Riba


Riba can be roughly translated as "usury", or unjust, exploitative gains made in trade or business under Islamic law. Riba is mentioned and condemned in several different verses in the Qur'an. It is also mentioned in many hadith.
While Muslims agree that riba is prohibited, not all agree on what precisely it is.
It is often used as an Islamic term for interest charged on loans, and the belief this is based on — that there is a consensus among Muslims that all loan/bank interest is riba — forms the basis of a $2 trillion Islamic banking industry. However, not all scholars equated riba with all forms of interest, or agree whether its use is a major sin or simply discouraged, or whether it is in violation of sharia to be punished by humans rather than by Allah.
There are two principal forms of riba. Most prevalent is the interest or other increase on a loan of cash, which is known as riba an-nasiya. Most Islamic jurists hold there is another type of riba, which is the simultaneous exchange of unequal quantities or qualities of a given commodity. This is known riba al-fadl.

Etymology and definitions

The word riba was used by the Arabs prior to Islam to refer to an "increase". In classical Islamic jurisprudence the definition of riba was "surplus value without counterpart."
The difficulty of explaining what exactly riba means in Islam has been noted by early Islamic jurists such as Ibn Majah and Ibn Kathir, who quotes the second "Rashidun Caliph" Umar bin al-Khattab,
“There are three things, If God’s Messenger had explained them clearly, it would have been dearer to me than the world and what it contains: kalalah, riba, and khilafah.”

Disagreeing is Muhammad Taqi Usmani — "one of the leading" modern day "religious experts on Islamic finance" — who argues that scripture concerning riba cannot be ambiguous because God would not condemn a practice but leave its "correct nature" unknown to Muslims.

Definitions

Definitions of riba include:
At least a few sources emphasize a dichotomy in what riba means or prohibits — classical scholars interpreting its meaning broadly and strictly, and others using a narrower, more easily evaded definition in practice, or at least in modern practice:
An orthodox/revivalist Muhammad Taqi Usmani gives definitions for riba al-Quran
... and for the three varieties of riba-al-sunnah:
Alternatives to the strict definition of classical scholars and revivalists have been put forward by Islamic modernists who emphasize the moral aspect of any prohibition, believing that what should be prohibited was the exploitation of the needy, rather than the interest on loans itself:
According to some ahadith, the prophet Muhammad said there are either 70, 72, or 73 varieties of riba.
Most Islamic jurists describe several different kinds of riba:
Still another source, describes two types of riba each with two sub sets. :

History

''Riba an-jahiliya''

describes riba as a pre-Islamic practice in Arabia "that doubled a debt if the borrower defaulted and redoubled it if the borrower defaulted again". It was held responsible for enslaving some destitute Arab borrowers.
Abdullah Saeed quotes the son of Zayd b. Aslam on what the means by riba being "doubled and redoubled":
“Riba in the pre-Islamic period consisted of the doubling and redoubling , and in the age . At maturity, the creditor would say to the debtor, ‘Will you pay me, or increase ’? If the debtor had anything, he would pay. Otherwise, the age of the cattle would be increased... If the debt was money or a commodity, the debt would be doubled to be paid in one year, and even then, if the debtor could not pay, it would be doubled again; one hundred in one year would become two hundred. If that was not paid, the debt would increase to four hundred. Each year the debt would be doubled.”

Orthodox Islamic scholar and Islamic banking advocate Taqi Usmani disagrees. In describing "riba in the days of Jahiliyya", he makes no mention of debts being doubled, but states that riba "had different forms" and that "the common feature of all these transactions is that an increased amount was charged on the principal amount of a debt."

Riba

According to orthodox sources, "some jurists" saw riba "forbidden early in Mecca, some in the year 2 AH, and some after the opening of Mecca, but the majority agreed on its prohibition". Usmani cites sources declaring that 3:129 "clearly" forbade interest and these verses were revealed in 2 AH.
Other sources — such as the Encyclopedia of Islam and the Muslim World — state that early Muslims disagreed on whether all or only exorbitant rates of interest could be considered riba, and thus declared forbidden, but the broader definition won out with a consensus of Muslim jurists holding that any loan that involved an increase in repayments was forbidden. One particular jurist
is credited with establishing the orthodox definition of riba — stipulating that it was excess payment "in a loan or debt",. M. A. Khan argues that attempts to ban interest resulted in either the development of black markets and higher prices for "interest-bearing credit", which "defeat the very purpose for which interest was banned"; or in various "subterfuges to camouflage interest so as to bypass the legal sanctions".
Some attribute the basis of religious condemnation of interest on loans to the widespread practice in the ancient world of selling loan defaulters into slavery and shipping them to foreign lands. Feisal Khan argues that "all pre-modern, and not just Muslim societies" banned interest on loans, using a ban as "a simple and effective risk-mitigation mechanism for small borrowers that cannot afford the down-side risk inherent in financial transactions". Among other monotheist Abrahamic religions,
Christian theologians condemned interest as an "instrument of avarice", the Jewish Torah prohibited lending at interest to fellow Jews but allowed it to non-Jews .
With modernity and economic development, higher incomes and more complex mechanisms such as insurance eliminated the need for the ban. This, rather than religious backsliding, explains the lack of interest in the ban among the contemporary Christian and Jewish counterparts of the Islamic ulema.
Historically, while the Islamic states followed classical jurisprudence in prohibiting an increase in repayments on loans in theory, in practice the giving and taking of interest continued in Muslim society "at times through the use of legal ruses, often more or less openly." One common Ottoman era stratagem to circumvent of the ban on interest, according to Timur Kuran, was known as istiglal and involved the borrower selling his house to a lender and immediately leasing it back. The proceeds of the sale served as the sum loaned, the lease/rent/mortgage payment served as principal and interest repayment of the loan.
According to Kuran, only transactions "that satisfied the letter of the ban" on interest "through stratagems" were allowed. In addition, in the sixteenth century, an Ottoman sultan "limited the annual rate of interest to 11.5%" "throughout the empire" on these loans. This order "was duly ratified by a legal opinion." Another source quotes several sources indicating the Ottoman empire forbid as riba only interest rates above a certain level.
According to Minna Rozen the business of money lending was completely in the hands of Jewish Sarrafs in the Ottoman Empire. Europeans who visited Ottoman Empire stated that Ottoman economy would not function without these Sarrafs, though they sometimes were accused of cheating. In Persia, money lending was also dominated by Jewish Sarrafs. In nineteenth century Shiraz, for example, almost all Jews were active in lending money on interest.
Taqi Usmani maintains that outside of Dar al-Islam, riba allowed the Rothschild family to "acquired financial mastery over the whole of Europe and the Rockfeller over the whole of America".

Modernism

The orthodox prohibition on interest was reconsidered by Islamic Modernists starting in the late 19th century in reaction to the rise of European power and influence during the Ages of "Enlightenment", "Discovery" and colonialism.
According to author Gilles Kepel, for many years in the 20th century, the fact that interest rates and insurance were among the "preconditions for productive investment" in a functioning modern economy led many Islamic jurists to strive to "find ways of" justifying the use of interest "without appearing to bend the rules laid down" in the Quran. In the largest Arab Muslim country, Egypt, Modernist Grand Mufti Muhammad Abduh declared collecting interest on bank deposits and loans permissible in 1900. From then up to the year 2002, successive Muftis have declared riba "prohibited, permissible, and prohibited and then permissible again".

Revivalism

In the late 20th century however, Islamic revivalists/activists/Islamists have worked to revive and rejuvenate the definition of interest as riba, to enjoin Muslims to lend and borrow at "Islamic Banks" that avoided fixed rates, and to mobilize to pressure governments to ban the charging of interest.
In 1976, King Abdulaziz University in Jeddah organized the First International Conference on Islamic Economics in Makkah. At the conference, "several hundred Muslim intellectuals, Shari'ah scholars and economists unequivocally declared... that all forms of interest riba". By 2009, over 300 banks and 250 mutual funds around the world complied with this definition of riba and disavowed interest on loans or deposits, and by 2014 around $2 trillion in assets were "sharia-compliant".

