The Historic Judgment on

Interest
23rd December 1999

by the Supreme Court of Pakistan

1
 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.

2
 Arguments against the Shariah Court
FIRST ARGUMENT
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.

3
 SECOND 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.

4
 THIRD ARGUMENT

The third argument differentiates between

consumption loans and commercial loans.

5
THIRD ARGUMENT

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.

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'.
6
 FOURTH 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-Quran.
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.

7
 FIFTH 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.
8
 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]

9
 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]

10
 Study of the Qur'anic Verses Dealing with Riba

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.
11
 Study of the Qur'anic Verses Dealing with Riba

3. Surah Al-Baqarah (cont..)

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]
12
ANSWERS OF ARGUMENTS

13
 Arguments against the Shariah Court
FIRST ARGUMENT
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.

14
ANSWER OF FIRST ARGUMENT

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)

15
 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
(P.B.U.H) deemed it necessary to be announced at the
time of his last sermon which was the most attended
gathering of his followers.

16
It is argued that

Prohibition of riba should be restricted to limited transactions

specifically mentioned in the Hadith.

Its prohibition cannot be extended to modern banking system.

The modern banking system was not imaginable at the time

of revelation of verses.
 Arguments in favor of Riba (common
myths) & their rebuttal...1

Time of prohibition of Riba

The historical background of verses of riba

proves that it was prohibited at least in the 2nd
year of Hijra.

Riba was prohibited from the very beginning but

the severity of prohibition was not emphasized
during that period.
The third verse is of Surah Al-i-'Imran which is estimated to have been
revealed sometime in the 2nd year after Hijra, because the context of the
preceding and succeeding verses refers to the battle of Uhud which took
place in the 2nd year after Hijra.

19
 "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. Surely
those who believe and do good deeds, establish Salah and pay Zakah,
have their reward with their Lord, and there is no fear for them, nor shall
they grieve.
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] 20
Mutashabihaat:
Riba does not fall in the category of Mutashabihaat.
Allah almighty declared war against those who indulge in the
practice of Riba.
How Allah Almighty wage war against a practice, which is
ambiguous in nature.
What is Mutashabihaat?
Some words in the beginning of different Surahs, the correct
meaning of which is only known to Allah.
Some attributes of Almighty Allah, the exact nature is not
imaginable.
21
Hazrat Umers Statement:
He stated that the Holy Prophet, Sall-Allahu alayhi wa sallam,
passed away before giving any specific direction with regard to
this difference of opinion about Riba.
The narration of his statement clearly reveals that:
1. All his concern about Riba was related to Riba al-Fadl and not to
Riba al-Nasiah which was prohibited by the Holy Qur'an
2. Even for Riba al-Fadl he did not feel difficulty in many
transactions which were clearly prohibited.
3. However, was doubtful only with regard to some transactions
which were not expressly mentioned.
22
 SECOND 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

23
24
ANSWER OF SECOND 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."

25
26
ANSWER OF THIRD 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,
(P.B.U.H) it was not contemplated by the verse
of Riba to prohibit a charge on the commercial
and productive loans.
27
 THIRD 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.

28
 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.

29
 ANSWER OF THIRD ARGUMENT

Consumption and production loans

The above argument is not valid basically due to three

reasons:

1. Validity of a transaction is not based on the financial

status of the party.
2. The Nature of Quranic Prohibitions.
3. Banking and productive loans in the age of olden
times.
 ANSWER OF THIRD ARGUMENT

Consumption and production loans

1. Validity of a transaction is not based on the financial status of

the party.
The validity of a transaction depends on the fundamental nature
of the transaction, not on the status of parties.
Sale and lease are examples of valid transactions regardless of
the fact that the purchaser or the lessee is rich or poor.
Same is the case of charging interest from a debtor.
Gambling and Bribery are prohibited transactions due their
nature. Therefore will be unlawful for both rich and poor.
Poverty of someone is a relative term, vary from case to case
basis.
 ANSWER OF THIRD ARGUMENT

Consumption and production loans

2. The Nature of Quranic Prohibitions

The verses which prohibit Riba do not at all differentiate
between a consumption or commercial loan.
Nor this difference is found in the vast literature of
Hadith.
What is the justification of adding a new condition to the
concept of Riba ?
Prohibition of liquor and gambling are examples. These
are prohibited in all forms.
 ANSWER OF THIRD ARGUMENT

Consumption and production loans

3. Banking and productive loans in the age of antiquity.
It is not an inventions of 17th Century A.C, but the
history of Banking transactions refers back to a
period not less than two thousand years B.C.
Banking transactions were common in Greece in 5th
Century B.C.
All types of Commercial, Industrial and Agricultural
loans were prevalent in the Byzantine Empire close
to the advent of Islam.
 ANSWER OF THIRD ARGUMENT

Consumption and production loans

3. Banking and productive loans in the age of antiquity.
The Arabs business relationship apart from Syria also
extended to countries like Iraq, Eygpt and Ethopia.
The Holy Qur'an has specifically mentioned the term ilaaf
which refers to the commercial treaties the Arabs of
Quraish had with different nations and tribes.
The caravan led by Abu Sufyan at the time of the battle of
Badr consisted of one thousand camels and had returned
with 100% profit.
Given the commercial atmosphere the Arabs used to
borrow money for their commercial and productive needs.
 ANSWER OF THIRD ARGUMENT

Consumption and production loans

3. Banking and productive loans in the age of antiquity.
Ibn Jarir al-Tabari says:
"The tribe of Banu Amr used to charge interest from
the tribe of Banu al-Mughirah and Banu al-Mughirah
used to pay them interest.
These tribes used to work as a joint stock company
to finance their trade-caravans.
Loans taken by these tribes were not for the purpose
of consumption only; rather these were commercial
loans.
Does Riba only refers to excessive rates of interest ?
It is argued that prohibition of Riba is applicable to only those
interest transactions where the rate of interest is excessive or
exorbitant.
The verse of Surah Al-e-Imran is sought to Support this argument.

