the Historic Judgment on Interest

The Historic Judgment on Interest by the Supreme Court of Pakistan

Presented by: Tariq Ali Khan Waqas Yousuf Mohammed Danish Saleem Junaid Zamir

Introduction On 14 Ramadan 1420, the Shariah Bench of the Supreme Court of Pakistan gave its landmark decision banning interest in all its forms The Shariah Appellate Bench consisted of 1) Mr. Justice Khalil-ur-Rahman, 2) Mr. Justice Munir A Shaikh, 3) Mr. Justice Wajeehuddin Ahmad, 4) Maulana Justice Muhammad Taqi Usmani.

Issues The Shariah Court declared a number of laws of the country foul to the Injunctions of Islam as they have provided for charging or paying interest, which according to the findings of the learned Federal Shari’at Court, falls within the definition of riba clearly prohibited by the Holy Qur'an

Arguments against the Shariah Court The verses of the Holy Qur'an which prohibit riba were revealed in the last days of the life of the Holy Prophet, (S.A.W), and he did not have an opportunity to interpret them properly. FIRST ARGUMENT

The second argument runs on the basis that the word ' riba ' refers only to the usurious loans on which an excessive rate of interest used to be charged by the creditors. As far the modern banking interest, it cannot be termed as ' riba ' if the rate of interest is not too much or unfair SECOND ARGUMENT

The third argument differentiates between consumption of loans and commercial loans. The word " Al-Riba " used in the Holy Qur'an is restricted to the increased amount charged on the consumption loans used to be taken by the poor people for their day to day needs and the rich people used to charge heavy amounts from them. THIRD ARGUMENT

But the modern commercial loans are concerned, they were not in the days of the Holy Prophet, (S.A.W), nor has the Holy Qur'an addressed them while prohibiting ' riba ' and the basic philosophy of ' riba ' cannot be applied to these commercial and productive loans where the debtors are not poor people. In most cases they are wealthy or at least economically well-off and the loans taken by them are generally used for generating profits. Therefore, any increase charged from them by the creditors cannot he termed as Zulm (injustice) which was the basic cause of the prohibition of ' riba '. THIRD ARGUMENT

The fourth says that the Holy Qur'an has prohibited riba-al-jahiliyya. In which if the debtor could not pay off the loan at its due date, the creditor would give him more time against charging an additional amount. According to this theory, if an increased amount is fixed in the initial agreement of loan, it does not constitute riba al-Qur’an. However, it does fall in the definition of riba-al-fadl, prohibited by the Sunnah. Its prohibition is of a lesser degree which can be termed as makrooh and not haram. FOURTH ARGUMENT

The fifth was that although the modern interest-based transactions are covered by the prohibition of 'riba', yet the commercial interest is the back-bone of the modern economic activities, no country can live without being involved in interest-based transactions. Islam, being a practical religion, recognizes the principle of necessity and it has allowed even to eat pork in extreme situation where one cannot live without eating it. The same principle should be followed, and on these basis of this necessity the laws permitting the charge of interest should allowed. FIFTH ARGUMENT

Study of the Qur'anic Verses Dealing with Riba 1. Surah Ar-Rum "And whatever riba you give so that it may increase in the wealth of the people, it does not increase with Allah.“ [Ar-Rum 30:39]

Study of the Qur'anic Verses Dealing with Riba 2. Surah Al-i-'Imran "O those who believe do not eat up riba doubled and redoubled." [Al-i-'Imran 3:130]

3. Surah Al-Baqarah “ Those who take interest will not stand but as stands whom the demon has driven crazy by his touch. That is because they have said: 'Trading is but like riba '. And Allah has permitted trading and prohibited riba . So, whoever receives an advice from his Lord and stops, he is allowed what has passed, and his matter is up to Allah. And the ones who revert back, those are the people of Fire. There they remain for ever. Allah destroys riba and nourishes charities. And Allah does not like any sinful disbeliever.” Study of the Qur'anic Verses Dealing with Riba