Scripture on riba

Both the Quran and the Hadith of Muhammad mention riba. Orthodox scholars such as Mohammad Najatuallah Siddiqui and Taqi Usmani believe Quranic verses define riba to mean any payment "over and above the principal" of a loan. Others disagree with this definition, and/or emphasize the importance of ahadith.

Quran and prohibition

Twelve verses in the Quran deal with riba. The word appearing eight times in total — three times in 2:275, and once each in verses 2:276, 2:278, 3:130, 4:161 and 30:39.
The Mekkan verse in Surah Ar-Rum was the first to be revealed on the topic:
And what you give in usury, that it may increase upon the people's wealth, increases not with God;

Other Medinan verses are:
... for their taking usury, that they were prohibited,...

O believers, devour not usury, doubled and redoubled, and fear you God; haply so you will prosper.


Culminating with the verses in Surah Baqarah:

Those who devour usury shall not rise again except as he rises, whom Satan of the touch prostrates; that is because they say, 'Trade is like usury.' God has permitted trade, and forbidden usury. Whosoever receives an admonition from his Lord and gives over, he shall have his past gains, and his affair is committed to God; but whosoever reverts — those are the inhabitants of the Fire, therein dwelling forever.

God blots out usury, but freewill offerings He augments with interest. God 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 God; and give up the usury that is outstanding, if you are believers.


But if you do not, then take notice that God shall war with you, and His Messenger; yet if you repent, you shall have your principal, unwronging and unwronged.


And if any man should be in difficulties, let him have respite till things are easier; but that you should give freewill offerings is better for you, did you but know.=



;Interpretations
According to Youssouf Fofana and Taqi Usmani, jurists do not consider the verses 30:39 and 4:161 to clearly prohibit Muslims from riba, whereas the latter two do.
Another orthodox scholar, M. N. Siddiqi, also believes 2:275-80 "establishes" that riba is "what is over and above the principal" and that "it is unjust".
According to Fofana, historically jurists agreed on the prohibition of riba from these verses and termed it riba al-nasia, distinguishing it from riba al-fadl.
;Questions and replies
On the other hand, some believe the "riba verses" to be ayat al-mujmalat. These include the second caliph `Umar,, and a number of classical jurists, including Ibn Rushd. Other Classical Islamic jurists considered the term riba "speculative general" rather than a "specific", or absolute or unqualified. They restricted the application of riba to "the clarification by the Tradition ...". According to Farhad Nomani, in studying scholarly "commentaries, one notes that the technical, and even to some extent the customary meaning of riba as a practice in pre-Islamic era, is a matter of controversy among classical jurists and the interpreters of the Qur'an."
Other classical jurists, believed riba was `amma, a "general term" meaning it "is definitive or free of speculative content", according to Farhad Nomani.
Umar, also declared that Muhammad died before he could explain the verse of riba fully — it being the last revealed verse of the Qur'an according to a hadith reported by Ibn Majah.
Raqiub Zaman argues against the orthodox translation of riba as any
"excess or addition — i.e. an addition over and above the principal sum that is lent." If Muslim jurists are referring to interest as usury on the basis of this literal meaning of riba, than naturally one wonders why God Almighty used the terms `doubling` and `quadrupling` as usury in 3:130... and why there was no further clarification of this verse in the Quran or by the Prophet.

Taqi Usmani argues that the words "doubled" and "tripled" in the verse are not "restrictive" of the prohibition of riba, and like some other words in the Quran are not to be taken literally but are used "for emphasis or for explaining".
The background of these verses was the dispute between two clans, Banu Thaqif and Banu Amr ibn al-Mughirah. The verse is addressed to the Banu Thaqifa who insisted that they be able to collect riba from the Banu Amr ibn al-Mughirah for a loan made to them, despite having signed a peace treaty forgoing claims of riba.
According to Fofana, historically jurists agreed on the prohibition of riba from these verses.
Disagreeing with the orthodoxy is author/economist Muhammad Akram Khan who writes that since the verse is addressed to the Banu Thaqifa it is a "specific reference" addressing a "historical situation" and does "not institute a law that could make dealings in riba a state crime."

Quran and credit sales and late payment

While orthodox scholars believe the Quran declares interest to be forbidden riba, orthodox scholars believe it specifically allows giving credit in a sale and increasing the price for this deferred payment in some circumstances. According to Taqi Usmani, in Quran aya 2:275,
the reference to permitting "trade" refers to credit sales such as murabaha, the "forbidden usury" refers to late fees, and the "they" refers to non-Muslims who didn't understand why if one was allowed both were not. Usmani writes:
the objection of the infidels... was that when they increase the price at the initial stage of sale, it has not been held as prohibited but when the purchaser fails to pay on the due date, and they claim an additional amount for giving him more time, it is termed as "riba" and haram. The Holy Qur'an answered this objection by saying: "Allah has allowed sale and forbidden riba."

Usmani interprets the verse to mean that it is a "misconception" to believe that "whenever price is increased, taking the time of payment into consideration, the transaction comes within the definition of interest" and thus riba. Charging extra for deferred payment in a credit sale such as murâbaḥah is not riba, but late charges are.
Regarding hadith, M.O. Farooq states "it is well-known and supported by many hadiths that the Prophet had entered into credit-purchase transactions and also that he paid more than the original amount."

Hadith and prohibition

Scholars such as Farhad Nomani, Abdulkader Thomas, and M.O. Farooq argue that classical scholars believed that
hadith was needed to define riba.
M.O. Farooq states that "it is commonly argued" that riba is "defined by hadith". Thus the argument goes, textual proof for the position that all forms of interest are riba and hence prohibited by Islamic law is based on hadith.
Some ahadith offered by Usmani as prohibiting any increase in the amount "charged on the principal amount of a debt" include:
According to Farhad Nomani, among the schools of fiqh,
"... The classical Hanafi, some famous classical Shafi`i and Maliki jurists were of the opinion that riba in the Qur'an was an ambiguous term, the meaning of which was not clear per se, and therefore the ambiguity had to be cleared by the Tradition".
Different sources report different types and numbers of riba-related ahadith. According to Farhad Nomani, there are "three principal types" of ahadith
that deal with riba.
  1. The "most accepted or reliable sayings", found in most compilations of ahadith, that state that riba exists when "six articles of the same kind are either bartered unequally or not delivered immediately".
  2. Another set cite Ibn ʿAbbas, and report that there is "no riba except in deferment... in delivery and/or payment".
  3. A third set quote Muhammad's "sermon on the occasion of the last pilgrimage," where he is reported to have said:

"God has forbidden you to take riba, therefore all riba obligation shall henceforth be waived. Your capital, however, is yours to keep. You will neither inflict nor suffer inequity. God has judged that there shall be no riba and that all the riba due to `Abbas ibn `Abd al Muttalib shall henceforth be waived."

Similarly, M.A. Khan states "there are three sets of Traditions relating to riba", including the riba al-fadl and last pilgriamge sermon.
Another source, Abdulkader Thomas, states that "there are six authenticated ahadith that allow us to define" riba.
And under "riba in hadith", Shariq Nisar of Global Islamic Finance, lists seven "general" ahadith and another six on "Riba al-Nasi'ah".
Several narrators including Jabir, Abdul Rahman ibn Abdullah ibn Masoud, say that
;Questions
On the other hand, the ambiguity and lack of clarity of what constitutes riba is reported to been indicated by Caliph ʿUmar, who included it among the three concepts that "it would have been dearer to me than the world" had Muhammad "explained them clearly" , and twentieth century Islamic scholar, Fazlur Rahman Malik, who sums up his analysis of the ahadith on riba saying: “In short, no attempt to define riba in the light of Hadith has been so far successful”.
According to Farhad Nomani, "it is known that Ibn `Abas", a companion of Muhammad, "was of the opinion that the only forbidden riba was the pre-Islamic riba." Nomani state that classical jurists "all agreed" that the meaning of riba was not "free of speculative content", because there was a difference between
According to Abdullah Saeed, quoting Rashid Rida
none of the authentic hadith attributed to the Prophet in relation to riba appears to mention the terms, ‘loan’ or ‘debt’. This absence of any reference to loans or debts in riba-related hadith led a minority of jurists to contend that what is actually prohibited as riba is certain forms of sales, which are referred to in the hadith literature.

