Hifzur Rab

The objective of this article is to develop consensus on the issue of Riba and to provide practical and efficient solution for the related economic issues.

Riba is one of the most widely discussed issues around Islamic finance. It has many dimensions, but we will confine ourselves to specific issues of Riba al Fadl and Riba in loans. To achieve the objective, we must define Riba in contemporary terminology. Let us explain it for loan of an amount of money. We need to know whether Riba is nominal excess (nominal interest) or real excess (real interest) or something else.

Some of the contemporary scholars hold the view that nominal as well as real interest is Riba. We know that nominal interest is real interest plus rate of inflation. Now, inflation is consistently positive and significant, i.e. normally more than 2.5% and at times may be 50% or even more. Thus, these two terms are very different and the said opinion seem to be based on lack of understanding. Let us elucidate it: suppose someone lent money at nominal rate of interest equal to the rate of inflation (a). In this case, rate of real interest is a-a=o. Thus there is no real interest. Now if only real interest is Riba, then it is Riba free. But, if nominal interest is Riba, then it is Ribawi (has Riba). We need to consider various issues that divide us. We may start with a list that may be revised later and seek opinion of our contemporary scholars. We will preferably use contemporary terminology. Author has discussed the issue in detail; however, now only important issues that are causing division or what can lead to resolution of problems are taken up.

An informed discussion of the views from Ghazali, Ibn Taymiyyah, Ibn al-Qayyim, Ibn Hajar, etc. (may Allah reward them all) shows that the ‘illah for Riba is thamaniyyah (money-ness), and the wisdom is that the money is used for its purpose as a medium of exchange, measure of value and store of wealth, and it is not to be traded like a commodity.  While we should accept this agreement of opinion of our renowned scholars, it must be understood in context of real money that was used in their period and Qarn-e-Awwal that forms the basis of their and our understanding of the Shari’ah. Further our jurists have consistently held it (money) to be a measure of value and it must be seen in context of it being a measure of value and therefore subject to provisions of Shari’ah in this regard. It can be argued that whatever is commonly used as Saman will be subject to Riba but the excess that is Riba will have to be determined in accordance with relevant provisions of Shari’ah. What matters in Shari’ah are the realities and not the names.

Let us consider Qarn-e-Awwal: Ahd-e-Risalat (period of the prophet may peace be on him and his righteous deputies ra). In those times, gold and silver coins were used as common medium of exchange. We had nothing like inflation (general increase in prices that is virtual and not real) as the money was real and its value was determined by weight of what it was. In case coins were of equal weight these were used as unit of account and these are known to be most stable single commodity based measure of value/wealth. If weights of the coins differed, their weight was relied upon that is weight of gold or silver was used as unit of account and this practice is in accord with the Hadith in Ibn Maja:   

             ‘Dirham for Dirham and Dinar for Dinar and no excess except due to difference in weight.’

That is if coins differ in weight, equality of weight will apply.

 During Qarn-e-Awwal, fixed quantities of gold and silver that have most stable purchasing power were used as measure of value and unit of account. Quran-e-Hakim and Sunnah Mubarkah has repeatedly commanded us to measure and account justly and correctly. Allah Subhanahu wa Taala grants highest level of importance to ‘correct measurement’ so much so that He appointed prophets with mandate to enforce ‘correct measurement’ and His final book Quran-e-Hakim repeatedly commands us to weigh (measure) correctly.

‘He has set up the Balance (of Justice). In order that you may not transgress Balance. So establish weight with justice and fall not short in the balance.’ (Q55: 7-9)

We may also refer to, Q11-84&85, Q17-35. Q26-181 and Q83-1 to 3. It follows that ‘to weigh/ measure justly/correctly’ has been made mandatory. Just/correct measurement is not possible unless Yard Stick/unit of Measurement is a definite, reliable and known quantity of what it measures and it follows that use of non-reliable measure/unit is not permissible in Shari’ah. Manipulation of unit corrupts measurement; therefore, divine command to establish wazan with justice imply that manipulation of unit is not permissible.

Prophet (may peace be on him) did not allow incorrect measurement and held that weight measurement of Mecca and volume measurement of Medina was reliable.

Narrated ‘Abdullah ibn Umar: The Prophet (PBUH) said: “Standard weights are according to the weights of the people of Makkah, while standard measures are according to the measures of the people of Madinah”.(Sunan Abū Dāwūd, 2009, Hadith 1253)

Not only general populace but even authorities are not allowed to clip coin or to debase it. Shari’ah deems this as corruption, exploitation and economic manipulation. Imam Malik, Imam Ahmed and most of the jurists of Madinah hold it to be prohibited, even when there is a supposed need or necessity to do so. Thus currency manipulation is not permitted in Shari’ah. Market uses currency to measure value and in determination of labor wage, prices and many other entitlements. Further there is no way this measurement error could be corrected. Monetary manipulation is neither permissible rationally, legally or scientifically nor in Shari’ah (Hifzur Rab, 2006, 2024).

