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:

Risk theory: The increase in the risk of debt default (p. 64)
Al-Tathmir theory: profit, such as income generated from land and immovable properties (p. 65).
The utility theory: The rationale behind the use of money (p. 66).
The capital productivity theory: Profit is a natural consequence of capital (p. 67).
The time theory: Compensation in relation to duration (p. 69).
The theory of time preference: The monetary value over time and the distinction between present and future costs (p. 69).
The liquidity preference theory: The temporal value of liquidity (p. 70)
The labor theory: the reward for saving money such as the wages earned from work and effort (p. 71).
The theory of accumulated labor: wealth such as accumulated work or indirect activity (p. 72).
The theory of scarcity: scarcity and shortage of liquidity and capital in the absence of profit (p. 73).
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)

The critique of the perspective of Rafiq Yunus Al-Masri by Muhammad Riyaz Abrash

As an economist, Mohammad Riyaz Al-Abrash offers a detailed critique of Rafiq Yunus Al-Masri's viewpoints, presenting his own arguments in 22 distinct points that refute Al-Masri's theoretical framework (pp. 89 to 148). He believes that:

Islamic thought has a traditional and broad-scope origin which often results in continuous proponents and opponents. In contrast, Western thought, unlike the monotheistic and dualistic religious ideologies such as Islam, Christianity, Judaism, and Buddhism, is consistently based on empirical experience. It is the latest human culture and civilization from ancient Greece to the present (neoliberalism) and may soon emerge as the dominant global culture. The differences between Islamic and Western thought reflect the same historical contrasts between Arab and Persian (Iranian) cultures. In general, there is a notable divergence and distinction between Islamic and Western civilizations. (pp. 91-93) The core issue is not merely the adaptation of Islam to economics, but rather an analysis of the Western viewpoint and an explanation of the nature and differences between usury and the current concept of interest (p. 96).

Abrash asserts that, as acknowledged by Al-Masri, the majority of Islamic jurists, if not all jurists opposing usury, base their arguments on the distinction between interest and usury. However, these jurists lack familiarity with modern economic concepts and should not extend Quranic texts and prophetic traditions, such as the prohibition of usury, from their historical context to the present day, which involves a complex market environment unlike the simple markets of seventh-century Medina and Mecca. Furthermore, there exists a divergence among scholars, and their jurisprudential opinions are often speculative and uncertain, particularly in specialized economic matters (p. 98).

According to Abrash, although economics and Islam are often viewed as distinct areas, there is room for their interaction and the absence of conflict. This is illustrated by the recognition of the difference between usury and interest (p. 110). The prohibition of usury is only applicable in cases where there is explicit textual support, with the general principle being one of permissibility. The ban on usury is relevant only in contexts where a clear and unequivocal analogy can be established, and it is restricted to specific transactions that pertain to the particular period of the verse's revelation (p. 102).

The second section of the book: Usury and Interest in Western Thought and Islam

The second section of the book, following the style of the "Dialogues for the New Century" series, features an independent article by Muhammad Riyaz Al-Abrash. This article examines the topics of interest and usury within the context of modern Western economics, followed by a critique and analysis of the article by Rafiq Yunus Masri.

The transition from usury to interest in Western thought

The dichotomy between Western and Islamic thought illustrates two fundamentally different intellectual traditions that seldom interact meaningfully, except by coincidence and without deliberate intent. Western thought, characterized by a long history and evolution, has a realistic and pragmatic approach, relying exclusively on established truths and thereby avoiding doubt and uncertainty. Conversely, Islamic thought is a universal and transcendent framework that transcends temporal and spatial boundaries, rendering theoretical speculation impractical (p. 151). While religion plays a minor and restricted role in Western thought, it occupies a paramount position in Islamic thought, where it is perpetually subject to interpretation and explanation (p. 155).

By comparing Western and Islamic thought, Mohammad Abrash discusses the historical context of usury in Western philosophy, tracing its origins from ancient Greece (such as Plato), through the Roman Empire, the Middle Ages, and into the Enlightenment. He argues that following the Renaissance and the emergence of new economic ideas, the traditional concept of usury, which was associated with consumer loans, evolved into the modern understanding of interest on money and capital. He posits that capital, much like land, serves as a source of profit and is subject to interest and income; the interest on capital is analogous to land rent (ri' al-ard) (pp. 155-158). He considers the concept of land rent to be broader than that of interest (al-fā'idah) and provides three interpretations of ri' (p. 159).

New insights into the interest rates in modern economy

Like Rafiq Yunus, Mohammad Abrash addresses modern perspectives on usury and interest, articulating and examining nine different theories:

The theory of time preference: The monetary value over time and the distinction between present and future costs (p. 64).
The theory of consumption deferral or sacrifice and waiting: addressing the depreciation of consumer goods (p. 162).
The capital productivity theory: profit as an inherent result of capital (p. 163).
The Marxist theory: a critique of the capitalist system and the inclusion of interest in cost calculations (p. 164).
The liquidity preference theory: the time value of Liquidity (p. 165).
The theory of available lending balances: considerations of existing loan availability against demand levels and interest rate determination (p. 166).
The theory of accumulated labor: wealth as accumulated work or indirect activity (p. 167).
Risk Theory: Coverage for the risk of defaulting on debt (p. 169).
Theory of Use or Leasing: using or leasing funds (p. 171).

After introducing these innovative theories, the author of the article begins by discussing the various types of inflation and their relationship with interest. He then revisits the fundamental differences between Islamic and Western thought from a different perspective, thereby providing an additional rationale to the previously stated nine theories, which posit that interest, understood as profit, is crucial for the survival and economic framework of the present age. Abrash notes a distinct difference between the time of Islam's birth and the modern world, which is partly evident in the contrast between the primitive pastoral economy of that period and the liberal economy of today. Consequently, he argues that the solutions offered by that earlier economy do not address the problems of the modern era. The author asserts that profit is an unavoidable element within any economic system (pp. 175-180).

The critique of the perspective of Muhammad Riyaz Abrash by Rafiq Yunus Al-Masri

The concluding section of the book features a brief critique by Rafiq Yunus (the author of the first article) regarding the perspective of Mohammad Abrash (the author of the second article). Rafiq Yunus challenges Abrash's perspective on the relationship between Western and Islamic thought, asserting that, contrary to Abrash's claims, these two schools of thought have interacted and that the West has benefited from Islamic intellectual traditions. Additionally, the analysis of Islamic and Western economies reveals several advantageous insights, including an understanding of how Western economic practices have been informed by Islamic teachings and scholars, an exploration of the differences and unique characteristics of the two economic philosophies, and a dedicated effort towards the establishment of an Islamic economic framework (pp. 186-187).

He refutes the distinction between interest and usury from the perspective of Mohammad Abrash, referencing the explanations provided in his article and highlighting the fixed principles and variable rulings in Islam (p. 188). He also stresses that although Islamic scholars are not infallible prophets, they have the responsibility to interpret what is right and just to the best of their scholarly and human capacities, while being mindful of the objectives of Sharia (p. 189). In contrast to the accusations against them, he contends that they know economy, asserting that Islamic economics is not solely focused on charity or the afterlife; rather, it possesses the capability to manage the affairs of the nation and its Muslim citizens in contemporary times, whereas capitalism tends to leave no space for generosity and altruism (p. 190).