According to another scholar, the mufti of Egypt, Dr. Muhammad Sayyid Tantawy, there is nothing in the Quran or Hadith that prohibits the pre-fixing of the rate of return, as long as it occurs with the mutual consent of the parties.
;Arguments on scriptural support for prohibition
Arguing that Quran and hadith do not provide clear evidence that interest on loans is riba, Farooq notes that a number of early jurists held positions that are at variance with blanketly equating riba with interest. Some note the wording of aya 3:130,
Imam Ahmad ibn Hanbal, believed only Riba an-jahiliya was unlawful "without doubt from the Islamic viewpoint". According to Nabil A. Saleh, several companions of Muhammad, including Ibn Abbas, one of the major companions of the Prophet and earliest of the Islamic jurists, also "considered that the only unlawful riba is riba al-jahiliyyah”.
Classical jurists and most Muslims believe riba to be "a general term" with a broad definition of all interest, while
Fazlur Rahman defined riba as "exorbitant increment whereby the capital sum is doubled several-fold, against a fixed extension of the term of payment of the debt."
Farooq also questions traditionalist and activist orthodoxy, insisting the ahadith commonly cited as defining riba as interest are not unambiguous, as they must be when used as the basis for laws with impact on "people’s life, honour and property" such as a ban on all interest does.
Farooq gives examples quoting a couple of ahadith stating there is no riba "in hand-to-hand transactions”,
or "except in nasi'ah ” —
that seem to contradict the orthdox position that there is also riba in riba al-fadl, i.e. the "hand-to-hand" exchange of unequal amounts of the same commodity. argue, one -- 'Ubadah b. al-Samit—stating Muhammad forbade riba al-fadl, while another Sahabah — Mu'awiyah — contradicts him, saying he never heard Muhammad forbid such trade, "though we saw him
The "except in nasi'ah" hadith also seems to contradict the many ahadith describing Muhammad buying on credit and paying more than the original amount.
The distinction sometimes made that it is not riba to make voluntary, gift extra payments that are not stipulated in the sale agreement — such as Muhammad gave to Jabir bin 'Abdullah by when he paid back a loan, or when he repaid the loan of a camel giving two back,
or another time giving a better quality camel than the original.
But these ahadith are contradicted by the hadith stating “every loan that attracts a benefit/advantage is riba.”
as well as by hadith specifically forbidding accepting a gift when extending a loan. And all these ahadith addressing and warning the lender but saying nothing about or to the borrower, would appear to be at odds with the many ahadith who include comments such as "The receiver and the giver" of extra payment "are equally guilty.”
;Importance of the ban
Replying to the non-orthodox, Taqi Usmani argues that scripture concerning riba must not be categorized as ambiguous because God can not "wage war against a practice, the correct nature of which" is unknown by Muslims. Consequently he would never reveal a unclear verse on the matter. Only those verses for which "no practical issue depends on its knowledge" may be ambiguous.
Orthodox point to a number of ahadith indicating the gravity of the sin of committing riba. Abu Huraira is reported to have narrated:

The Prophet said, "Avoid the seven great destructive sins." The people inquire, "O God's Apostle! What are they? "He said, " To associate others in worship along with God, to practice sorcery, to kill the life which God has forbidden except for a just cause,, to eat up Riba, to eat up an orphan's wealth, to give back to the enemy to flee from the battlefield at the time of fighting, and to accuse chaste women who never even think of anything touching chastity and are good believers."

According to Sunan Ibn Majah, the Islamic prophet Muhammad declared the practice of riba worse than "a man committing zina with his own mother".In that hadeeth, he said that there are 70 sins of riba. Of these, the minimum sin is to commit adultery with oneself's mother, and the greatest riba is dishonoring any Muslim. In another Hadith, Muhammad said that, knowingly consuming one dirham of riba is equivalent to do adultery 36 times.

Sharia/fiqh and riba

How Muslims should deal with riba is disputed. Some believe riba is a violation of sharia to be prohibited by the state and violators punished. Others believe it is simply a sin to be left to God to judge and punish. Orthodox jurists tend to be less strict on its prohibition for Muslims in non-Muslims lands, and strictness tends to vary throughout the Muslim world with Sudan being the most severe and Malaysia the least.
At least one scholar has stated that not only is interest in violation of sharia, but is such a menace that failure to "combat" it indicates unbelief in Islam,. According to Thomas, “Riba is part of a broader problem of belief and behavior. Refusing to combat riba is akin to disbelief. Conceding the argument that money has an intrinsic value is potentially a greater act of disbelief”.
Author/economist Muhammad Akran Khan has noted that contemporary orthodox scholars have argued that interest is a violation of sharia law primarily on the basis of two sources:
However, M.A. Khan argues,
"the Prophet could easily have announced the broad features of such a law . The fact is that neither the Prophet nor the Qur'an has announced any law relating to interest", as they had "in the case of theft, adultery or murder..... Neither the Prophet nor the first four caliphs nor any subsequent Islamic government ever enacted any law against riba." Attempts to do so are "quite recent".
The "authentic books of Islamic jurisprudence produced throughout Islamic history" had "sections dealing with riba", discussing "its nature and what makes a transaction lawful or unlawful", but according to M.A. Khan, until recently none contained "any public law for enforcement through state machinery." The treasure of Islamic jurisprudence which has covered all facets of life, including imaginary situations, does not mention any punishment for one who indulges in riba." In 1999 a work did. The Blueprint of Islamic financial system including strategy for elimination of Riba by the International Institute of Islamic Economics, called for riba-based transactions to be punishable by law.
Another scholar points out Ayatollah Ruhollah Khomeini's book of fatawa Tawzih al-masa'il, written before 1962,
as an example of a more traditionalist attitude toward riba, or at least the charging of interest on loans. Rather than calling for a ban on interest, Khomeini states that lending without charging interest, "is among the good works" that are "particularly recommended in the verses of the Quran and in the Hadiths."

Scriptural proof and fiqh

According to Farhad Nomani while classical jurists had "a consensus of opinion about the prohibition of riba", they disagreed on the "interpretation of the primary Islamic sources and, consequently, over the details of the ruling on riba". They believed that the "objects of riba occur in sale, and, only by analogy they related riba to loan..."
Madhhab, differ somewhat in their interpretation of riba. The Shafi'i hold that injunctions for riba apply to gold and silver currency but not fils. "Thus, one hundred fils could be exchanged for two hundred either on the spot or on a deferred delivery basis." By extension this would apply to contemporary fiat money, according to Abdullah Saeed.
Critic of the all-interest-is-riba formulation, M.O.Farooq, makes a number of criticisms of logic employed using ahadith to establish the connection.
Farooq cites another critic, Abdullah Saeed, who complains that the schools of Islamic jurisprudence have ignored "rationale/wisdom" and arrived at a legal "cause" to determine what was riba "which had nothing to do with the circumstances of the transaction, the parties thereto, or the importance of the commodity to the survival of society." One result of this legalistic thinking is that hiyal could be and has been used "from the medieval period to the present day", to create loans based on "fictitious transactions" charging "exorbitant rates of interest" approved by orthodox jurists as lacking riba.
A similar argument in favor of the objectives rather than means is made by Mahmud El-Gamal. In favor of making analysis of istislah rather than qiyas, "the final arbiter in the area of financial transactions", Gamal quotes the twentieth-century Azhari jurist and legal theorist Abdul-Wahhab Khallaf:
“Benefit analysis and other legal proofs may lead to similar or different rulings.... In this regard, maximizing net benefit is the objective of the law for which rulings were established. Other legal proofs are means to attaining that legal end , and objectives should always have priority over means.”
El-Gamal quotes 14th century Maliki scholar Al-Shatibi stating that the legal ends of Islamic law "are the benefits intended by the law. Thus, one who keeps legal form while squandering its substance does not follow the law."
El-Gamal also finds it curious that classical jurists consider 'urf an important "legal consideration", and one that is not fixed but changes as customary practice changes. But when it come to banking, contemporary orthodox scholars do not consider "customary practices" to constitute a "legal consideration".
;Future
Mohammad Omar Farooq argues the prevailing doctrine of interest-equals-riba may eventually follow other such "long-standing orthodox" but no longer accepted practices such as hadd capital punishment for apostasy from Islam, or that "triple talaq".

