If a person lends money to someone and then demands profit on it, then this is called "interest". At first sight, there does not seem to be any difference between it and rent. However, a deep deliberation reveals the stark difference between the two: rented out items can be used while keeping them intact. However, money cannot be used in this way; it is in fact used up and after spending it, it is needed to be produced again. Therefore, if something in addition is demanded over the original amount, this in fact becomes an oppression. Since this difference between interest and rent is subtle, and human intellect can falter in understanding this difference, the Almighty has delineated the truth in this matter. In the shari'ah He has given mankind through his prophets, He has informed them that demanding an increase over the lent amount is unjust and hence not allowed. It is for this very reason that interest has remained prohibited at all times and in all the shari'ahs revealed by the Almighty. The Qur'an has explicitly forbidden it. There is no difference of opinion in this matter.
However, the religious legality of the system of banking which prevails in our societies has recently come under discussion. It is contended that since the bank only receives a portion from the profit of a commercial venture it had financed on the basis of a loan hence the very reason for which interest was regarded as prohibited does not exist in the banking system. This view has been put forth by some scholars of Egypt and Syria. MawlanaWahid al-Din Khan (b. 1926 AD), a celebrated scholar and preacher from India too, has corroborated it to some extent in his book Fikr-i Islami. In my opinion, this view of the scholars can be considered intellectually convincing; however, it is essential for this that the following remedial measures be introduced in the banking system.
Firstly, if a commercial venture financed by a bank loan runs into losses or needs to be discontinued for some reason, the demand for profit by the bank should cease that very day. It should only demand the principal amount.
Secondly, if things are being sold on installments, then until these installments are complete, the bank should remain a partner in the ownership of the sold item, fulfil the rights of ownership and receive rent on it.
Thirdly, in a loan given for non-commercial purposes except for inflationary adjustments, no interest should be demanded on it.
If these measures are taken, then the banking system becomes just to a great extent. However, there are two more questions which arise.
Firstly, what is the ruling on people who do not charge interest but procure an interest-bearing loan to meet their personal and business needs?
Secondly, should saving schemes through which governments acquire loans for their needs from people and also give them profit be regarded as prohibited?
The answer to the first question is that no objection can be raised on paying interest because the prohibition of interest is based on the Qur'anic principle of akl al-amwal al-batil (devouring wealth through unfair means), and a person who pays interest does not devour the wealth of some other person through unfair means. In fact, he pays a part of his legitimately earned wealth to the borrower in lieu of the loan he provides. The issue of interest is mentioned at more than one instance in the Qur'an. Not at one place has the Qur'an condemned those who pay interest. In fact, it calls them oppressed and asked the lender to give them time if they are facing financial constraints. Those who regard paying of interest as prohibited do not base their view on any verse of the Qur'an or any implicit or explicit deduction from any of its verses. They base their view on a Hadith narrative which says that the Prophet (sws) has cursed the person who consumes interest and makes others consume it. The words of the narrative are: آكِلَ الرِّبَا وَمُؤْكِلَهُ … لَعَنَ النَّبِيُّ.In this narrative, the word مُوْكِلis used for a person who makes others consume interest. Linguistically, it can refer to a person who pays interest and also to people who are the agents of professional lenders and in this capacity hunt for potential customers for their masters. If lending on interest becomes a business, then such agents are its essential need; without them, the business of lending interest bearing loans cannot be run. If the narrative relates to such people, then there is no complexity in the narrative because this is blatant co-operation with evil (ta'awun 'ala al-ithm). As agents of interest-lenders, those who prepare agreements and documents for them and act as witnesses, their matter too is no different. The service provided by bank staff of these times is of similar nature. However, people who acquire interest-based loans cannot in any way be regarded as guilty of co-operation with evil (ta'awun 'ala al-ithm). This expression can only be used for an act done by perpetrators of a sin and for those who reap the benefits of this sin. Those who acquire interest-based loans do not acquire it to help the devourers of interest, they obtain loans for their personal and business needs. If this is co-operation, then it is not more than the co-operation done by our scholars and righteous individuals when they deposit their own wealth and that of their institutions in banks. If interest is prohibited at the state level and all forms of interest transactions are brought to an end, then such people who still pay interest can be regarded as criminals who have breached a law. If the Hadith narrative cited above refers to them, then the directive should relate to the scenario just stated – when interest transactions had been prohibited in the time of the Prophet (sws).
The answer to the second is that the referred to saving schemes are not like general interest transactions. The reason for this is that through these schemes, a government borrows money from the lenders not on their conditions but on its own conditions. Not only this, it ascertains the rate of profit itself as well and also keeps increasing or decreasing it on its own discretion. Although this is not exactly the same as returning a loan taken from someone with some addition to the principal amount without the lender demanding this addition, yet this arrangement is something close to it. It is known that interest has been forbidden because it can result in oppression and exploitation. However the intensity of this oppression and exploitation is greatly reduced in this arrangement. For the pious, it is befitting that they do not benefit from such schemes. However, if the general masses especially the orphans, widows and retired personnel who are apprehensive in investing their wealth in business ventures benefit from these schemes for their essential expenses, it is hoped that they will not be held accountable for this by their God.
(Translated by Dr Shehzad Saleem)
. Al-Bukhari, Al-Jami' al-sahih, vol. 5, 2045, (no. 5032).