Quran-e-Hakim ordains us, ‘Give measure and weight with full justice’ (Q 6-152)

‘Give just measure and weight, do not put people in loss in respect of their dues.’ (Q 7-85)

Thus, Quran-e-Hakim and Sunnah Mubarkah bound us to use correct measures, use right procedures and to account justly.

Scientifically, rationally and logically we know that correct measurement and accounting is not possible unless one uses only definite quantity of what is measured/accounted, as unit of measurement and unit of account. During Qarn-e-Awwal, Riba was known to be demand of excess of quantity of what was lent and unit of measure of value and unit of account of value satisfied the condition of being known and highly stable quantity of wealth. Clearly, Shari’ah prohibits use of measure or units of account that lead to error in measurement or accounting. Thus essential scientific and logical as well as Shari’ah requirement for justice in exchange is that only definite quantity of what is measured or accounted is used as unit of measurement/accounting.

Our jurists have based their opinion on Hadith-e-Riba:

“Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt, must be equal on both sides and hand to hand. Whoever pays more or demands more (on either side) indulges in Riba.”

The Hadith forms foundation of our understanding of Riba its Illah and Hikmah and it mentions 6 commodities that were all measured /weighed. All these have significant price stability and marketability and people voluntarily accepted these as price and these have money-ness. Imam Aḥmad bin Ḥanbal (may Allah reward him) holds that there is no Riba in goods other than volume-able and weighable whether they are edibles or not. Hanafites consider measurability as essential condition for existence of Riba. Money-ness may be defined as what causes people to accept something as price. People willingly accept whatever has stable purchasing power and has low storage and transport cost as price and use it to buy goods and services when needed. Thus we may hold that ‘stability of purchasing power due to nature of the commodity and its liquidity (ease of marketability)’ is cause of Riba.

This expression of cause of Riba may be considered better than holding money-ness as cause of Riba as it is fully connected with the Hadith. Purchasing power due to nature of commodity and its stability is same as stability of price for unit quantity. Thus it is linked with measurability and is consistent with opinion of our Fuqaha who rightly insist on measurability (weight/volume) being cause of Riba. It is clearly integrating money-ness and measurability as cause of Riba. Significant instability of purchasing power will make money-ness defective and require appropriate unit of account to ensure justice. It is to be seen that gold and silver have much better short term as well as long term stability of purchasing power than the remaining four commodities mentioned in Hadith-e-Riba thus only these two qualify as measure of value of other goods and services where required but others are restricted to their own case. Reality is that only these are money proper and universal measures of value. Our jurists apply rules of Sarf in these cases. The excess that the Hadith defines as Riba is excess of quantity and it is confirmed by practices of Qarn-e-Awwal. The Hadith relate only to measurable goods and services and it is not correct to apply it to what is not measureable as in that case quantitative excess that is Riba as per the hadith cannot be determined.

Thus, if something that is not measurable is found to be Ribawi some mechanism will be required to determine the excess that is Riba. In case of money that is measure of value as per the opinion of our Fuqaha, the mechanism that is used to determine excess in the case must satisfy the requirement for just/right measurement and accounting that is mandated by Shari’ah.

 Based on hadith-e-Riba, Riba may be defined as “measured” excess of commodity borrowed/due. The excess that is defined as Riba is measured and actual (Haqiqi) excess of quantity. Thus if we define real interest as excess with respect to unit quantity of what provided purchasing power/value to money/commodity lent, then real interest will be same as what was understood to be Riba by the Ummah in Qarn-e-Awwal. Thus, real interest as defined above is the correct definition of Riba in Qarn-e-Awwal and all should accept it.

The Real excess that is Riba is thus excess with respect to quantity of the commodity and in case of dinar and dirham, it is excess with respect to quantity of gold /silver that constitute these and as per Shari’ah these have same price/value as the quantity of gold/silver these contain and this lead us to the conclusion that in case of money used during Qarn-e-Awwal, Riba is excess with respect to quantity of what provides price/purchasing power to money. This provides the basis to resolve issue of Riba for all forms of money that lead to practical efficient and just solution to all our problems in this regard. Author has discussed the issue over last three decades.

Thus we may conclude that practices of Qarn-e-Awwal, Quran-e-Hakim and Sunnah Mubarkah make it abundantly clear that while the finding of our Fuqaha (jurists) that money-ness is Illah of Riba should be acceptable to all, considering that the money they knew was real money and the excess they held to be Riba was real (Haqiqi) excess that was determined by correct measurement/accounting does show that to hold that Riba is nominal excess and not the real excess is rather contrary to their opinion.

Shari’ah Perspective on Measurement and Accounting for Wealth

Prices of commodities vary with supply and demand as well as due to changes in the purchasing power of money. Weight/volume of homogenous commodities having sufficiently stable price/purchasing power is a reliable measure of their value. Further utility of these that is the real measure of their value is best described by their weight. Thus in such cases, all transactions involving single commodity are best accounted in terms of their own weight and in view of natural imperfection of even the best measure of value (due to change in supply and demand), application of even the best measure of value will create some error of measurement and create some avoidable complexity in accounting. Thus the use of weight of such commodities as standard of measurement/accounting best serves the cause of justice.

