all the Islamic banking system

1. Interest,Finance and Banking: The Islamic
Perspective
Surah 104, Surah al-Humazah says:
Woe unto every backbiter, slanderer, who has
gathered money and counted it, and sorted it out,
and made it ready (to be loaned) thinking that his
money has made him immortal!
The abov e Ay ah’s part “who has gathered money and counted it, and sorted it
out, and made it ready (to be loaned) thinkingthat his money has made him
immortal” talks a lot about modern day practices of finance. The Surah talks
about Abu Lahab’s gathering of money forhis enterprise. He had started this
enterprise with his own money and withmoney whichhe had gathered from
wealthy Meccans like himself who sought to invest their money in his
enterprise. From the Surah, we can conclude that this enterprise of wealthy
Meccans of the past was none other than the equivalent of a present-day bank.
Quranic Views on Fraudulent Banking Activities
Surah al-Humazahiscomposedof nine Ayahs.The
lastsix Ayahs,i.e.two-thirdsof the Surah,are
dedicatedto the descriptionof the chastisement
reservedforAbuLahabon account of his
fraudulentbankingactivities.Thisisthe same
chastisementreservedtothose whoare guiltyof
Kufr(disbelief).Inotherwords,the Quranequates
greedilyhoardingof wealthandusurywith
disbelief.
In accordancewith the style of the Quran, we expect that our interpretation of
Surah al-Humazah will be justified andits significance enhanced by later
Ay ahs. This is indeedthe case as will become evident from our discussion of
Ay ahs 4:160-161 from Surah an-Nisa and Ayahs 9:34-35from Surah at-
Taubah.
Surah an-Nisa Ayah 160-161:
And for the injustice committed by the Jews,We
have forbidden them certain good things that were
permitted to them, and for their barring from
Allah’s Way many, and for their taking interest,
that they were prohibited, and devouring the wealth
of the people by means of falsehood; and We have
prepared for the unbelievers among them a painful
chastisement.
These two Ay ahs say that the culinary laws whichthe Jews adhered to were a
punishment for them from Allahbecause of four misdeeds committed by them.
These were: injustice, barring from theway of righteousness, giving loans at
interest, and devouring the wealth of the people.
But then these two Ayahs add: “andWe have prepared for the unbelievers
among them a painful chastisement.” So who were the unbelievers among
them f or whom a painful chastisement was reserved? To answer this question,
we will hav e to study the other set of two Ayahs which we mentioned above;
namely , Ayahs 34-35from Surah at-Taubah:

2. O believers, many of the Rabbis and monks indeed
devour the wealth of the people by means of
falsehood and bar from Allah’s Way. Those who
hoard up gold and silver and do not expend them in
the Way of Allah — give them the good tidings of
a painful chastisement, the day they shall be heated
in the fire of Hell and therewith their foreheads and
their sides and their backs shall be branded: ‘This
is the thing you have hoarded up for yourselves;
therefore taste you now what you were hoarding.’
The Practice of Money-Hoarding
We need to say a word about the hoardingof gold and silver. The Arabs often
used the By zantine currency. This consisted of the Denarius whichwas minted
in gold, and the Drachma whichwas minted in silver. So whoever was
hoarding money was, ipso facto, hoarding gold and silver.
The two Ay ahs quoted above tell us that it was the rabbis among the Jews who
charged interest and devoured the wealth of the people. Through theiroffice,
they were able to gather money and lend it out on interest, just like Abu Lahab
did. They then set up pseudo-banks with this money to further indulge in
money -hoarding.
As a result, we can stateunequivocally that the above Ayahs reaffirm the
message of Surahal-Humazah; namely, that greedy hoarding of wealth and
lending out of loans on interest is a form of Kufr. Islam has no room for greed
or malicious monetary practices.
The Concept of Usury and Interest
Surah ar-Rum mentions the technical term, Riba, in the Quran. This occurs in
the second of these two related Ayahs; namely, Ayahs 38-39:
And give the kinsman his right, and the needy, and
the traveller; that is better for those who desire
Allah’s Countenance; those — they are the
prosperous. And what you give for Riba, that it
may increase upon the people’s wealth, increases
not with Allah; but what you give in alms, desiring
Allah’s Countenance, those — they receive
recompense manifold.
We lef t “Riba” untranslated in order to enhance what theQuran means by it. It
means the increase in the valueof the loanby thetime it is repaid. The Ayah
makes it absolutely clear that Riba is that increase irrespective of its value.
Consequently, Riba can only be translated by the financial term “interest”.
But that is not all. Surah al-Imran, Ayah 130 further adds:
O believers, devour not interest, doubled and
redoubled, and fear you Allah, that you may
prosper.
The abov e Ay ah irrevocably bans usurious interest.
As quoted above in Surah an-Nisa 160-161, we haveseen that usurious as
well as normal interest was forbidden to Hz Musa (AS). This makes one
wonder: if interest was forbidden toMusa, why not also to Muhammad?

