When, how and why was usury made forbidden? How is it possible to survive in today's commercial world where banking plays an important role without having to deal in interest which is charged by banks?
At the time of the Prophet Muhammad, peace be upon him, usury, or riba as it is called in Arabic, was widely practiced. It was frowned upon by Islam, without issuing a definitive ruling, for most of the time during which Qur'anic revelations were being sent down to the Prophet. However, there were numerous hints and implicit warnings in the Makkan Qur'anic revelations and the Hadith which suggested to the Muslim community at an early stage that usury was not viewed favorably in Islam. Later on, a firm prohibition was stated clearly in the Qur'an and in the Hadith which was clear to everyone. But the matter did not end at that. Clearer and sterner prohibitions were still to come. When you look at the relevant statements in the Hadith and the Qur'an, you are bound to conclude that usury is the single most clearly and categorically forbidden deed, second only to associating partners with Allah. I will give you a few of the relative statements.
"Believers do not devour usury in doubles and multiples, and fear Allah so that you may prosper." (3;130)
"Allah has made trade lawful and usury forbidden." (2;275)
"God curses the one who devours usury, the one who pays it, the one who writes the contract between them, and the two who witness the contract." (an authentic Hadith)
"Believers, fear Allah and abandon all the remains of usury, if you be true believers. If you do not, then be notified that a war is declared on you by God and His messenger. If you repent, you may have only your principal amounts, wronging no one and without being wronged by anyone." (2;278-9)
You cannot fail to notice the prohibition is total and given immediate practical effect by the Prophet, starting with outstanding usurious transactions belonging to his own uncle. Moreover, the prohibition applies to everything that relates to usury, even the writing and the witnessing of its transaction. The Prophet even curses those who are willing to give such assistance, even though they themselves are not parties to the transaction. This is because the Prophet wants to give us a sense of the seriousness of this matter. But the gravity of prohibition is best seen by the Qur'anic statement which declares war on those who continue to devour usury. Needless to say, such a war has only one winner.
The reader also asks why was usury forbidden. I think the answer is clear to everyone. Usury is a system which seeks to exploit the need of the less fortunate in order to give unearned profit to those who have plenty. It creates a society in which injustice is perpetuated. In former times, the picture of the usurer was one which met with universal disapproval.
That is because the usurer was one who got rich as a result of the financial ruin of others. In order to get wealthy, he sent many victims down the road to utter ruin and despair. Islam is a religion of justice and, therefore, it could not approve of the injustice associated with usury. It would not have been a religion revealed by God, the All Merciful, the Compassionate, if it did not outlaw usury altogether.
I understand fully the point you are trying to make when you ask how is it possible to survive in today's business world without ever receiving interest or paying it. What they do [to survive] is to limit their operations to realistic means. They do not borrow more than they can easily repay without having to add interest to it. They do not seek excessive wealth. They only want to lead a decent living. That is certainly possible, and becomes even easier if more and more people are willing to do the same. The advice I have just given you applies to individuals. But the Muslim community as a whole is required to devise a system for business which has nothing to do with usury.
When they do, they ensure social justice and they earn something much greater than that, namely, Allah's pleasure. People do not have to be millionaires in order to lead a decent comfortable life, but with Allah's pleasure, they are much richer than all the millionaires in this world put together.
In a previous answer on the question of riba, you stated: When a person borrows money from another, they specify a time for repayment. If the borrower cannot settle the loan at a specified time, he goes to the lender and asks him: "Would you agree to postpone settlement and I would pay you an extra sum? This may happen several times, with each postponement meaning an increase in the amount to be repaid." I would like to know the references from authentic writings where the above working of riba has been mentioned. This description is very helpful to differentiate between riba and banking transactions in our modern world. It becomes even more significant if we can deduce from this description that if the borrower repays the loan within the due time, as originally agreed, he repays only the sum borrowed, with no addition. In my view, bank interest does not contain the harmful and prohibited element inherent in riba, as mentioned in the Qur'an. Your comments will help me write my views, arguments and analysis with proper references.
The definition which you have correctly quoted is based on the writings of a number of very early scholars. In his commentary on the Qur'an, Imam Al-Razi says: "The usury based on time delay was the type commonly practiced in pre-Islamic days. A man would lend another person some money for a specified term stipulating that he would charge him a specified amount every month while the principal amount remained intact. When the agreed time arrived, the lender would request repayment. If the borrower cannot pay, he increases the monthly payment and the time of the loan." Al-Jassas says: "It is well known that usury in pre-Islamic days was simply a loan given for an appointed time with a stipulated increase. That increase compensated for delay. This is prohibited by God." Mujahed says: "In pre-Islamic days, when a man had borrowed money from another, he would come to him and say: I will pay you so and so if you allow me a longer period for repayment." Qatadah says: "The usury practiced in pre-Islamic days took the form of a sale made for a specified term. When payment is due and the buyer does not have the money to pay the seller, he agrees to pay him extra in return for a postponement."
Imam Ahmad ibn Hanbal defines usury in the same terms, saying: "If a man had lent money to another and the time of repayment was due, the lender would say to the borrower: You either pay me now or increase the amount to be paid. If he does not settle the debt then and there, one agrees to increase the amount and the other extends the time for repayment."
I have quoted you all these definitions which agree on the nature of usury. It is financial compensation for time delay. This is what is known as "increase in lieu of time extension." All scholars and all Muslim schools of thought are unanimous that this type of usury is strictly forbidden . There is another type, which is known as "increase in lieu of quality". This takes the form of exchanging two quantities of the same kind, such as dates for dates, wheat for wheat, rice for rice.
A person may offer 1.5 kilogram of dates or wheat or rice, etc. in return for one kilogram of the same type but of higher quality. There is no doubt that there may be several types of the same produce and their qualities differ immensely. Prices could range from the very cheap to the very expensive, with the latter being two or three or four times as much as the price of the former. It is conceivable that people would like to barter some of their produce for a smaller amount of a higher quality type. But this again is forbidden in Islam.
My reader says that he believes that he finds essential differences between such usurious practices and banking transaction. There is no doubt about that, but there are also essential similarities. Our attention should be drawn to the fact that in a loan obtained from a bank, a borrower pays a regular amount of interest which does not affect the principal. This is not dissimilar to the practice of pre-Islamic days when a borrower used to pay every month a certain sum to the lender, while the principal remained the same. Moreover, in a banking transaction, when the loan is repaid over a longer period of time, the amount of interest charged is also higher, although its rate may remain the same.
I would also point out that there is no case of prohibition stated in the Qur'an more forcefully than the prohibition of usury. God warns the believers that they must desist from practicing usury or they would face a war declared on them by God and His messenger. If that is not sufficient to deter any believer from getting involved in usury, I do not know what would deter him. I know that some eminent scholars have argued that banking transactions and the system of interest is different from usury, or riba, as it is called in Islam.
I have read much of what has been written on this point. There is no denying the fact that there are differences, but whether these differences are sufficient to make it permissible for a Muslim to deposit his money in a bank and receive interest on it is a debatable matter. Many readers have written to me on this point, because placing one's money in a deposit account is the safest way of keeping one's money and getting some returns on it, at least to compensate for the decline in monetary value. However, in all that I have read on the subject, I am not convinced that giving such a ruling can be justified. I would love to receive reader's views. However, it is perfectly permissible for a Muslim to take his money to the bank and ask that the money be invested in some permissible enterprise.