Usury and Interest: A Comparative Economic Study (book)
- abstract
Usury and Interest, a Comparative Economic Study (in persian: الربا و الفائدة: دراسة اقتصادیة مقارنة) includes two articles and two reviews hat explore the distinctions between usury and interest within the economic framework. The authors present contrasting perspectives. The work provides conflicting ideas from two influential figures in Islamic economics from the Arab world concerning a fundamental economic topic. Rafiq Yunus Al-Misri, a Syrian scholar and writer, does not recognize a distinction between interest and usury, discussing the religious prohibition of usury and emphasizing the need to eliminate it from capitalist systems. Conversely, Mohammad Riyaz Al-Abrash, another Syrian economist who advocates for liberal economic attitudes and free market economy, makes a distinction between usury as defined in traditional contexts and religions and interest and profit in modern world and economics, providing a defense for the latter.
About the Book and Authors
"Usury and Interest, a Comparative Economic Study" is published under the series generally titled as «حواراتٌ لقرنٍ جدید» (Dialogues for a New Century) by two publishers sharing the same name (Dar Al-Fikr) in Lebanon and Syria. The book features a debate between two Islamic economists from Syria regarding usury and interest in relation to capitalist economics, presented in two sections comprising two articles. The first section of the book presents an article by Dr. Rafiq Yunus Al-Masri (1942-2021) titled "The Benefit of Loans and the related Modern Theories from an Islamic Perspective." Following this, Dr. Muhammad Riad Al-Abrash provides a critique and analysis of the article. In the second section of the book, the article "Usury and Interest in Western Thought and Islam," authored by Muhammad Riad Al-Abrash, is included, followed by a brief critique by Rafiq Yunus Al-Masri.
Interest on loans and modern theories from an Islamic perspective
In his article regarding interest on loans, Rafiq Yunus explores several issues, including the legal status of usury in connection with various areas of Islamic jurisprudence, such as lending and profit-sharing, the significance of time in financial transactions, the tactics employed in usury, and modern viewpoints that seek to justify interest on loans.
The prohibition or permissibility of usury in relation to various issues in Islamic Jurisprudence
Rafiq Yunus connects a precise understanding of the concept of usury to four categories in Islamic jurisprudence: loans, profit-sharing (qirad), deferred sales (bay' al-ajil), and early payment discounts (da' wa ta'jil: reduce and receive promptly). He argues that a loan involves the transfer of property without any expectation of additional compensation or agreement, with only the principal amount being returned to the lender. However, since a loan is considered a form of charity, the lender is rewarded with divine merit (p. 19). The author suggests that the most effective way to generate profit from capital is through the contract of profit-sharing, as it entails a partnership and shared risk in both profits and losses (p. 20). According to Rafiq Yunus, Islamic Jurists commonly know it permissible to receive additional payment in deferred sales under certain conditions or as part of the contract. He argues that the timing or immediate delivery of goods constitutes a component of the transaction price. However, he notes that some scholars consider such additional charges in deferred purchases to be usury and thus impermissible (p.20). According to him, those jurists who accept the receipt of extra payment in exchange for deferral and delay have also issued rulings permitting discounts in return for prompt payment of debts. In this context, if a buyer pays the transaction amount earlier than agreed and for a lesser sum, the seller may forgive the remaining balance (p. 21). It is important to mention that the author refers specifically to the prompt payment of debts arising from sales, rather than the early repayment of general debts or long-term loans with a discount for early settlement. It appears that the majority of Sunni jurists prefer to prohibit transactions and sales conducted through the methods of delay and promptness due to the conflicting hadiths. From the analysis of four relevant jurisprudential topics regarding excess in contracts, Rafiq Yunus concludes that excess in deferred sales, although it is categorized as a type of usury, is deemed permissible. This is supported by the the term "permissible usury" in the writings of Islamic jurists and commentators (p. 21). He argues that in the context of the verse on usury (verse 275 of Surah al-Baqarah), which contrasts «احل الله البیع» (Allah has made trade lawful) with «حرم الربا» (and He has made usury unlawful), just as some sales are permissible and others are prohibited, there are also instances of usury that are not forbidden (p. 22).