Issues in interest as riba an-nasiya

Opposing sides

Most Muslims and most "non-Muslim observers of the Islamic world" believe that interest on loans is forbidden by Islam. This "orthodox" position
is fortified by "voluminous and overwhelming" scholarly literature. Among the Islamic bodies that have declared all interest to be riba include the First International Conference on Islamic Economics, the Fiqh Academy of the Organisation of Islamic Cooperation, the Research Council of al-Azhar University, and the Federal Shariah Court of Pakistan in a 1991 judgement. Scholars and authors who have declaring that there is a religious consensus on the subject include Abul A'la Maududi, Yusuf al-Qaradawi, Wahbah al-Zuhayli, Tariq Talib al-Anjari, Thanvir Ahmed, Mabid al-Jarhi, M.N. Siddiqi, Munawar Iqbal and Imran Ahsan Khan Nyazee. In the discipline of Islamic economics, a prohibition of interest on loans in the name of prohibiting riba has been called that field's "most salient objective".
Its importance among Islamists/revivalist Muslims is reflected in the size of the Islamic financial industry built on the basis of the orthodox position, and in expressions such as the uproar that temporarily shutdown the Pakistan parliament in 2004 when a Member of Parliament had the temerity to quote an Egyptian Islamic scholar decreeing that bank interest was not un-Islamic.
Among some interest on loans constitutes not just a sin or crime but the
"grand design of hostile forces who have already made considerable progress, through riba, in gaining control over mankind. Their aim is to gain total control and to use that power to destroy faith in Allah."

However, not all Muslims agree with the "orthodox" formulation that any and all interest — including contemporary "bank interest" — constitutes riba.
Skepticism of the interest=riba formulation goes back to Ottoman Grand Mufti Ebussuud Efendi and includes 20th century Modernist jurists, such as Muhammad Abduh, Rashid Rida, Mahmud Shaltut, Syed Ahmad Khan, Fazl al-Rahman, Muhammad Sayyid Tantawy. The "thin ranks" of notable contemporary non-orthodox scholars include Fathi Osman, Nawab Haider Naqvi, Salim Rashid, Imad al-Din Ahmed, Omar Afzal, Raquibuzzaman, Abdulaziz Sachedina, Abdullah Saeed, Mahmud El-Gamal and Mohammad Fadel.
While the minority status of non-orthodox scholars is uncontested, whether there is a consensus in favor of orthodoxy, is. One non-orthodox economist argues that a true consensus requires the agreement of not only most Islamic scholars but the Muslim community as a whole. Since most Muslims have failed to choose interest-free Islamic banking for most of their assets, this demonstrates that they do not agree that all interest is riba.

Overview of rationale and its critics

In answer to the question, "why has God prohibited interest?", a number of arguments have been advanced by orthodox/Islamist/revivalist scholars, preachers, writers and economists. They include that
At the same time that orthodox analysts offer rationale for why interest is forbidden, "more than one analyst" — including medieval Quranic exegete Fakhr al-Din al-Razi and leading orthodox scholar Taqi Usmani — have stressed that ultimately, Muslims must obey the prohibition even if they do not understand the reason for it. Usmani writes:
"The Holy Qur'an has itself decided what is injustice in a transaction of loan, and it is not necessary that everybody finds out all the elements of injustice in a riba transaction", "the philosophy of the law" "visible in a particular transaction"....
"There are areas in which human reason cannot give proper guidance... it is the firm belief of every Muslim that the commands given by the divine revelations... are to be followed in letter and spirit and cannot be violated or ignored on the basis of one's rational arguments..."

In any case, Usmani writes, injustice "is a relative and rather ambiguous term the exact definition of which is very difficult to ascertain".
;Criticism of rationale
Critics of the orthodox position — primarily Timur Kuran, Mohammad Omar Farooq, Muhammad Ahram Khan and Feisal Khan — generally argue that not only has God/Islam not forbidden bank interest, but that interest does not harm economic prosperity, the poor, or society in general. Some of their contentions are
with its own financial sector — by which Muslims can strengthen their identity and avoid lapsing into being "partial Muslims".

Injustice of fixed return

The injustice of fixed return and its lack of risk, has been attacked by Ismail Ozsoy, M.N. Siddiqi, and M. Hameedullah. Ismail Ozsoy defines interest as riba and as "an unearned or unequally distributed income." He argues that both those who pay and receive interest are sinful and behaving unjustly because the interest rate is "fixed at the very beginning, but it is impossible to predict the outcome of the business at which the loan is used, profit or loss, or how much either would be." Ozsoy states that his argument is supported by.
Mohammad Nejatullah Siddiqi argues that charging interest on loans — whether intended for consumption or production — is forbidden exploitation. If a loan is to buy consumer goods, those who have wealth should assist those without and not charge any increment above principal. If a business borrows to invest in plant or equipment, a guaranteed return on capital is unjust because there is no sharing of profits between entrepreneur and financier, the borrower is "obliged to pay to the bank an extra amount" — i.e. interest.
M. Hameedullah and M. Ayub also argues that interest is unjust because the borrower of collateralized loans bears risk but the lender does not, since the lenders can keep collateral if the borrower defaults, which violates the Islamic principle that reward should require taking/being liable for risks.
Abul A'la Maududi also believed return on a investment other than profit sharing is unjust. He preached that the interest-charging lender will increase interest rates "in direct proportion" to the borrower's "misery and the extent of his need,... if the child of a starving man is dying of illness, the money-lender will not deem an interest rate of 400 or 500% as unduly harsh.”
Defending the justice of a "fixed" return,
M.O. Farooq asks if lenders aren't "renting out" the purchasing power of their capital for the length of the loan and due interest as a form of rent much as any landlord, rental agency, or other temporary provider of something valuable/useful. M.A. Khan asks why fixed rent and fixed wages are not equally unjust despite not being forbidden by orthodox scholars. Farooq notes that in the modern world banks compete with other lenders and subject to government regulation. Predatory lending does exist — from payday lenders, and those lending at high and variable rates. These "may be covered by riba and thus Islamically prohibited," but this is hardly the same as declaring all interest riba.
Another argument against the idea that charging interest on loans exploits entrepreneurs, is that availability of capital for a modern business endeavour is one factor among many that lead to success or failure. The entrepreneur/business management involves in multiple elements — product design, production, marketing, sales, distribution, employee management and motivation, etc. Having provided its share in the process, why should financiers suffer part of the losses that are beyond their control; or be rewarded with profits that they had so little to do with? In answer to the idea that collecting interest on a business loan when the business has gone insolvent is unjust, M.A. Khan replies that in the overwhelming majority of cases both banks and lenders benefit from loans and asks if it is sensible to let the small fraction of bankruptcies dictate how finance is structured.
Feisal Khan points out that contrary to the orthodox view that collateralized loans are risk free, the 2008 subprime mortgage crisis has shown that "even AAA-rated collateral is often insufficient to ward off lender losses".
M.A. Khan cites rates of profits of business enterprises from developed countries over several decades, which were "consistently" higher by "several multiples" then the rates of interest, a reflection of capital markets compensating the greater risk of equities with greater returns, and safer fixed income investment with lower returns. Fixed income accounts also provide a service for those with fixed and modest income, critics argue, and for people who need ready access to cash but want to "put their money to work". Large, sophisticated enterprises can hardly be considered victims of exploitation when they borrow funds that originate in accounts of small savers.
Concerning the motive of fighting injustice and exploitation, M.A. Khan complains that the orthodox have never bothered to define exactly what they mean by exploitation or done the research to substantiate their claim that all interest exploits. M.O. Farooq notes that orthodox supporters frequently invoke exploitation and injustice in their polemical arguments but ignore it in studies or in depth works. Farooq further argues that in the real world profit, in contrast with interest, is as much exploitative, if not more. In a separate work, he illuminates the importance of rent-seeking in the modern world that is more widespread and with far greater consequence than interest. Farooq and others complain that the pursuit of justice has not been made the "underlying reason" in defining riba by jurists.

