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Interest in Islamic Economics The definition of the Islamic notion of riba is not offered in the Quran and Interest in Islamic Economics offers the reader various understandings of this Islamic economic concept. With Islamic banking becoming a more influential factor in the West, an analysis of the concept of riba—generally perceived as interest—is long overdue. This book provides a framework for understanding riba by examining: • Linguistics • Classical judicial analysis • The historical context • Modern Economics Interest in Islamic Economics includes contributions from international scholars who are prominent within their fields. This book is essential reading for academics and professionals with interests in Islamic studies, Banking and Securities, Economics, and Legal History. Abdulkader Thomas is President and CEO of SHAPE Financial Corporation which offers Islamic financial products and solutions to International financial institutions. He also operates the Islamic finance research site http://www.ajif.org/. He has nearly 25 years of diversified financial services experience and is a graduate of the Fletcher School of Law and Diplomacy in international trade and the University of Chicago in Arabic and Islamic studies. Routledge Islamic Studies Historians, State and Politics in Twentieth Century Egypt Contesting the nation Anthony Gorman The New Politics of Islam Pan-Islamic foreign policy in a world of states Naveed Shahzad Sheikh The Alevis in Turkey The emergence of a secular Islamic tradition David Shankland Medieval Islamic Economic Thought Filling the great gap in European economics S.M.Ghazanfar The West and Islam Western liberal democracy versus the system of Shura Mishal Fahm al-Sulami The Regency of Tunis and the Ottoman Porte, 1777–1814 Army and government of a north-African eyâlet at the end of the eighteenth century Asma Moalla Islamic Insurance A modern approach to Islamic banking Aly Khorshid The Small Players of the Great Game The settlement of Iran’s eastern borderlands and the creation of Afghanistan Pirouz Mojtahed-Zadeh Interest in Islamic Economics Understanding riba Abdulkader Thomas Interest in Islamic Economics Understanding riba Edited by Abdulkader Thomas LONDON AND NEW YORK First published 2006 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2006. “ To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to http://www.ebookstore.tandf.co.uk/.” © 2006 Abdulkader Thomas, selection and editorial matter; the contributors, their own chapters All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested ISBN 0-203-48190-9 Master e-book ISBN ISBN 0-203-69221-7 (Adobe eReader Format) ISBN 0-415-34242-2 (Print Edition) Contents Notes on contributors vi Preface viii Acknowledgments ix List of abbreviations xi Introduction to understanding riba 1 Sh. YUSUF TALAL DELORENZO 1 Riba in Lisan Al Arab 10 TRANSLATED BY RUBA ALFATTOUH, ABDULKADER THOMAS, AND NAJWA ABDEL HADI 2 In the Shadow of Deuteronomy: approaches to interest and usury in 13 Judaism and Christianity VINCENT J.CORNELL 3 The juridical meaning of riba 25 Sh. WAHBA AL ZUHAYLI, TRANSLATED BY IMAN ABDUL RAHIM AND ABDULKADER THOMAS 4 An overview of the prohibition of riba 53 EMAD H.KHALIL 5 The modern debate over riba in Egypt 68 EMAD H.KHALIL AND ABDULKADER THOMAS 6 Why has Islam prohibited interest? Rationale behind the prohibition of 95 interest M.UMER CHAPRA 7 An attempt to understand the economic wisdom in the 111 prohibition of riba MAHMOUD A.EL-GAMAL 8 What is riba? 124 ABDULKADER THOMAS Appendix: the challenges in Pakistan 134 M.AKRAM KHAN AND ABDULKADER THOMAS Bibliography 138 Index 144 Contributors Abdulkader Thomas is the publisher of the American Journal of Islamic Finance http://www.ajif.org/ and a leading practitioner of Islamic finance. As the authorized translator of the memoirs of Dr Ahmed Elnaggar he holds his primary degree in Arabic and Islamic Studies from the University of Chicago. Mr Thomas is widely published in the field of Islamic banking and finance. M.Akram Khan is one of the pioneers of Islamic Economics and Finance. He has published widely on various aspects of Islamic economics including Routledge’s Glossary of Islamic Economics and Finance. He was Deputy Auditor General of Pakistan until 2003 when he joined the United Nations’ Office of Internal Oversight. He is currently Chief Auditor in the United Nation Mission in the Congo. Vincent J.Cornell is Professor of History and Director of the King Fahd Center for Middle East and Islamic Studies, University of Arkansas, Fayetteville, Arkansas. He also serves as Chair of Studies in