The words doubled and redoubled are implying that Riba is only
forbidden when the rate is excessive so as to make the payable
amount twice that of principal.
Since the Banking interest is normally not so high it is not covered
by this prohibition.

36
Does Riba only refers to excessive rates of interest ?
This argument is not valid due to the following reasons:
It is a well established fact that different verses of the
Holy Quran on a single subject must be studied in
combination with each other.
No verse can contradict another verse on the same
subject.
The verse 278 of Surah Al Baqarah clearly states that
give up whatever remains of Riba( )

This is further clarified in the following sentence
(
)
37
Does Riba only refers to excessive rates of interest ?
This argument is not valid due to the following reasons:

The verse (Al Baqarah 2:41) States:

Do not sell my verses for a little price.
Similarly the verse (Al Noor 24:33) states:


And do not force your slave girls to prostitution if they
want to remain chaste.
Interpretation of the Holy Quran should be based on
the explanation given by or inferred from the Ahadith. 38
 Is Zulm the Illat or Hikmat behind the prohibition of
Riba?

- It is argued that the Illat of prohibition of Riba is Zulm and quote

(2:279):
And if you repent then you are entitled to your principal.
You neither wrong nor be wronged.
- It is said that there is no ZULM in charging interest from a rich person
who has borrowed money to earn huge profits therewith.
- Since the basic Illat is missing in the commercial interest charged by
banks, it cannot be held prohibited
- It is further said that we should analyze every individual bank
transaction separately for presence of ZULM

39
Is Zulm the Illat or Hikmat behind the prohibition of
Riba (contd.)

- This argument is based on two assumptions:

- The Illat of the prohibition of Riba is Zulm
- There is no Zulm in all or some of the modern interest based transactions
- We find that those who subscribe to this argument has confused Illat with
Hikmat of a particular Law
- The principle is that the application of a law depends on the Illat and not
on the Hikmat and this is true for secular laws even
- Abolishing zulm is not the hikmat of the prohibition of Riba alone; it is the
hikmat of most the Islamic injunctions relating to business and trade

40
 FOURTH 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-Quran.
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.

41
 ANSWER OF FOURTH ARGUMENT

Account of Riba al-Jahiliyya (Riba al-Quran)

"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."

42
 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.

43
 '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'.
44
 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."

45
Bank Loans & Riba al-Fadl

It is argued that:
- Bank Loan is not Riba al-Jahiliyya but Riba al-Fadl since the interest
charged on loan is known from the outset.
- However, if the debtor is unable to repay the loan + interest in time, the
additional interest charged for time extension is Riba al-Jahiliyya

Why do they say this?

- Because, since the prohibition of Riba al-Fadl is not the concern of the
State but rather of individual Muslims, it is therefore not enforceable and
should be excluded from the jurisdiction of the Federal Shariah Court and
the Shariah Appellate Bench of the Supreme Court of Pakistan

46
Bank Loans & Riba al-Fadl (contd.)
This line of argument is incorrect:
- Firstly, it does not matter whether Riba is charged at initial stage
or after the maturity of the loan
- Secondly, the Hadith dealing with Riba al-Fadl is referring to a
sale transaction and not to a loan. The exact words of Hadith are:

DO NOT SELL gold for gold, except in equal quantities and DO NOT
SELL the deferred for the delivered on the spot.
In a sale transaction on deferred payment basis, the seller cannot
ask the buyer to pay the price before the stipulated date; while in
loan transaction, the creditor may ask the debtor to repay at
anytime. The time stipulated in a loan transaction is of moral value
and is not legally binding.
47
 FIFTH 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.

48
ANSWER OF FIFTH ARGUMENT

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

49
Money is a commodity (Nature of Money)

- It is argued that
- Just as a merchant can sell his commodity for a higher price than his
cost, he can also sell his money for a higher price than its face value
OR
- Just as he can lease his property and can charge a rent against it, he
can also lend his money and can claim an interest upon it.

50
 Money is a commodity (Nature of Money)

This argument is also imperfect, due to difference between money and

commodity :
Money is a medium of exchange, while commodities are consumable
goods or productive goods.
Money has no quality except that it is a measure of value or a medium of
exchange; commodities can be of different qualities; an old and dirty note of
Rs. 1,000 has the same value as a brand new note of Rs. 1,000
Money cannot be pin-pointed in a transaction; In commodities the
transactions of sale and purchase are affected on an identified particular
commodity
- Shariah has treated money differently on two scores:
- Money is not held as subject-matter of trade, like other commodities;
its use is restricted to as a medium of exchange
- If money is exchanged for money or it is borrowed, the payment must
be equal 51
52
53
54