"Allah permits trade but forbids Riba" (2:275)
"Riba is of 70 kinds, the least of which is as bad as a man marrying his mother." (Related by al-Hakim & Ibn Majah, Nayl al-Awtar, Subul al-Salam & Majma' al-Zawa'id)
The word Riba literally means 'increment' (Ziyadah), grow or increase. Ibn Qudama defines the Shari'ah term as "an increment in certain things." (Al-Mughni, vol. 4, pg. 125)
In other words, Riba occurs either in a thing, commodity or money. Riba is unlawful on the basis of the Qur'an, Sunnah and Ijma'.
Such detailed elaboration of Riba have been carefully developed by the Fuqaha' in their legal compendiums. There is among them no disagreement on the categorical prohibition of Riba in both of its general forms of loan and sale, that is money increased (Ziyadah) by advancing loans by a usurer or by simply in the direct exchange (barter) of commodities.
In the legal terminology of the Shari'ah, Riba has been defined as "an increment, which, in an exchange or sale of a commodity, accumulates to the owner or lender without giving in return an equivalent countervalue or recompense ('Iwad) to the other party." (Al-Mabsut, vol. 7, pg. 109)
In the Shari'ah, Riba is of 2 types (although the Shafi'i scholars have classified it into 3 types), the first (Riba al-Fadl) being usurious gain in selling which is an agreement for a specific recompense ('Iwad) whose equivalence to the merchandise is unknown according to the standards of the law at the time of the transaction, or in which the exchange of the 2 properties transacted is delayed, or one of them is delayed.
The second type (Riba al-Nasi'ah) concerns loans, and consists of any loan by which the lender obtains some benefit. It appears to our Fuqaha' as a clear, unambiguous, definite and crystallised form of Riba.
(Mughni al-Muhtaj, vol. 2, pg. 21 & Radd al-Mukhtar, vol. 4, pg. 184)
Riba al-Nasi'ah creates profit, whether it is borrowed by a producer or by a consumer. This was the well-known category of Riba practised by the Jahiliyyah (pre-Islamic people). This gives it an independent position, a definite, distinct and manifest status, different from that of Riba al-Fadl.
Ulama' have come to a verdict regarding the Riba in banks. In one of the legal compendiums, they declared:
"An interest transaction in banks is classified as Riba al-Nasi'ah. This can occur in 2 ways, when someone deposits their valuable or when someone borrows money (al-Qard) for a period of time and incurs interest either way. Therefore its unlawfulness is the same as the prohibition of Riba and this sin is the same as the sin of involving in Riba."
(Al-Fiqh ala al-Madhahib al-Arba'ah, vol. 2, pg. 247)
With interest-bearing capital, money begets money and self-generating capital appears in its pure form, that is Riba al-Nasi'ah. Interest-bearing capital has existed throughout history. Even according to Aristotle, it is an unnatural act:
"Money-making then is of 2 kinds: one which is necessary and acceptable, which we may call administrative; the other, the commercial, which depends on exchange is justly regarded with disapproval, since it arises not from nature but from one's dealings with each other. Very much disliked also is the practise of charging interest; and the dislike is fully justified for interest is a yield arising out of money itself, not a product of that for which money was provided. Money was intended to be a means of exchange, interest represents an increase in the money itself. We speak of it as a yield, as of a crop or a litter; for each animal produces its like and interest is money produced out of money. Hence of all ways of getting wealth, this is the most contrary to nature."
(Aristotle, The Politics, tr. Sinclair, pg. 46, Penguin)
According to Aristotle, the payment of interest for a loan of money capital is an unnatural act. But for the Muslim Fuqaha', the concept of Riba is broader in scope than the Aristotelian concept of interest since the concept of Riba cover s not only increment (Ziyadah) of moneylender's capital, but also increases created in speculative sales of commodities and in usurious commercial transactions and many agricultural practices.
According to our Fuqaha', Riba is, of its very nature an invalid exchange, because one party, a rich moneylender receives an increase in the form of interest without giving to the other party, a needy borrower, an equivalent return. And this unearned income, without a corresponding productive economic activity or work, is the root of injustice and exploitation because it enriches the class of moneylenders and usurious who accumulate wealth by impoverishing those who are forced to borrow money or commodities from them for mere consumption of basic necessities.
Muslim scholars had asserted that currency should have a fixed or at least a stable value. In the past, they strongly warned that if currency is subjected to trading rather than using it as a means of a medium of exchange, it will be exposed to speculative buying and selling which will fluctuate the value of currency. This in turn will cause more problems to the world economy such as inflation than there are benefits. For instance, food prices will rise and this will result in a food shortage to the more deprived section of the world's community.
(Ibn al-Qayyim, al-Qiyas, pg. 114; al-Fiqh ala al-Madhahib al-Arba'ah, vol. 2, pg. 246 & Durr al-Mukhtar, vol. 4, pg. 189)
Regarding shares and stock market investments, Ulama' have classified this under the category of Awraq al-Naqdiyyah. Basically this is something, which is allowed, with certain conditions and it is also subjected to Zakah payment, provided that it fulfils the Nisab and Hawl and its Nisbah is 2.5% of its value.
"Shares is defined as, one of the equal parts into which the capital of a company is divided, entitling the holder of the share to a proportion of the profits. [ ] Dealing in shares is permissible in the Shari'ah."
(Fiqh al-Islam Wa Adillatuh, vol. 2, pg. 774)
Concerning investments, Shaykh Syed Mutawalli ad-Darsh says:
"Money in Islam has a role to play. It should not be kept away, hoarded in a vault or safe but should circulate to allow people to make use of it's benefits. That is why the books of Fiqh say that the guardian of an orphan must invest that inheritance in a good manner so that Zakah would not deplete the wealth of the child.
You can buy shares in any company, which is offering good services to the community, and companies, which do not pursue unlawful trade. For example, we are not allowed to buy into the banking sector because it is ridden with interest. We are not allowed to buy shares into breweries because they are producing something, which is Haram. We are not permitted to buy shares in chemical companies, which produce products, which damage people and the environment. But companies, which are good, pose no problem.
[ ] There is no harm in investing in the stock exchange, provided the above considerations are kept in mind.
Muslims can invest in shares in BT, in water, in gas and in so many other things which are services to the community and which is not directed towards things which are not Islamically-acceptable and that should be the general guide for investments by the Muslim community."
May this be of benefit.
And the last of our prayers,
"Glory to your Lord, the Lord of Honour & Power! He is better from what they ascribe to Him! Peace be upon the Messengers! Praise be to Allah, the Lord of the worlds." (37:180-182)
M. Afifi al-Akiti.
Belfast, 3 May 1997