amount of gold or silver. This view of course has its problems. With currencies now this no longer can be applicable. If paper money is also seen as a bond which is effectively a debt from the Central Bank of a country then we have debt being exchanged for debt which is forbidden in Islam by consensus. (The Use of Malik and Ibn Taymiaah by Bin Mani , Abdullah Bin Suliman, al Waraq al-naqdi Riyaad 1984 page 20)
2-The second approach would be to treat it as a Bill of exchange like the classical Suftaja. This is an approach developed by the Islamic Development Bank. In other words the bill takes on the “thaman” of Gold and Silver. The bank of course must have 100% reserve and in order to avoid Riba al Nasia different currencies must be based on different precious metals (In other words if the pound and the dollar are based on the same precious metal i.e. gold you could get problems when exchanging “gold for gold”) . International transactions become cumbersome and artificially constructed in order to avoid Riba al Nasia and Riba al Fadl (say in immediate currency exchange).
3-Paper money can take on the legal position of a thaman. In other words it is a commodity like any other commodity. On this view we can take illah of Imam Shafi and Malik that currency is a thaman that is to be counted. In other words we can adopt a fiat concept of money that is not indexed. This is interestingly the position of Ibn Qayyim and Ibn Taymiaah and is the position adopted by the board of senior ulema in Saudi Arabia. This is very similar to the historical use of copper coins but of course they were a local phenomena. Quesitions arise about loans and whether they should be indexed against inflation. Ibn Abidin has a fatwa that delayed payment has to be repayed in mithil i.e. weight but his concern about the gharar of fulus made him place a condition that it has to be returned in the same value, an inflation index of sorts. Another interesting thing is that it could open the doors for interest.
4-Here certain modernists adopt a pick and choose method to allow interest based on the “maqasid” of Islam. They view Ibn Hazm’s view on the illegitimacy of an efficient cause in the six categories as a warrant that paper money can be exchanged immediately and in a delayed manner without concern for any Ribawi transactions. They would also claim this is a position adopted by those who also hold that money has to be weighed in order for it to be a Ribawi item. Paper money by definition has no intrinsic value and hence again this does not apply. Also they may try to find some discrepancy on the views towards Fulus among the classical scholars to adopt this. This has the major problem of inconsistency! In fact this position will be discussed in much more detail later as this is the subject of concern.
5- Taqiuddin Nabahani adopts a novel approach. In his eyes paper money is a “thaman” , a commodity like any other commodity and hence despite the concern for the transactions in Riba al Fadl he would include any Ribawi transactions in sales, salam contracts and loans, in fact a de facto prohibition in another way. Interestingly he insists that the currency of an Islamic State is indexed. He seems to do this by pointing to obligations of the State in Zakah, matters of compensation for injury “blood money” and other Islamic taxes etc which in his eyes are essentially indexed to the gold and silver (they are tawqifiyah in his eyes). In other words Dinars and Dirhams are the currency of the state. On an individual level, though, one can deal in paper money. (See the Economic System in Islam by Taqiuddin Nabahani, and Kitab al Amwal by Abdul Qadim Zaloom )
6-Finally we deal with the famous Murabitun. This is an Islamic movement whose main concern is the conversion of Islamic economics to an Indexed based currency based on the Dinar and Dirham. In their eyes paper money is forbidden in essence! They view it as a “promissory” note from western governments who have lost all trust in there international transactions. Currency has to be exchanged hand to hand in the”six category” like transaction for identical species. Paper money in their eyes fails on this account. We do not have any real value (as the only real “value” Islamically is gold and silver) to exchange hence we have gharar and also it is a debt! The consensus of the scholars also forbids an exchange of debt for debt. They do allow it as a Durura (necessity) though, and do allow transactions for the basic needs of an individual Muslim. Interestingly Ibn Hazm also lends strong support to this view despite his view on the efficient cause in hadiths noted!
