Part 1
Akbar Jamal
The relationship between the economy and human society isn’t limited to figures and numbers; the economy also reflects human ethics and beliefs. In the present age, when economic reform is discussed, the biggest scholarly fallacy arises from muddling and distorting the literal and technical meanings of words. On social media and in public debates, it’s often claimed that supposedly “riba in Arabic and sood in Urdu are two different things.”
To strengthen this fallacy, an example is put forward from a common Urdu word, “sood-mand,” meaning beneficial, and an attempt is made to create the impression that “since the literal meaning of sood is profit or benefit, not every kind of sood can be forbidden.” This is really a scholarly deception that pulls a person away from a foundational, definitive ruling of Islamic Sharia.
In Arabic too, the original meaning of “riba” is increase, growth or profit. But Islam hasn’t made every kind of profit lawful, in order to prevent the oppression and exploitation of human society; it has forbidden one particular kind of financial gain, which Sharia terminology calls “riba.” When the great scholars and exegetes of the subcontinent translated the Holy Quran into Urdu, they used the Urdu word “sood” as the equivalent of the Arabic word “riba,” because in our language, this particular gain obtained without any effort in financial transactions is called “sood.” For this reason, in the Sharia, legal and economic sense, “sood” and “riba” are two different names for one reality. This principle of Islamic Sharia is completely clear: merely changing the name doesn’t change the reality of a forbidden thing.
To understand this easily, we can take the example of a shopkeeper and a customer from our daily life. Suppose that on a village or neighborhood street, a shopkeeper is selling a mobile phone. He tells the customer: “If you buy this mobile for cash, the price is twenty thousand rupees, but if you want to buy it on credit, with payment in a single installment after one month, the price will be twenty-five thousand rupees.” If the customer agrees to the price of twenty-five thousand rupees when the deal is made and takes the mobile from the shopkeeper, then under Islamic fiqh this deal is lawful and permissible. In economic terminology, this kind of deal is called “bay’ mu’ajjal,” that is, a deferred-payment sale, or a sale on credit or in installments.
Here, the additional five thousand rupees are added to the item’s price, increasing its asset price. This is because the shopkeeper has the right under Sharia to sell an item of his own property cheaply for cash and at a higher price on credit. Once the deal is made at twenty-five thousand rupees, the customer will pay that same amount a month later. Even if the customer is late with the payment, the shopkeeper can’t take even one rupee more than the agreed price.
Sood (Interest), by contrast, begins when the shopkeeper and customer agree on a price of twenty thousand rupees for the item. The shopkeeper records that amount as a debt owed by the customer, but adds a condition: if the customer doesn’t repay it within a month, they must pay an additional two percent for each month of delay, as a penalty or interest.
From the viewpoint of Sharia, this last method is pure riba, because the extra money here is taken in return for no property or item, only as the price of time passing (Cost of Time). In this case, instead of an ordinary merchant, the shopkeeper takes on the role of a lender who charges “rent for time” rather than selling an item. This is the foundational point where economic exploitation begins.
On the other hand, in financial markets, conventional interest-based companies, credit card institutions and companies that sell goods in installments use another method, even more complicated, to trap customers. In this method, the customer takes an economic hit at three separate stages. We can call this the “threefold trap of interest-based exploitation.”
To understand this whole system better, let’s take a practical example from the market. Suppose a customer wants to buy a Samsung mobile worth twenty thousand rupees from a shop or company on credit or in installments. The interest-based company’s first blow is to raise the mobile’s base price from twenty thousand to twenty-five thousand rupees because of the credit. Up to here it looks, on the surface, like the same legitimate deal an ordinary shopkeeper makes when he raises the price for credit, but the story doesn’t end here. The company turns these twenty-five thousand rupees from the item’s fixed, final price into a financial debt on the customer, and then begins calculating annual or monthly interest on it too. So the customer ends up paying far more than twenty-five thousand rupees: once the interest charged on this money is added, the total of the installments reaches, for example, thirty thousand rupees. This is the second stage of exploitation.
The last and cruelest part of this trap is the condition the company imposes on the customer from day one in the fine print of the contract. This condition is called a late payment fee or default interest. The company sets the condition: “You must pay your fixed installment in full by the fifth of every month.” Now if, because of financial hardship or circumstances beyond their control, the customer can’t pay the installment on time, the company adds still more interest or a heavy penalty to the installment, calculated daily or monthly, in return for that very delay.
The result of this threefold process is that, in the first stage, the customer takes on the burden of paying twenty-five thousand rupees instead of the item’s original price of twenty thousand. In the second stage, the customer carries the heavy load of continuing interest on this raised price. In the third stage, if there’s a delay in paying an installment, the customer sinks into a swamp of further interest and penalties on top of the interest. This is how the customer gets crushed economically three times over.
For this reason, Islam holds such interest-based contracts forbidden at the root, because their basis is exploiting the customer’s vulnerability and trapping them in an open-ended debt, whose amount keeps rising as time passes and whose growth never stops. For the same reason, the Holy Quran exposed this exploitative mentality fourteen hundred years ago. The polytheists of Mecca raised the same objection: “When profit is made in trade and money grows through Riba (interest) too, what’s the difference between the two?”
The Holy Quran rejected their thinking in verse 275 of Surah Al-Baqarah with these words:
﴿وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا﴾
“Allah has permitted trade and forbidden riba.”
In trade, a person puts in their own effort, time and capital and, along with profit, takes on the risk of loss. In the interest-based system, though, the financier’s profit is 100 percent guaranteed and secure, while the needy person’s loss is fixed in advance.
Islam lays the foundation of a just economic system in which capital is tied to work, effort and risk-taking, so that the flow of wealth in society isn’t confined to a few hands and everyone has equal opportunities to progress.
