Islamic Banking and Interest: A Study of the Prohibition of Riba and Its Contemporary Interpretation

By Abdullah Saeed | Go to book overview

INTRODUCTION

'Islamic banking' is now a widely-known term in both the Muslim world and the West. It denotes a form of banking and finance which attempts to provide services to clients free from 'interest'. The proponents of Islamic banking argue that interest is riba and, as such, is prohibited under Islamic law. This attitude towards interest has led several Muslim scholars and financiers to find ways and means of developing an alternative banking system which would comply with the injunctions of Islamic law, in particular, the rulings related to the prohibition of riba.

Since the mid 1970s, Islamic banks have been growing at a surprisingly fast rate. These banks were established not only in countries where Islam is the majority religion like Egypt, Jordan, Sudan, Bahrain, Kuwait, United Arab Emirates, Tunisia, Mauritania and Malaysia, but also in the United Kingdom, Denmark and the Philippines, where it is a minority religion. An international Islamic bank, the Islamic Development Bank, whose shareholders are members of the Organisation of Islamic Conference (OIC), acts as the sponsor of Islamic banking and finance in the wider Muslim world. This is in addition to the major efforts made in the early 1980s by Pakistan and Iran to transform their entire financial systems to interest-free ('Islamic') systems.


Overview of the issues

The theory of Islamic banking, which has been in the process of development since the 1950s, maintains that Islamic banking is interest-free banking based on the concepts of muḍāraba and mushāraka, that is, Profit and Loss Sharing (PLS). Islamic banking theorists and the Muslim legists who contributed to this theory interpreted riba as 'interest' and 'predetermined return on capital', particularly financial capital. They believed that a reinterpretation of the traditional definition of riba as developed in Islamic law was out of the question, based on the idea of the immutability and permanence of sharī'a rules.

By interpreting riba as interest, Islamic banking theorists are following the early concept that any benefit which accrues to the lender in a loan is riba. Based on this view, any increase (nominal or real) in a loan which accrues to the creditor would be riba. The acceptance of this interpretation would not allow an Islamic bank to accept any predetermined return on capital in a loan/debt transaction. To put this interpretation into practice, Islamic banks would have to reject, at least in theory, all the transactions

-1-

Notes for this page

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this book

This book has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this book

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this page

Cited page

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited page

Bookmark this page
Islamic Banking and Interest: A Study of the Prohibition of Riba and Its Contemporary Interpretation
Table of contents

Table of contents

Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this book

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
/ 172

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.