After that long and varied look at this interesting topic I think we should now zoom in on the views of the heretic modernists. Why do I see an irresolvable inconsistency in this view? I think we should deal with it point by point
1-We have this insistent idea in this camp that all the akham are subject to the essential illal of the maqasid yet in this case we adopt the view of Ibn Hazm who in a radical way even rejects Qiyas al Awla (also called a fortiori, i.e. if you cannot say “uff” to your parents then you certainly cannot strike them. This is one of the strongest analogical tools) let alone masaleh mursala! It would be a strange camp to adopt indeed. Why do we refuse causation here?
2-They could reply that they adopt Ibn Hazm’s view because of the Maqasid, a sort of innovated position on “Istishan” were one can adopt a weaker view if it is in the benefit of the Muslim population. Throw inconsistency in the bin they say, long live the Maqasid! On this view let us look at Ibn Hazm more closely. He forbids Riba in all categories in Bay al Salam and more importantly in loans! In fact this consensus that loans cover all the species is agreed upon by every single jurist in the history of Islam (See Ibn Qudammah al Maqdasi ‘s Mughni, Imam Shawkani’s Nayl al Awtar, Ibn Rushd’s Bidayat al Mujatahid , al fiqh ala Madhaab al araba by Jazairi. ) So now which camp do we go to satisfy our maqasid al shaytania? None in the eyes of the Jurists!
3-Worst of all this view leads to a contradiction. Allah is not the author of contradictions thank you! Now the Prophet in numerous hadiths talked about the proscription of exchanging a dirham for two dirhams and a dinar for two dinars. Now of course we can view these words i.e. dinars and dirhams as having meaning. In other words the Prophet must have had an idea of currency. We can turn left and right, go up and down this dialectic maze but in the end despite all the complications that may ensue in economics we are left with two exhaustive essential possibilities for the meaning of the term currency in Islam. Currency as part of its meaning can be:
1-A value that is exchanged for goods of utility that is essentially indexed to say gold or sliver.
2-A socially constructed value i.e. it is not indexed.
Of course some may cry that the first collapses into the second. Why gold and silver after all? Maybe Allah in his wisdom took a view that these metals would be the most stable minerals to index against currency. Maybe over time they would be the least subject to inflation. That would be an interesting study by itself. Either way the Prophet must have had one of the two ideas as a concept to clearly define what a currency is! It would not help a religion to discuss terms that do not have meaning in the first place! Qadi Baqillani may have had a good idea when he thought of using Qiyas al Mana.
Now I ask these people which view do you adopt? If it is the first then you are forced onto an idea that currency is a thaman in its own right. In other words the dinars and dirhams were examples of currency. Riba would be forced then to be extended to all currencies based on its general implication.
If you adopt the second which happens to be Ibn Hazm’s view, then you cannot even consider paper money in the first place and are forced to take the view of the Murabitoon! Now I am not saying this is an invalid position but really for a person so insistent on modernist interests taking Ibn Hazm’s view has a lead to a nightmare that has awakened the demon of maqasid al shaytania! So we have:
A- Ibn Hazm’s indexed view of currency. Paper money is a Hazard but there is only Riba al Fadl in the six categories.
B-Currency is viewed as a “thaman” on its own hence paper money is included but then it takes the category of Riba.
We are forced to leave the view of Ibn Hazm because in his eyes currency is essentially indexed. Literally we only are allowed to deal in Dinars and Dirhams. We leave the “thaman” view of currency and go to Ibn Hazm’s view on causation in this case because we want to include paper money in Ribawi transactions.
You can’t have it both ways heretics! Finally let us go to the governments of concern. Which government adopts the view of Ibn Hazm? The answer is none! It just baffles me how the modernists lives in an ivory tower of “Maqasid”
In summary the view of the modernists go against the consensus of the Ulema and what is known by necessity in Islam and by necessity in logic as well! There is clearly an Economic system in Islam but it is very unclear where they get the difference of opinion from.