With regards to gold based money, long term data proves that there is no significant change in its purchasing power; however, it does not hold so strictly in the short run. Even in case of silver, the long term rate of change of purchasing power is minimal. Our jurists have held gold and silver to be Saman-e-Khalqi (natural money). Shari’ah does hold these to be universal standard of value but restrict their use and we have seen that it simplifies accounting and best serves the cause of justice. Anyone who tries to fully understand the issue will realize the greatness of the wisdom and concern for justice that Shari’ah demonstrates on the issue of measurement and accounting for wealth. To establish justice and to ensure that people stand for justice the core principle of Islam. Allah Subhanahu wa Taala has created the universe on foundation of justice and made it mandatory for all to uphold justice.  Thus money being measure of value ought to be a known (defined/definite quantity) having most stable purchasing power as it is the cause of money-ness. Instability of purchasing power/value is defect in money-ness. We can clearly see that Shari’ah will not allow any measure of value that is indefinite and unstable to be used as measure and unit of account. Islamic declaration of war against Riba is war against economic exploitation and oppression of the poor and it is one of its major mechanisms to establish economic justice (Hifzur Rab 2009).

It follows that Shari’ah holds that quantity of wheat is best measure of value of wheat borrowed and returning back same amount of wheat clears the loan. Quantity of Amwal-e Ribawiah is the best measure of value for itself and therefore any excess of quantity is Riba.

Appropriate measure and unit of account

In case of Qard Hasan, quantity returned must equal quantity borrowed. In this case, unit quantity of the commodity borrowed is the unit of account.  In case of Amwal-e Ribawiah, any excess of quantity of commodity is Riba implying that quantity is best unit of account and any excess with respect to this unit is Riba. Hadith-e-Riba provides its direct confirmation. Shari’ah has fixed Nisab (threshold) for Zakah for agricultural produce in terms of volume of the produce implying that the fixed volume of commodity is used as unit. Considering that product of volume and density (that is nearly constant for a given commodity) is weight, it is same as holding fixed weight as unit. If commodity is weighed, the unit is known weight of the commodity. For gold and silver coins, if the weight is fixed, coin is unit and if not fixed and there is difference in weight, coin (number thereof) cannot be used as accounting unit and unit quantities of gold and silver are correct accounting units respectively.

Suppose you borrowed 100 dinar of 4.25 gm each but you are paying back this loan by using dinar made of only half the quantity of gold you will have to pay double number of Dinars because you must pay back same quantity of gold. Clearly in this case quantity of gold is used as measuring/accounting unit and dinar can’t be used as accounting unit as its gold content is changed. Thus even gold coins known as Khalqi (natural), Saman can be used as accounting unit only if its gold content is constant.

            In respect of stock in trade (Amwal-e-Tijarat), no commodity or product can be used as measure of value and therefore universal (best performer) measure of value has to be used. Shari’ah has fixed Nisab in terms of fixed quantities of gold and silver. It implies that Shari’ah is using best available measures of value (unit quantities of gold and silver) as unit of account. We clearly see that Shari’ah normally uses appropriate unit of account and where unrelated product and services are involved, it uses quantity of gold and silver as unit of account and these are known to be best performing measures of value. In Shari’ah, these are considered natural medium of exchange. Coins of gold and silver containing fixed quantity of gold and silver perform best on criterion of stability of purchasing power and ease in use as money that is money-ness rationally and scientifically. Thus criterion of money-ness in Shari’ah and its scientific and rational criterion are congruent. It is also important to note that Shari’ah uses appropriate units for valuation of wealth and that is also the scientific and rational approach.

We have seen that gold seem to be better standard of value than silver but its quantity may not be enough to run the economy efficiently as shortage of anything raises its price and thus Shari’ah has treated these at par. Further Shari’ah provided alternative to select with changing times. People may agree to one of the alternatives as that may be leading to better justice in particular time or place.

Latter periods witnessed debased gold and silver coins and in that regard fatwa of Imam Taymiah (ra) is very much same as Hadith quoted above. Therefore, it should be acceptable to all.

In future, we should consider copper coins (Folus) of Mamluk dynasty, then gold standard. For better comprehension, we may consider other important issues that are causing division in the Ummah.  Seeking of risk free return and demand of funds charged on fixed rate by value free capitalist owners and entrepreneurs respectively, banking and system of interest are important in this regard. Freely floating fiat money and inflation will be discussed and their relation with system of interest.

References:

Hifzur Rab (2009). Freedom, Justice and Peace Possible Only with Correct Wealth Measurement with a Unit of Wealth as Currency. Paper presented at International Conference on Unity of Sciences held on Jan14-15 at BCG trust University Chittagong. Published HIJSE 26:1, 2010.

Hifzur Rab (2024) Freely Floating Fiat Money and Riba Published by (JOCRISE) Journal of Critical Realism in Socio- Economics, Universitas Darussalam Gontor, Indonesia. Vol. 02, No. 04, July 2024.