ISLAMICITY OF ISLAMIC BANKING: RIBA AND IJTIHĀD
This chapter is a critique of the prevailing neo-Revivalist interpretation of riba and its method of determining the islamicity of Islamic banking. The first section looks critically at the neo-Revivalist interpretation and the second section argues that in matters of banking and finance, Muslims need to look at the issues afresh on the basis of ijtihād.
In chapter 3, the issue of the neo-Revivalist interpretation of riba was discussed briefly. According to this interpretation, interest is equal to riba. The following is a critique of this interpretation but before commencing, it is necessary to state briefly the elements of the “interest is equal to riba” view of the neo-Revivalists, which appear to be the following:1 (i) that it is clearly stated in the Qur'ān that in repaying a loan, only the principal should be returned to the creditor, and therefore, any predetermined increase over and above the principal would be riba; (ii) that money is 'sterile'; and (iii) that in order to earn a return one must put the money at risk. The following discussion attempts to show why this view is untenable.
The term 'ru'ūsu amwālikum' cannot be interpreted in the sense of a cer- tain quantity of fiat money. The neo-Revivalist view of riba as interest is largely based on the literal interpretation of the Qur'ānic expression, “wa-'in tubtum fa-lakum ru'ūsu amwālikum.” (If you repent then you are entitled to receive your principal) [chapter 2]. Since the verse specifically mentioned the term 'ru'ūsu amwāl' (interpreted as 'principal'), neo-Revivalists would argue that there is no scope for allowing any increase over and above the principal in a loan. According to them, 'principal' is also to be taken in the sense of a certain quantity of fiat money.2
The term 'ra's al-māl' is comprised of two nouns, which could be rendered into English as 'principal'. More relevant to an appreciation of what the Qur'ān means by the term 'principal' would perhaps be an examination of what could have constituted 'principal' in a debt obligation in pre-Islamic times in Ḥijāz, more specifically in Mecca and Medina. From the reports
1 See for instance, Miṣrī, Maṣraf al-Tanmiyat al-Islāmi; Homoud, Islamic Banking;
Mawdūdi, Riba; Drāz, Riba.
2 Chapra, Towards a Just Monetary System, pp. 56-7; Rahman, A. Banking and Insurance,