Vice and corruption

Among those arguing that interest has a corrupting influence on society are Muhammad N. Siddiqi, Yusuf al-Qaradawi, medieval jurist Fakhr al-Din al-Razi, Abul A'la Maududi.
Interest "corrupts" society and "demeans and diminishes human personality" according to M.N. Siddiqi.
Those who earn income from interest will not have to work, leading to the interest drawers' contempt for work and depriving others of the benefits of the interest drawers' industry and efforts, according to Yusuf al-Qaradawi. Interest brings an end of "mutual sympathy, human goodliness, and obligation", according to Imam Fakhr al-Din al Razi.
Maududi holds that interest "develops miserliness, selfishness, callousness, inhumanity".
Ibn Rushd argued the rationale for prohibition relates to the possibilities of cheating that exists in riba, which is clearly visible in riba fadl.
Non-Orthodox M.O. Farooq replies by asking why Siddiqi does not even attempt to provide evidence for how charging interest leads to social and personal corruption, noting there is no connection between levels of corruption as determined by monitors such as Transparency International and the use of interest-bearing loans. Farooq answers the charge that interest leads to sloth by stating that matching the savings of savers/depositors with the capital needs of borrowers is an economically useful and competitive function, and that in the present day many savers are retired elderly of modest means for whom it would be foolish to take risks with their life savings, and who pay for this caution with smaller returns. Another non-orthodox critic, Faisal Khan, argues that while complaints of lenders being wealthy and predatory may well have been valid in the 12th Century of al-Razi, or among the North Indian peasantry that Maududi knew, it "is hardly an accurate description" of the effects of a "modern conventional banking/financial system".
Taqi Usmani, maintains that investors/savers desire for fixed income investments/accounts is the result of an unnatural expectation of no risk of loss, brought about by the separation of finance "from normal trade activities" in capitalist banking — normal trade activities of course resulting in losses from time to time. Once people understand this they will invest in Islamic finance.

Inequality

Among those who believe that interest bearing loans favor the rich and exploit the poor are M.U. Chapra, Taqi Usmani, Al-Qaradawi, Abul A'la Maududi, Taji al-Din and Monzer Kahf, Fakhr al-Din al-Razi, and Ghulam Ahmed Pervez.
Many, express concern over rich lenders exploiting or refusing to lend to poorer borrowers following the traditional orthodox theme of a "vicious rentier class that thrives on the misery of the poor" perpetuating "a system designed to enrich the few at the expense of the many.
However Taqi Usmani expresses concern about rich borrowers who borrow "huge" amounts for "their huge profitable projects" and exploit lenders by only paying interest and not sharing their profits.
Taji al-Din and Monzer Kahf argues that charging interest on loans restricts the circulation of wealth to those who already have it, since lenders do not provide loans to those who are unable to repay them. This is forbidden by the Quran and results in an increase the divide between the rich and poor. Chapra notes that since banks are primarily interested in collateral to secure loans rather than the profitability of what the borrower/entrepreneur is seeking capital for, banks will finance rich borrowers with collateral rather than small borrowers with good ideas. Abul A'la Maududi calls interest "the greatest instrument by... which the capitalist tries to concentrate in his hands the economic resources of the community", proclaiming "there is hardly a country in the world in which money-lenders and banks are not sucking the blood of poor labouring classes, farmers and low-income groups".
M.A. Khan replies that these difficulties would not be solved by Islamic banking, firstly because "no business firm will extend credit to a customer until it is satisfied with its credibility", and secondly because there is no evidence that Islamic banking institutions have been focusing on the potential profitability of the proposals of entrepreneurs seeking capital rather than collateral. Overall, Khan writes, there is simply "no significant and rigorously argued study, of either Muslim or non-Muslim countries, showing that interest is causing or contributing to inequalities of income and wealth."

General economic harm

Among the claims that interest plays a negative role in the economy include that it squeezes out productive investment, encourages speculation, creates credit bubbles, fuels inflation, instability, unemployment, depressions and imperialism.
Umer Chapra writes that by providing "easy access to credit for unproductive purposes", interest "squeezes the availability of resources for need fulfilment", squelching job creation. Maududi states that productive investment is withheld when enterprise seeking investment cannot yield a profit equal to the "prevailing rate of interest".
Mohammad Abdul Mannan writes that eliminating interest would follow the cooperative norm of the Quran, and stimulate job creation and economic vitality.
M.A. Khan replies that the harm created by interest cannot be that severe as interest-based finance is "deeply entrenched" in the developed countries of the OECD, where per capita income is quite high and the percentage of poor people relatively low. M.O. Farooq notes that the countries that have gone in an "'interest-free' direction" are "hardly examples of greater economic stability."
On the issue of over-indebtedness and instability, Chapra also argues that the interest-based system and its reliance on collateral leads to excessive levels of debt, which leads to economic instability. Islamic finance would mean greater financial discipline than debt-based financing because it is tied to real assets. This discipline would mean greater economic stability.
Mirakhor and Krichene argue that interest charges on debts lead to the creation of a secondary market for debt. This leads to debt changing hands, multiple layers of it being created, and the generation of credit bubbles whose inevitable bursting destabilizes the economy.
M.T. Usmani insists interest-based financing may "fuel inflation" since it "does not necessarily" finance the creation of real assets", and may increase the supply of money without increasing products to match it. He cites a number of non-Muslim economists criticizing capitalist financial system for its propensity towards financial speculation, over-indebtedness, misallocation of lending capital. Another way in which interest is alleged to "lend itself to speculation" is the practice of borrowing at low rates to lend at higher ones. This disrupts "trade cycles" and interferes with economic planning and would be remedied by banning interest charges. Chapra also argues that "the erratic behaviour of interest rates" has caused "three decades" of "turbulence in the financial markets", citing a Nobel Laureate in economics, Milton Friedman.
Islamist leader Abul A'la Maududi — who was not an economist but has been credited with laying "down the foundations for development "of Islamic economics — preaches that interest prevents economic progress and prosperity by rewarding savings and capital formation. When people are not in "the habit of spending all the wealth they earn" they consume less, which decreases employment, which leads to still less consumption, creating a downward spiral leading finally "to the destruction of the whole society as every learned economist knows."
Entrepreneurial profit and wages should be the only source of income in society. Siddiqi and Ganameh cite a hadith of "income devolved on liability" in this context.
In reply, M.A. Khan argues
While Khan admits that a banking system based on the two modes of current account deposits backed by 100% reserve and profit and loss sharing accounts, would doubtless be more stable than conventional banking, this "has limited practical application" — limited to that small niche of Islamic banking that actually uses profit and loss sharing.
In reply to Chapra's citing of Western economist Milton Friedman, M.O. Farooq notes that the monetarist economists such as Friedman blame interventionist monetary policy in general rather than interest charges for the instability, and when asked specifically about any economic danger from interest charges Friedman himself stated that the work Chapra quoted did "not provide any support whatsoever for the zero interest doctrine" and that he did "not believe there is any merit to the argument that an interest-free economy might contribute toward greater economic stability. I believe indeed it would have the opposite effect."