the Religious Studies Program at the University of Arkansas. Dr Cornell is a noted author and lecturer on Islamic studies. His major works include The Realm of the Saint: Power and Authority in Moroccan Sufism (Austin, TX: University of Texas 1998) and The Way of Abü Madyan: Doctrinal and Poetic Works (Cambridge: The Islamic Texts Society, 1996). Dr Cornell is one of the leading contemporary Islamic thinkers in North America. Emad H.Khalil is a partner in the law firm of Jones Day resident in the Singapore office, where he co-chairs the Firm’s Global Projects practice and the Asia Lending/Structured Finance practice. Mr Khalil has extensive experience with global Islamic financial transactions. Iman Abdul Rahim is a professional translator based in Damascus. Mahmoud A.El-Gamal is Professor of Economics and Statistics at Rice University, where he holds the endowed Chair in Islamic Economics, Finance, and Management. In the latter part of 2004, he served as the first Scholar-in-Residence on Islamic Finance at the US Department of Treasury. More information about him is available at http://www.ruf.rice.edu/~elgamal Najwa Abdel Hadi is a professional Arabic instructor based in Fairfax, Virginia. Ruba Alfattouh holds her degree in English from Brigham Young University and teaches English in Abu Dhabi. M.Umer Chapra is one of the leading authorities on Islamic Economics. His career includes serving as an advisor to the Saudi Arabian Monetary Agency and the Islamic Development Bank. His published work includes the Islamic Foundation’s Towards a Just Monetary System which is one of the primary resources in the field. Sh. Wahba Al Zuhayli is the Dean of the College of at Damascus University and a member of numerous supervisory boards governing Islamic banks. His work Fiqh As Sunnah wa Adalatiha is one of the leading and most widely relied upon manuals of modern Islamic Jurisprudence. Sh. Yusuf Talal DeLorenzo—Sh. DeLorenzo is a widely respected scholar of Islamic finance. He is a director of Yasaar Ltd, a advisory body, as well as the supervisory panels of financial institutions worldwide, including the Dow Jones Islamic Market Indexes. He has translated numerous classical Islamic fiqh works from Arabic, Persian, and Urdu into English and provided commentary thereon. Preface During the mid 1980s, I first researched the question of riba in our modern financial world. Somewhat instantly, I understood that the classical texts of fiqh do not use this term in the same way that some modern financiers and their regulators sometimes apply it. More confusingly, I understood with clarity that the broad Muslim public did not have a clear idea of the term. For years, English speaking Muslims were informed by an obscure footnote in the Yusuf Ali interpretation of the meaning of the Quran that riba only meant exorbitant interest or consumer interest, but not production interest. Elsewhere, Azharite scholars were determining that interest is simply a form of profit on a mudaraba. Some Muslims were of like mind with modern Jews and Christians who for the most part ignore the prohibition of interest in their own holy books. These and other questions led to my direct attack on the concept of riba and its many angles. What does the Arabic language have to say? Hence, I went to a seven-hundred- year-old Arabic lexicon. How about the history of riba among the peoples of the book? For this answer, I am indebted to my old friend Mansour Al Mujahid. And the classical scholars, what has been their view? Here, I turned to a dear teacher, Sh. Wahba Al Zuhayli, and commissioned the translation of his seminal article on riba in his comprehensive compendium of Islamic law. Through these elements of my research, it is clear that riba and interest are too often the same. Certainly, most banking transactions in the west are susceptible to riba. If that is the case, then why are we Muslims so confused? To secure this answer, I examined with my friend Emad H.Khalil’s help the history of interpretive chicanery, sometimes government instigated, that has taken place in a key center of Islamic learning. I also benefited from the insights of noted Pakistani economist M.Akram Khan to develop a related piece on the difficulties that his country has faced routing out interest. Economists M.Umer Chapra and Mahmoud A.El-Gamal also provided useful economic analyses. In the end, riba can be diagnosed and financial relations may be had free from it— even in America! In this humble endeavor, I am hopeful, God willing, to have helped readers to understand how to identify riba and live free from it.

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