Fundamentally, the word ”Riba” means excess, increase or addition that implies any excess compensation without due consideration. This definition of Riba is derived from the Quran and accepted by all Islamic scholars. This academic writing is purposely to study and explore about the issue of Riba in the banking industry neither conventional nor Islamic. This writing is divided into four parts. The first part will explain in depth about the introduction and discuss the background of Riba (Interest). The second part will explain the Riba issue from the Islamic epistemology while the third part will be analyzing the issue from Islamic Tasawur. The last part of this writing will be the conclusion and the recommendation from the writer point of view.
Riba or in other word, interest is known as usury or a fee paid for a borrowed money from the owner. In Islam, Shari’ah has agreed that Riba technically means to the premium that must be paid by the borrower to the lender along with the principal amount as a condition for loan or for extension of maturity. So basically, Riba has the same meaning as interest. The holy Quran and Hadith also do not make any difference between Riba and interest. Since both Riba and interest shared the same meaning, economically the first attempt to control interest rates is through the manipulation of the money supply. This attempt was made by the French Central Bank in 1847. This is due to the subject of supply and demand of the money supply. From that time and until now, the practice of interest stays in the banking industry. The modern goals of socio economy are maximizing wealth and profit. This is why interest plays a very important role in the economy nowadays. In fact, the western world could not think any of the economic system without interest. Western economist describes interest as the rental price or forms of income (profit) made when u loose the power of purchasing by giving other to borrow your money. Many conventional banks nowadays offer loan with interest. Islamic banks also did not escape with the speculation that their financing also come with a very little amount of “permissible” interest. This issue will continue to rise with no end to stop. As the result, it will impact the society, the Muslims or in the best word, us.Islam prohibited Riba(interest). It is stated clearly in the holy Quran. Since the holy Quran is the source of guidance in Islam for all Muslims, there is no dispute in the prohibition of Riba. The modern banking system is organized on the basis of a fixed payment called interest. That is why the practices of modern banking system are in the conflict with the principles of Islam as Islam clearly stated that Riba is prohibited. Based on Islamic epistemology, it is undoubtedly stated in the holy Quran that Riba is haram. Allah SWT has mentioned in the holy Quran in several verses about the prohibition and the consequences of Riba.
In the holy Quran, Allah SWT says:
"That which you give as interest to increase the peoples' wealth increases not with God; but that which you give in charity, seeking the goodwill of God, multiplies manifold." (30: 39) (Surah al-Rum, verse 39)
"And for their taking interest even though it was forbidden for them, and their wrongful appropriation of other peoples' property. We have prepared for those among them who reject faith a grievous punishment” (4: 161) (Surah al-Nisa’, verse 161)
"O believers, take not doubled and redoubled interest, and fear God so that you may prosper. Fear the fire which has been prepared for those who reject faith, and obey God and the Prophet so that you may receive mercy."(Surah Al-‘Imran verse 130 -132)
It is strongly and clearly stated in the holy Quran that Riba (interest) is strictly forbidden in Islam. There is supposed to be no question in the prohibition of Riba. But in the modern economic life nowadays, interest has become the major lifeline for all the financial institutions. The users or customers of the financial institutions do not have the knowledge of the prohibition of interest. They are trapped in the attractiveness of the financing advertisement and the needed of the financial services to support and lighten their financial burden. House, car, credit card are the example of the modern life necessities. They need financial institutions to help them to get all these necessities. Thus financial institutions play an important role in every man’s life. The management and the way of doing business should be based on Islamic principle and Shari’ah in order to cater the needs of Muslims society. It is stated clearly that interest is prohibited, but why most of the financial institutions are still using interest to make profit.
This is backed by Hadith from Abu Hurayrah : The Prophet, , said: "Riba has seventy segments, the least serious being equivalent to a man committing adultery with his own mother." (Ibn Majah).
The source of prohibition Riba and the consequences are obviously stated by the holy Quran and Hadith. But the issue in using Riba is still on going without a pull stop.
From the Islamic tasawur point of view, all the decision made by the financial institutions that are still using interest is clearly taken from ‘aql (mind) and rationalism in doing business. The main objective is to maximize profit and wealth. This is opposite with the goals of Islamic socio economic which stated that justice and equitable distribution of income and wealth is the main objective. The rationale of prohibition of Riba is mention in the holy Quran. This is to protect the aqidah of one’s man. Fairness is one of the principles that are use in Islam. Using Riba in the businesses is haram as it shows the attitude of greediness. Western economists will not agree with all the Islamic rules and regulation, but it is slowly accepted in the society. This is because the establishment and the development of Islamic finance. The development of Islamic banks and foreign Islamic banks has showed the world that the Muslims society can live without Riba.
As the conclusion, we all know that Riba is prohibited. Riba is Haram as it is clearly stated in the holy Quran and Hadith. But the issue of Riba will still continue. We cannot stop Riba from growing like a mushroom in the banking industry but we are given the option to choose not to use Riba. The development of Islamic financial institutions can help to solve of this problem. But in the end, we ourselves need to make the decision. Decision should be made by the clear state of ‘aql and with the guidance from the holy Quran and Sunnah. Islam is a complete code of life which offers its own social, political and economic system to guide human in life. So protecting ourselves from Riba is a must. Riba is a mechanism and dangerous weapon that has a power to ruin individuals, enterprises, and nations unfairly. This is unfair and against the nature, so Allah SWT banned Riba very strictly to stop this criminal action. Wallahualam..
Azreen Hamiza
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