Accumulation of third world debt

Usmani and other orthodoxists believe that the burden of foreign debt incurred by developing countries from loans by developed countries and institutions like the IMF, is an illustration of the curse of interest. Usmani quotes a number of non-Muslim sources, stating that this debt service exceeds "resource flows to developing countries", and is still growing, has brought "structural adjustment" and "austerity programs", leading to "massive unemployment, falling real incomes, pernicious inflation, increased imports,... denial of basic needs, severe hardship and deindustrialization", etc., and can be compared to indentured labor where the worker is "permanently indentured through his debt to the employer".
M.A. Khan agrees that the debt burden has created considerable hardship, but should be blamed on "mismanagement, fraud and corruption" in the misuse of borrowed funds, rather than interest charges. If interest was to blame, Islamic financing would not be a solution, since it also involves costs to those in the developing world seeking capital.

Alternatives to interest

;Nature of interest-free finance
A new riba/interest free financial system would insure that no "increased amount was charged on the principal amount of a debt", as Usmani preached, the "Holy Prophet ... has left no ambiguity in the fact that the creditors will be entitled to get back only the principal and will not be able to charge even a penny over and above the principal amount".
Some of those promoting or writing about interest-free banking have posed zero-interest loans as an Islamic alternative to the interest-bearing loans/accounts of conventional banking. Muhammad Siddiqi reassured policy makers that interest-free accounts paying no return to savers would not mean a significant reduction in savings because savings is mainly a function of the income of the savers rather than their expectation of any return.
Mawdudi promised that zero return loans would allow the flourishing production of what was socially useful but which generated only a small return.
On the other side, skeptical economist Maha-Hanaan Balala questioned how creditors would ever extend interest-free loans considering "the opportunity cost, erosion of value through inflation, risk of default by debtors"; and Fazl al-Rahman argued that an interest rate serves as a price for financing, limiting demand for it by borrowers, so that finance markets are not faced with limited supply and infinite demand.
However, according to Taqi Usmani, emphasis on zero return was misguided.
"People not conversant with the principles of Shari'ah and its economic philosophy sometimes believe that abolishing interest from the banks and financial institutions would make them charitable, rather than commercial, concerns which offer financial services without a return. Obviously, this is totally a wrong assumption. According to Shari'ah, interest free loans are meant for cooperative and charitable activities, and not normally for commercial transactions..."

Another observer has reported "a consensus" among Muslim economists that Islamic finance for commercial transactions "would not be free", but would have some kind of "cost" other than interest.
;Growth of alternative industry
As the Islamic revival blossomed in the last half of the 20th century, this new financial system began to be developed. By the late 20th century a number of Islamic banks formed to apply riba/interest-free principles to private or semi-private commercial institutions within the Muslim community, In the 1980s the Pakistan regime of General Muhammad Zia ul-Haq condemned the "curse of interest" and promised to eliminate it.
By 2014 around $2 trillion in banking assets were "sharia-compliant",. This industry was concentrated in the Gulf Cooperation Council countries, Iran, and Malaysia.
;Modes
Islamic banking replaced riba/interest with accounts paying
;Murabaha and trade-based mode of finance
The similarity between credit sales and conventional non-Islamic loans has been noted, necessary because businesses "cannot survive where cash and credit prices are equal", and urges that bank interest not be judged haram. Critics complained that in the eyes of standard accounting practices and truth-in-lending regulations there is no distinction between getting 90 days credit on a Rs10000 product and paying an extra Rs500, or taking out a 90 day loan of Rs10000 that charges interest totaling Rs500.
Orthodox writers have defended the distinction stating attaching commodities to money in finance prevents money from being used for speculative purposes.
Usmani insists that the phrase "God has permitted trade..." from Quranic verse 2:275, refers to credit sales such as murabaha,
so that "taking the time of payment into consideration" in paying more for a product/commodity, does not come "within the ambit of interest", i.e riba.
Paying more for credit when buying a product does not violate sharia law — the reasoning goes — because it is "an exchange of commodities for money", while a bank loan is "an exchange of money for money" and forbidden unless interest is zero. The buyer in a credit sale is paying not "principal" and "interest", but "cost" and "profit".
Other orthodox scholars, instead of giving a rationale, declare that the difference is knowable only to God, something humans must obey without understanding.
The permissibility of the first and the prohibition of the second are both quite clear and unequivocal... Why one is permitted while the other is forbidden can only be fully known by Allah and whomsoever he gave such knowledge. As a practical matter, we should know what is permitted and use it to our advantage, and what is forbidden and avoid it.

Credit sales do not follow the Islamic ideal called for by pioneers of Islamic banking of doing away with the "injustice" and exploitation of un-shared profits and losses in finance. Orthodox scholars have expressed a lack of enthusiasm for murabaha credit sales-based Islamic Banking.
According to Usmani an Islamically proper murabaha and other credit sale financing are only to be used
;Criticism of interest-free finance and its practices
The shortcomings of Islamic banking has been used by at least one non-orthodox critic as an arguments against equating interest with riba. According to M.O. Farooq, the "increasing need" of the Islamic banking industry "to resort to Hiyal to claim Shari'ah-compliance", is evidence that forbidding interest "is not tenable from Islamic viewpoint". Critics/skeptics complain/note
;Substitutes for other interest-based financial products and for interest in accounting and economic models
Other Islamic finance products replacing conventional bonds, insurance, promise to avoid not only riba but Islamically forbidden concepts such as Maysir and Gharar .
Replacements have been suggested for the use of a bank rate for monetary policy. Siddiqi suggests two variables that can alternatively be used:
These ratios could be used to manipulate rates of profit. They could be determined through market forces or set by governments for the public interest, and as of the early 1980s this has been legislated in Sudan and Pakistan, according to Siddiqi.
Another source suggests that "some public equity-based instrument" such as "Rastin Swap Bonds " be used for "non-usury open market operations".
In modern economic theory many of the important models use interest as a key element, and in accounting interest rates are used to evaluate projects and investments. Islamic economics looks to find alternative variables and parameters — one suggestion has been for Tobin's q to replace Interest . As a tool for comparing projects with countries where the interest rate is operated, however, it is argued that a profit rate could be used.

Non-orthodox approach

The non-orthodox position emphasizes the difference between bank interest and the riba of the Quran, and the importance of moral and practical aspects in determining what is riba.
In addition to the defence of the use of bank interest as Islamically permissible and not the cause of harm to economic prosperity, the poor, or society in general, the non-orthodox argue that several issues — the time value of money, dealing with inflation, early or delinquent loan payment — make a ban on all interest problematic, and that the "Islamic concept of money" used to defend the ban is itself problematic.

Government-affiliated ulama

A number of the high level jurists affiliated in some way with Muslim-majority governments have opposed a ban on all interest. Egyptian President Anwar Sadat obtained a fatwa from the Sheikh of al-Azhar ruled that interest-bearing treasury bonds were consistent with Islamic law. More recently the mufti of Egypt, Dr. Muhammad Sayyid Tantawy, issued several fatawa permitting bank interest in 1991. In 1997 Shaykh Nasr Farid Wasil also declared bank interest permissible provided the money was invested in halal avenues: "there is no such thing as an Islamic or non-Islamic bank. So let us stop this controversy about bank interest." Dr Abd-al-Munim Al-Nimr, an ex-minister of 'Awqaf in Egypt, publicly stated that banking interest cannot be considered riba.
This has been explained as in keeping with the tendency for rulers to get the fatwas they want on "key policy issues" from "official" ulama "whose task it is to legitimize" rulers' policies. during the late period of the Ottoman rule.

