I came across this article by Edip Yuksel. Hope to get more light thrown on this by forum members:
Until recently I had questions that constantly tickled my mind regarding what constitutes "riba" (often translated as usury, or interest), such as: What is my justification for understanding it as "interest" or "usury"? What is the clear-cut difference between usury and interest? What is the Arabic word for interest? Did people have two different words for usury and interest during the time of revelation? What constitutes "high interest"? What justification can one provide for considering 15% or 18% or 20% as the border line between the Satanic usury and lawful interest? Do any fixed percentage, such as 20%, have any meaning in continuously contemporary economies afflicted with continously fluctuatign inflation and devaluation? Is it possible to refrain from all kinds of interest in todayÕs economy?. . .
After reading an excellent letter written by brother Dr. Amir Azadi of Canada on interest, these questions were transformed to giant intellectual challenges. I started talking with some friends on the issue. I found that some already had a satisfactory answer to my questions. For instance, Dr. Gatut S. Adisoma provided me with a paradigm-shifting hint. The answer was incredibly simple too! Finally, after studying related verses, the issue became clear for me. Before sharing this simple answer for all the above questions regarding usury or interest, I would like to quote the first three paragraphs from IzadiÕs article:
"Throughout history people have often debated the issue of usury in Islam. The question has always been: what exactly constitutes usury, or "riba" as mentioned in the Quran? It is my opinion, and that of numerous Islamic scholars, that usury as stated in the Quran refers to any "fixed" percentage of earnings collected for money loaned or deposited. The emphasis here is on "fixed" because it precludes the lender from any losses. Earnings, however, which vary with the profits or losses of the borrower are not to be considered usury. However there have always been those who have disagreed, and held the view that usury only implies the charging of exorbitant interest, or charging compounded interest, or any trade where one party takes advantage of anotherÕs predicament, or put simply, unfair business practices. The same propounders of this theory maintain that lending money at fixed interest rates is entirely satisfactory, because as long as there is mutual agreement usury can be considered a form of trade. The Quran provides the best response to this assertion in 2:275. "Those who earn from usury stand like one struck by the devilÕs touch. That is because they claim usury is a form of trade. But God permits trade and prohibits usury. . ."
"If usury merely implied amoral business practices such as profiteering or loan sharking the issue would be a moral one, and thus easily discernible to be wrong in consideration of all other teachings in the Quran. However, it seems likely that usury implies an activity which can easily resemble legitimate trade, thereby necessitating the mention of usury as different from trade. Eventually, however, it does become a moral issue, but only after we have understood the long-term repercussions it has on society. It is extremely important to educate ourselves in this respect, and not form opinions in haste after only listening to one or two scholars, but actively seek for ourselves all the available facts and base our decisions upon the research.
"Since it is not readily obvious why usury (earnings with fixed percentages) should be prohibited when all that seems to take place is a legitimate transaction between two parties that are in mutual agreement, the detrimental effects of such fixed earnings on society should be considered. The subject of this paper is to show precisely such effects of usury on the economy, and how in the absence of usury a more productive, stable, and just society will result. The effects of usury on inflation, unemployment, and government deficits will be considered, as well as its contribution to the widening gap between the rich and the poor."
Dr. Izadi, after this introduction, provides the reader with a detailed argument supporting his points made above. Though IÕm not an economist nor a businessman, I found his argument sound and compelling. He demonstrates myriad problems and side effects which are apparently caused by usury (which he uses it synonym of "interest"). Leaving this argument for experts on economy, I would like to invite you for a new look to the verses regarding interest or usury.
This "new"--for me at least--understanding makes the aforementioned questions and arguments irrelevant. If we evaluate all the verses on the issue (2:261-281; 3:130-134 and 4:161-162), we will clearly see that the prohibition has nothing to do with business interactions; it is about charity and loaning money for charity purposes. Quran prohibits charging any interest, be low or high, on money lent to people in need. The borrower is defined as "the poor" who needs the money to spend on his/her basic necessities, not as an entrepreneur who wants to start or improve businesses. They are not out there to make money from your loan, but try to survive on it. Therefore, God prohibits us from taking advantage of our neighborÕs or friendÕs basic needs. Lending them money is not business, but entirely a humanitarian act, an act of charity. You are supposed to help the poor without exploiting their weakness.
Below are the verses from Sura 2 (Al-Baqarah) that I believe, define "riba" (usury or interest) as loans lent for the purpose of charity. The word charity is highlighted, to pull your attention to the context:
* 270. Any CHARITY you give, or a CHARITABLE pledge you fulfill, God is fully aware thereof. As for the wicked, they will have no helpers.
* 271. If you declare your CHARITIES, they are still good. But if you keep them anonymous, and give them to the poor, it is better for you, and remits more of your sins. God is fully Cognizant of everything you do.
* 272. You are not responsible for guiding anyone. God is the only one who guides whoever chooses. Any CHARITY you give is for your own good. Any CHARITY you give shall be for the sake of God. Any CHARITY you give will be repaid to you, without the least injustice.
* 273. CHARITY shall go to the poor who are suffering in the cause of God, and cannot emigrate. The unaware may think that they are rich, due to their dignity. But you can recognize them by certain signs; they never beg from people persistently. Whatever CHARITY you give, God is fully aware thereof.
* 274. Those who give to CHARITY night and day, secretly and publicly, receive their recompense from their Lord; they will have nothing to fear, nor will they grieve.
* 275. Those who charge "riba" are in the same position as those controlled by the devilÕs influence. This is because they claim that "riba" is the same as commerce, However, God permits commerce, and prohibits "riba". Thus, whoever heeds this commandment from his Lord, and refrains from "riba", he may keep his past earnings, and his judgment rests with God. As for those who persist in "riba", they incur Hell, wherein they abide forever.
* 276. God condemns "riba", and increases (yurbi) CHARITIES. God dislikes every disbeliever, guilty.
* 277. Those who believe and lead a righteous life, and observe the Contact Prayers (Salat), and give the obligatory CHARITY (Zakat), they receive their recompense from their Lord; they will have nothing to fear, nor will they grieve.
* 278. O you who believe, you shall observe God and refrain from all kinds of "riba", if you are believers.
* 279. If you do not, then expect a war from God and His messenger. But if you repent, you may keep your capitals, without inflicting injustice, or incurring injustice.
* 280. If the debtor is unable to pay, wait for a better time. If you give up the loan as a CHARITY, it would be better for you, if you only knew.
* 281. Beware of the day when you are returned to God, and every soul is paid for everything it had done, without the least injustice.
I kept the original word "riba" to let the reader infer its meaning from the Quranic context by themselves. Different forms of the word "riba" is used in many verses meaning: to swell (22:5; 4139), to increase (30:39), more numerous (16:92), a hill, an elevated part of the Earth (2:265, 23:50), high and fertile (2:265), lofty (23:50), exceedingly severe (69:10), high, abundant (13:17) increase (2:276).
Verse 2:276 is enough by itself to clarify the issue, since it contrasts "riba" with charity. Besides, it clarifies the literal meaning of "riba" by using a verb (yurbi = increases) from the same root with "riba" to describe charity.
If we reflect on the context, I believe, it will save us from personal speculations and uncertainty regarding this Satanic conduct which is equivalent of declaring war against God and His messenger. It will also save us from relying on contradictory opinions of scholars or any hadith besides the Quran.