3. Surah Al-Baqarah “ O those who believe, fear Allah and give up what still remains of the riba if you are believers. But if you do not, then listen to the declaration of war from Allah and His Messenger. And if you repent, yours is your principal. Neither you wrong, nor be wronged. And if there be one in misery, then deferment till ease. And that you leave it as alms is far better for you, if you really know. And be fearful of a day when you shall be returned to Allah, then everybody shall be paid, in full, what he has earned. And they shall not be wronged." [Al-Baqarah 2:275-281] Study of the Qur'anic Verses Dealing with Riba

3. Surah Al-Baqarah "O those who believe, fear Allah and give up what still remains of the riba if you are believers. But if you do not, then listen to the declaration of war from Allah and His Messenger. And if you repent, yours is your principal. Neither you wrong, nor be wronged." [Al-Baqarah 2:278-279] Study of the Qur'anic Verses Dealing with Riba

the Holy Prophet (SAW) announced the prohibition of riba in his last sermon during his last Hajj (10th year after Hijra). He also declared that the first riba decreed to be void is the riba payable to his uncle Abdul Muttalib (Radi-Allahu anhu) ANSWER OF FIRST ARGUMENT

A deeper study reveals that this argument is misconceived. In fact the prohibition of riba was effective at least from the 2nd year of Hijra but the Holy Prophet, Sall-Allahu alayhi wa sallam, deemed it necessary to be announced at the time of his last sermon which was the most attended gathering of his followers. ANSWER OF FIRST ARGUMENT

Imam Abubakr Al-Jassas (D.380 AH) in his famous work Ahkamul Qur'an has explained riba in the following words: "And the riba which was known to and practiced by the Arabs was that they used to advance loan in the form of Dirham (silver coin) or Dinar (gold coin) for a certain term with an agreed increase on the amount of the principal advanced." ANSWER OF SECOND ARGUMENT

Holy Qur'an had prohibited to claim any increase over and above the principal in the case of consumption loans only, where the borrowers used to be poor person's who was borrowing money to meet their day to day needs of food and clothes etc. Since no productive loans were in trend in the days of Holy Prophet, Sall-Allahu alayhi wa sallam, it was not contemplated by the verse of Riba to prohibit a charge on the commercial and productive loans. ANSWER OF THIRD ARGUMENT

They argued it is injustice to claim any additional amount on the principal from a poor person, but it is not so in the case of a rich man who borrows money to develop his own commercial enterprise and earn huge profits through it . Therefore, it is only the consumption loans on which any excess is termed as Riba and not an increased amount charged on the commercial loans. ANSWER OF THIRD ARGUMENT

Validity of a Transaction is not Based on the Financial Status of a Party The Nature of Qur'anic Prohibitions Banking and Productive Loans in the Age of Antiquity ANSWER OF THIRD ARGUMENT

Account of Riba al-Jahiliyya (Riba al-Qur’an) "The Riba of Jahiliyya was a transaction whereby a person used to sell a commodity for a price payable at a future specific date, thereafter when the date of payment came and the buyer was not able to pay, the seller used to increase the amount due and give him more time." ANSWER OF FOURTH ARGUMENT

the seller used to keep on increasing the amount in exchange of additional time given to the buyer. Also Known As Riba Al Quran and Riba Al Nasiah.

'riba al-fadl' or 'riba-al-sunnah It means that the quantity on both sides must be equal to each other and if the quantity of any one side is more or less than this transaction is also a Riba transaction, because in the tribal system of Arab these commodities were used as money. However, this transaction was termed as riba by the Holy Prophet, Sall-Allahu alayhi wa sallam, and this meaning was not covered by the term ' riba al-Jahiliyya '. Therefore, it was called as ' riba al-fadl ' or ' riba-al-sunnah '.

Six Commodities "Gold for gold, silver for silver, wheat for wheat, barley for barley, date for date, 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 ."

We can compromise on extreme basis but not if we have a solution for it. Islamic Banking should be implemented. Quran has stated laws for economic transactions and muslims should follow these laws to keep their earnings RIBA free ANSWER OF FIFTH ARGUMENT

the Historic Judgment on Interest

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the Historic Judgment on Interest