Modernist position

In addition to service to government, another motivation of jurists opposing the formulation interest=riba has been the arguments of Islamic Modernism of the 20th century Modernist jurists, mentioned above.
Islamic Modernists tend to "emphasize the moral aspect of the prohibition of riba, and argue that the rationale for this prohibition as formulated in al-Qur’an was injustice and hardship." Modernists believe pre-Islamic lending practices in Makka constituted riba and are much different from and more problematic than contemporary bank lending, which do not involve riba, according to sources such as M.A. Khan and The Encyclopedia of Islam and the Muslim World.
Makkan lending involved high interest rates charged by rich money lenders to poor customers who borrowed for purposes of consumption, and led to the accumulation of large debts and often financial slavery. In contrast, most money loaned in contemporary society is for commercial purposes and investment, transacted between sophisticated parties, offering/paying interest rates determined and kept low by a competitive and regulated market — most of these features not in existence when the Quran was revealed. Furthermore contemporary bankruptcy laws "protect borrowers against the horrors once produced by riba".
They also advance the economic argument that "the goal of eradicating interest is both misguided and unfeasible," because interest is "indispensable to any complex economy".
;Harm to borrower
Islamic Modernist scholar such as Fazlur Rahman Malik, Muhammad Asad, Sa'id al-Najjar, Sayyid Tantawi, differ from the orthodox interpreters in arguing that interest is not riba unless it involves exploitation of the needy. They differentiate between various forms of interest charges advocating the lawfulness of some and rejecting others.
Abd-al-Munim Al-Nimr, also argues that riba must involve harm to the debtor.
In his fatawa permitting bank interest and declaring it non-riba, Muhammad Sayyid Tantawy argued it makes little sense to suggest that modest saving account holders are exploiting sophisticated multibillion-dollar banks that pay them the interest on their accounts. Fixed return or "determination of the profit in advance is done for the sake of the owner of the capital and is done to prevent a dispute between him and the bank," rather than to exploit.
Lawyer and Islamic scholar Kemal A. Faruki, complained that much time and energy were spent in Pakistan on "learned discussions on riba" and "doubtful distinctions between `interest` and `guaranteed profits`" in the banking system, while a far more serious problem affecting the poor was ignored:
usury perpetrated on the illiterate and the poor by soodkhuris. These officially registered moneylenders under the Moneylenders Act are permitted to lend at not more than 1% below the State Bank rate. In fact they are Mafia-like individuals who charge interest as high as 60% per annum collected ruthlessly in monthly installments and refuse to accept repayment of the principal sum indefinitely. Their tactics include intimidation and force.

;Practicality
Economic arguments that bank interest is needed for efficient allocation of resources and economic development, also mean that it serves the public interest. Because public interest, is one of the bases of divine law and qiyas ) this may exempt bank interest from charges of being haram and riba.
Turkish-American economist and Islamic Studies scholar Timur Kuran questions whether an economy without interest has ever existed: "As far as is known, no Muslim polity has had a genuinely interest-free economy."
Feisal Khan notes that the Islamic banking industry is under criticism not just from non-orthodox who think Islam does not call for a ban on interest, but from "ultra-orthodox" who believe it has not truly excluding all forms of interest from finance. He notes complaints about the authenticity of Islamic banking from strict Muslims
and that in 2002 — 23 years after riba was first forbidden in Pakistan — the State Bank of Pakistan declared that banks and "windows" made "Islamic" in 1979 were not truly Islamic, but conventional, and that other banks were "full-fledged" Islamic commercial banks who would be promoted by the state bank. Despite this "rebooting", Khan states that the new, purified, full-fledged Islamic banks are the same in "form and function" as the old Islamic banks, and that eleven years later, use only a minuscule amount of profit and loss sharing, and make up only about 10% of the country's banking sector.
Reply to Modernists
Most of these arguments have been criticized by Islamic revivalist writers, including Siddiqi, Zarqa, Khan & Mirakhor and Chapra, and especially by Taqi Usmani's "Judgement on Interest Delivered in the Supreme Court of Pakistan".
Taqi Usmani argues that commercial, industrial and agricultural loans could not have been unknown to Arabs in the era of Muhammad since ahadith mention large loans and large scale caravans used by Arab traders. Arabs of Muhammad's era also had "constant business relations" with the adjacent Byzantine province of Syria where interest bearing loans were so widespread that a separate law was enforced to fix their rate of interest.
He also points out that there are a number of references to "all" riba being forbidden in ahadith, and all excess over principal being riba, but no mention of some smaller amount of interest being permissible.

Time value of money

One concept instrumental in explaining the justice of charging interest on loans
is the time value of money — the idea that there is greater benefit in possessing money in the present rather than the future. The concept justifies the idea that later payment should be discounted and savers/investors/lenders be compensated for deferring the benefits of consumption, or — as mentioned above
— compensated for "renting out" the purchasing power of their capital, much as any rental agency providing something valuable/useful is paid rent.
As such, some Islamic finance supporters have attacked the idea of time value.
Fahim Khan of the Islamic Research and Training Institute in Saudi Arabia states that the prohibition of interest "can be considered" a "sort of a denial of time value of money". Maududi has called the difference "between the psychological values of the present and the future ... nothing but an illusion", and disproven by the fact that few people "spend all their wealth on present pleasure and enjoyment." Taqi Usmai has declared unequivocally that "in Shariah there is no concept of time value of money".
Irfan argues that the value of money diminishes very little over time because some consumption — such as eating — can only be done over time. Furthermore, discounting for time may lead to negative outcomes such as unsustainable agricultural production with planting and grazing that causes desertification and erosion, since these bad outcomes occur in the discounted future.
However, Islamic banking also calls for rewarding delayed gratification in the form of "return on investment" and the sale of goods on credit.
Most orthodox Islamic scholars and economists have taken a middle path — insisting that a rate of discount of money overtime is an invalid concept if the rate is interest on a loan, but valid if the rate is return on capital from Murabaha or other Islamic contracts. Critic Farooq complains that this rationalization is contradictory, and amounts to denying time value in theory in theory while embracing it in practice, and that the accepting of the theory in practice explains the large move of non-Islamic western banks into Islamic banking.

Islamic concept of money

Answers to the argument that lenders of money are due some kind of rent-like compensation; and to the question of why charging extra to finance a purchase is allowed, but in lending cash it is riba,
can be found in the "Islamic concept of money".
Orthodox scholars, such as M.U. Chapra and M.T. Usmani, have written that money can only be a "medium of exchange" and must not be treated as an "asset or commodity". Trading a commodity/asset, or paying a fee for its use is right and sensible, but trading or renting a medium of exchange is wrong, because money is "unproductive" has "no intrinsic utility".
This being the case, no return for the use of money can be justified, and explains why it is riba.
Usmani quotes condemnations of speculation by various Western sources and the writings of the celebrated medieval Islamic scholar Al-Ghazzali that money was made to facilitate trade and should never be hoarded or used to charge interest.
In response, M.A. Khan questions
The opposite of credit sales — i.e. higher charge for deferred payment — is reduced charges for early payment, and is hard to justify without an acknowledgment of the time value of money and the validity of interest on loans, according to some.
Reduction of debt for early payment is considered haram by the four Sunni schools of jurisprudence, but whether there is a consensus of Islamic jurists is unclear. According to Ridha Saadullah, such reductions have
been permitted by some companions of the Prophet and some of their followers. This position has been advanced by Ibn Taymiyya and Ibn al-Qayyim, and it has, more recently, been adopted by the Islamic Fiqh Academy of the OIC. The Academy decided that `reduction of a deferred debt in order to accelerate its repayment, whether at the request of the debtor or the creditor is permissible under Shariah. It does not constitute forbidden riba if it is not agreed upon in advance and as long as the creditor-debtor relationship remains bilateral....