The importance of time in transactions
Concerning the significance of time in transactions (temporal preference), the writer contends that Islamic teachings do not assign value to time in the context of loans; nevertheless, it is recognized as having financial value in situations such as installment sales or leasing (pp. 23-25). The author proceeds to analyze and critique two legal arguments from Al-Mawdudi in his book on usury and from Muhammad Baqir Sadr in "Our Economy," as well as two economic discussions by Hazem El-Beblawi and Said Najjar concerning the valuation of time in transactions (pp. 26-33). Yunus Rafiq reject both Al-Mawdudi's and Sadr's perspectives, attributing the problem to a lack of precise and correct understanding of riba al-nasiah (increase in return for time), riba al-nisa' (increase without considering time), and riba al-fadl (time without increase) (p. 29).
From usury in consumer and production loans to the deceptions associated with usury
Following the discussions on usury in Islam and the significance of time and duration in Islamic law, the author, briefly examines eighteen topics in the chapter on interest on loans (Fā'idat al-Qarḍ). The initial two subjects address the social and economic benefits and drawbacks of loan interest (p. 34) and the rationale behind the prohibition of excess in lending (p. 37). Key discussions in this chapter include usury in consumer and production loans (p. 41), the exemption of orphans from the prohibition of usury (p. 54), usury loopholes (p. 56), profit guarantees in partnership contracts (p. 60), and loan service fees (p. 62). The author characterizes consumer loan interest as the most reprehensible form of usury (p. 41), while production loan interest is deemed unjust to either the borrower or the lender, depending on the potential profit and the related variability. In discussing usury tactics, the author notes that like legal tactics, there are many Sharia legal maneuvers, some of which are longstanding while others are more recent (p. 56). The prohibition of usury has been discussed for a long time, serving as a significant divine test, even in scholarly and jurisprudential circles to refrain from innovations in usury driven by diverse interests (p. 59).
A review and analysis of recent attitudes on the justification of usury
In the chapter discussing views on usury, Yuns elaborates on and critiques eleven theories that address the justification and legitimacy of usury (the justificatory theories concerning the legitimacy of interest) (pp. 64-74). The eleven theories that the author considers invalid are listed below: 1. Risk theory: The increase in the risk of debt default (p. 64) 2. Al-Tathmir theory: profit, such as income generated from land and immovable properties (p. 65). 3. The utility theory: The rationale behind the use of money (p. 66). 4. The capital productivity theory: Profit is a natural consequence of capital (p. 67). 5. The time theory: Compensation in relation to duration (p. 69). 6. The theory of time preference: The monetary value over time and the distinction between present and future costs (p. 69). 7. The liquidity preference theory: The temporal value of liquidity (p. 70) 8. The labor theory: the reward for saving money such as the wages earned from work and effort (p. 71). 9. The theory of accumulated labor: wealth such as accumulated work or indirect activity (p. 72). 10. The theory of scarcity: scarcity and shortage of liquidity and capital in the absence of profit (p. 73). 11. The insurance theory: secure the capital with minimal returns derived from substantial profits generated by the investment (p. 73). At the conclusion of this chapter, the author presents several common criticisms to all theories. He indicates that in Islam, if capital takes the form of either goods or cash, it is permissible to set a portion of the profit in exchange; however, it is not permissible to assign a benefit to it. Thus, the theories mentioned are closely aligned with Islamic teachings as they establish a return and profit for capital. Moreover, these theories can be employed to challenge collective theories that deny any form of profit from capital (p. 75). Following these criticisms in the final section of his article, Al-Masry outlines six points. He notes that in Islam, both work and capital can provide adequate returns, and the reasoning behind the restriction of certain benefits for capital is to promote risk-taking among individuals, ensuring that risk is not solely associated with labor. He urges Muslims to steer clear of being trapped by socialist and capitalist perspectives and to preserve their intellectual freedom. (p. 81)