4. The answer to the abov equery can be found in Surah al-Baqarah Ayahs 274-
281:
Those who spend their wealth night and day,
secretly and in public, their wage awaits them with
their Lord, and no fear shall be on them, neither
shall they sorrow.
Those who devour interest shall not rise again
except as he rises, whom Satan of the touch
prostrates; that is because they say, ‘Trade is like
interest.’ Allah has permitted trade and forbidden
interest. Whosoever receives an admonition from
his Lord and gives over, he shall have his past
gains, and his affair is committed to Allah; but
whosoever reverts — those are the inhabitants of
the Fire, therein dwelling for ever.
Allah blots out interest, but He augments freewill
offerings. Allah loves not any guilty ingrate.
Those who believe and do deeds of righteousness,
and perform the prayer, and pay the alms — their
wage awaits them with their Lord, and no fear shall
be on them, neither shall they sorrow.
O believers, fear you Allah; and give up the interest
that is outstanding, if you are believers.
But if you do not, then take notice that Allah shall
war with you, and His Messenger; yet if you
repent, you shall have your principal, unwronging
and unwronged.
And if anyone should be in difficulties, let him
have respite till things are easier; and that you
remit the debt as almsgiving would be better for
you if you did but know.
And fear a day wherein you shall be returned to
Allah, and every soul shall be paid in full what it
has earned; and they shall not be wronged.
This is the most definitivestatement of the Quranon the practice of lending at
interest. It constitutes a most stringent prohibitionon interest and a most
sev ere denunciation of those who practice it. The statement makes it
incumbent upon the stateto enforcethis prohibition.
Lastly , we turn to the statement: “they say, ‘Trade is like interest.’ Allah has
permitted trade, and forbidden interest.” The Quran is saying in this statement
that there are two sectors tothe economy. There is the productive sector which
generates the products, the goods, and theservices andwhich gives rise to
salaries, profits, and jobs, and generates income to the whole economy. Then
there is the so-called “financial trading” sector which sucks the income
generated by the productivesector in the form of interest, mortgages, arbitrary
rents and transaction fees. The Quran says unequivocally that such fraudulent
trading activities are not permitted.
Editor’s Note: What about Modern Banking?
So now the big question is: what about modern-day banking?

5. Most banks of today lendmoney on interest. They also allow people tosave
their money with them for a fixed term (a cloakedform of hoarding) and earn
interest on the “saved” money. These two activities, obviously, are not
permitted in Islam.
Similarly , actions such as offering interest on money invested in theguiseof
insurance or savings schemes are just fancy words for hoarding of money.
People with surplus money tend to hoard them with banks in the hopes of
earning high rates of usury.
Furthermore, banks loanmoney to needy people in hopes of charging high
rates of usury. Such acts are most unworthy of praise in theSight of Allah.
An acceptable banking model would be one that avoids interest in all
f orms and makes life easier for the masses. Such banks, of course, can hardly
be priv ate ventures and are totally unlike the modern-day Western banks that
are based on prof it.