Inflation

Whether or not compensation to lenders for the erosion of the value of the funds from inflation is allowed, has also been called a problem "vexing" Islamic scholars, since finance for businesses will not be forthcoming if a lender loses money by lending.
Volume 1 of Investment Laws in Muslim Countries Handbook, states "an interest rate that did not exceed the rate of inflation was not riba according to classical Islamic jurists." Suggestions to solve the problem include indexing loans or denominating loans "in terms of a commodity" such as gold, and doing further research to find an answer.
However, many scholars believe indexing is a type of riba and that it encourages inflation. Islamqa.info merely states, "Yes, it is haraam to pay interest on loans even if that is because of inflation. The scholars are agreed that if it is stipulated that a loan be repaid with something extra, that is riba which is forbidden by Allaah and His Messenger." Abu Umar Faruq Ahmad and M. Kabir Hassan state that: "Qur’anic injunctions against riba, and must be accepted as they stand." Using "interest to neutralise inflation would be tantamount to using a bigger ‘evil’ to fight a smaller one .

Delinquent payments/Defaults

While in conventional finance late payments/delinquent loans are discouraged by interest that accumulates while the loan is delinquent, the price for credit payments can "never be increased" no matter how late the lender/buyer is in repaying because late fees are payment "against money", which violates the principal that credit payments must be "against commodity and not against money".
Prohibition against late fees has led to the control and management of delinquent accounts becoming "one of the vexing problems" in Islamic finance, according to M.A. Khan. According to Ibrahim Warde,
Islamic banks face a serious problem with late payments, not to speak of outright defaults, since some people take advantage of every dilatory legal and regal and religious device... In most Islamic countries, various forms of penalties and late fees have been established, only to be outlawed or considered unenforceable. Late fees in particular have been assimilated to riba. As a result, `debtors know that they can pay Islamic banks last since doing so involves no cost`

Warde also complains that
"Many businessmen who had borrowed large amounts of money over long periods of time seized the opportunity of Islamicization to do away with accumulated interest of their debt, by repaying only the principal — usually a puny sum when years of double-digit inflation were taken into consideration.

Riba al-fadl

While riba an-nasiya=interest is a major issue among Islamist/revivalist preachers, writers and economists, and forms the basis of Islamic Banking, another type of riba—what jurists call riba al-fadl -- is also forbidden by orthodox jurists. Riba al-fadl does not involve paying back over time but instead the trading of different quantities of the same commodity, typically because the quality of the smaller quantity is superior.
Because riba al-fadl involves barter, and barter is much less common than it was in early Meccan society, riba al-fadl is of much less interest nowadays than riba an-nasiya. It is also considered a form of riba prohibited by the Sunnah rather than the Quran.
Taqi Usmani states that Riba al-fadl was developed by Muhammad and so was not part of pre-Islamic jahiliya.

Hadith

Examples of the ahadith cited in forbidding riba al-fadl — many from Sahih Bukhari — are:
Raqiub Zaman notes that when riba is described in hadith literature, it is "in the context of sales", with "no mention of loan or debt ",.
However, there are various contradictions and discrepancies in ahadith on riba al-fadl. Both M.O. Farooq and M.A. Khan quote a well-known hadith by Usama bin Zayd making a rather categorical statement that
Farooq cites another from Sahih Muslim
Farooq quotes another scholar who believes the two ahadith “demolish the self-invented castle of riba al-fadl”. M.A. Khan also believes the hadith indicate that riba in a spot exchange is "ruled out".
According to scholar Farhad Nomani, ahadith citing Ibn `Abbas, a companion of Muhammad, "report that there is no riba except in deferment... delivery and/or payment", again questioning the existence of riba al-fadl.

Application

Islamic jurists have traditionally interpreted the admonition of riba by the ahadith to mean that if one amount of commodity is traded for the same kind of commodity then the two items exchanged must be of the same quantity, ignoring the quality of the commodity or the labor added to it.
If, for example, a jeweler is paid in gold bullion for a gold ornament or piece of jewelry, and charges any money for their labor, they are guilty of riba al-fadl. If someone has a 100 grams of 24 karat gold and needs 100 grams of 18 karat gold, they must trade their 100 grams for an equal amount of that less pure gold or commit riba al-fadl.
All the schools of Islamic jurisprudence accept this prohibition.
In more recent times, the International Institute of Islamic Economics 1999 Blueprint of Islamic financial system including strategy for elimination of riba, declared riba al-fadl forbidden under Islamic law, defining it as exchange transactions of the `same general kind` where there are `qualitative differences`. The Concise Dictionary of Islamic Terms also states that riba al-fadl is one of two kinds of riba which are "strictly forbidden by the laws of Islam".
While all the schools of fiqh agree with the prohibition, they do not agree over its rationale or whether it is restricted to the six commodities mentioned in ahadith—gold, silver, wheat, barley, date, salt—as the ahadith do not say "whether or not other commodities will assume the same status".
This disagreement is the part of the lament of Rashidun Caliph Umar that Muhammad did not explain the prohibition more clearly.
;Criticism
Critics of this interpretation include activist Khalid Zaheer and economists M.A. Khan and Mohammad Omar Farooq. Zaheer believes that "the literature on Islamic Finance and Economics is presenting very strange applications of the concept of riba al-fadl, which are... being applied in areas of business and finance where their application was never intended." He notes that some scholars "openly" admit they do not understand the logic of the ban on Riba al-Fadl.
Prohibition of riba al-fadl is mentioned only in hadith. M.A. Khan and Farooq find the reference to riba al-fadl questionable as it makes no sense. Khan asks why anyone would ever trade equal quantities of the same kind of commodity — for example 100 kilograms of wheat for 100 kg of wheat — in a riba-free transaction called for by quoted ahadith. Or how "divine law" could prescribe that a jeweler — "who has spent his time and effort to convert gold into jewelry" and is taking gold as payment — not be compensated?
M.A. Khan also notes that the authors of the IIIE blueprint have no objection to traders selling higher purity/quality commodity for cash and using the proceeds to buying more less purity/quality commodity, and wonders what would be accomplished by such "an ineffective and roundabout method of handling a simple exchange transaction".
Abdullah Saeed complains that the legal cause or feature used by the schools of Islamic jurisprudence to determine what commodities were subject to riba ignores reasons why a sale should be prohibited -- issues such as "the circumstances of the transaction, the parties thereto, or the importance of the commodity to the survival of society."
Mahmoud El-Gama notes that orthodox interpretation of riba distinguishes between fungible and non-fungible items. Thus fungible gold may not be traded one ounce for two, but trading one nonfunglible item for two is permitted, whatever the items' market value. Thus "selling a diamond worth $10,000 today for a deferred price of $20,000 tomorrow" and immediately selling the diamond for $10,000 in cash is halal under orthodox rules of riba al-fadl — notwithstanding the fact that it would give the financier an effective rate of 100% interest. El-Gama describes this as avoiding "riba in form" while being "usurious in substance".

Rationale

According to Abdullah Saeed, "the intended meaning" of the ahadith concerning riba al-fadl "was not very clear even to many jurists", who nonetheless believed the prohibition "was to be observed and complied with... without probing into the reasons for the prohibition." Other scholars have probed.
Ibn Rushd stated that "what is targeted by the prohibition of riba is the excessive inequity it entails".
Taqi Usmani asserts that Riba al-fadl was developed by Muhammad after his ban on riba to avoid "certain barter transactions might lead the people to indulge in Riba", picking out commodities that were "a medium of exchange like money".
Iqbal Suhail believes trading lesser quality foodstuffs for better quality and less quantity was forbidden because the frugality and austerity of Muhammad was offended by something like the spending resources on higher quality foodstuffs "for the sake of gratification of the palate."
Others believe riba al-fadl makes little sense as a prohibited sin but does as a sort of consumer advice. Mohammed Fadel calls it a ‘prudential regulation’.
Farooq suggest it may have arisen to warn Muslims that barter is usually less profitable than buying and selling separately, and notes several hadith where Muhammad tells a Muslim not to trade dates of different quality but never mentions riba.
M.A. Khan argues that the prohibition against riba al-fadl comes not from any clear understanding of the ahadith but from an attempt to find a plausible explanation "to rationalize the ambiguity in the text".

Citations

Books and article s