by Zafar Bangash (Islamic Movement, Crescent International Vol. 45, No. 4, Sha'ban, 1437)
Riba (usury) has taken hold of global finance. Its purpose is to enrich the rich and impoverish the poor. This grand larceny, given legal cover, needs to be understood if humanity is to break free from modern-day slavery.
In the noble Qur’an, Allah (swt) has described Islam as din. Nowhere is the word madhhab used for it. Is there a difference? Din means a complete way of life with its own set of principles and values that enable a person to lead his/her life in this dunya. From the Islamic point of view, din represents a life based on Islamic values and principles; there can also be dins based on kufr. Madhhab, on the other hand can be roughly translated as religion.
The word religion has a much narrower meaning that is often related to rituals only. Thus, Christianity, Judaism and a host of other belief systems can be categorized as religions because they are primarily concerned with rituals without providing specific guidance on how life in general is to be ordered or governed. This is most clearly evident in predominantly Christian majority countries that have opted for separation between church and state. Islam accepts no such separation and, therefore, cannot be called “religion” even though many Muslims in their innocence make this mistake.
In Islam, the individual, referred to as insan (human being) in the noble Qur’an, is the subject of Allah’s (swt) loving care and attention. Allah (swt) has created insan not only in the best of moulds (95:04) but also provided guidance in the form of revelation that He promised right at the time He sent Adam and his wife (a) down to earth, “…there shall, nonetheless, most certainly come unto you guidance from Me, and those who follow My guidance need have no fear, and neither shall they grieve” (2:38).
The entire Qur’an as exemplified by the noble Messenger (pbuh) throughout his blessed life provides guidance for us in our wayward journey through this dunya. On the Day of Judgment while each individual will have to answer for his/her own deeds, life on earth must be led as a collectivity. Human beings are social beings; they need other human beings to live and interact with. Thus, Allah (swt) has provided guidance for conduct at the individual, family, community, and state levels. There are rules for halal (permissible) and haram (forbidden) both in personal conduct and social interaction and transactions.
While Muslims have produced, based on the Qur’an and the Sunnah and Sirah of the noble Messenger (pbuh), a vast body of literature about their social, cultural, and political affairs, in the field of economics, there is very little material available. Beyond simplistic assertions like “interest is haram” equating interest with riba (usury), and attempting to provide Shari‘ah-compliant mortgages (often using dubious means), especially for Muslims living in the West, there is lack of clear understanding about how the Western economic and banking systems work.
Let us begin by looking at what the noble Qur’an says about riba (usury). In Surah al-Baqarah, Allah (swt) warns us,
Those who gorge themselves on usury behave as he who has been confounded by the touch of Satan, for they say, “Buying and selling is but a kind of usury” — the while Allah has made buying and selling lawful and usury unlawful. Hence, whoever becomes aware of his Sustainer’s admonition, and thereupon desists [from usury], may keep his past gains, and it will be for Allah to judge him; but as for those who return to it, they are destined for the fire, therein to abide!
Allah deprives usurious gains of all blessing, whereas He blesses charitable deeds with manifold increase. And Allah does not love anyone who is stubbornly ingrate and persists in sinful ways (2:275–276).
The Qur’anic prohibition on riba (usury) is clear. In the ayat that follow (2:278-279), Allah (swt) declares that those who indulge in usury are “at war with Allah and His Apostle.” There are also numerous hadiths related to prohibition on riba of which perhaps one will suffice for our purposes. In the Sahihs of Muslim, Abu Dawud, and al-Tirmidhi, Jabir ibn Abdullah narrates the following from the Prophet (pbuh),
Allah’s Messenger (pbuh) has condemned riba recipients, riba transacting individuals [riba lenders and borrowers], those who witness riba transactions, and those who register riba commerce. The Messenger (pbuh) said, “They are all accessories.”
Let us first understand what riba (usury) means. In the linguistic sense, riba means an addition or increase of a thing over and above its original size or amount. It is generally applied to money lent to someone and a certain additional amount is to be paid back over and above the original sum. The injustice in such an arrangement is clear: the borrower is in need and while the lender’s original sum is guaranteed plus an additional amount, it takes no account of the needy person’s condition or situation. There is no risk to the lender; only to the borrower. The Qur’an describes this as inherently unjust.
We must also bear in mind that the ayat prohibiting riba (usury) follow immediately after the cluster of ayat encouraging sadaqah — voluntarily giving to the needy and poor without seeking anything in return. Sadaqah is over and above zakah, which is compulsory for those who have the means.
Riba (usury) has existed virtually since time immemorial but it has become far more pernicious since the advent of Western civilization, its banking system and how money is created. It is a vast spider’s web in which everyone has become a prisoner. It is geared toward taking money from the poor to enrich the already rich. Not surprisingly, the British charity Oxfam’s report of last January (2016) once again confirmed this phenomenon. Its study, released on the eve of the World Economic Forum at Davos (January 20–21, 2016), found that the 62 richest families in the world have as much wealth as the poorest half of the world’s total population, that is, equivalent to the wealth of 3.5 billion people.
What is money, and how and who creates it? At its most basic, money is an instrument of exchange; it has no intrinsic value and is meant only to facilitate transactions for various goods. If we lived in a simple world and there were only bakers and chicken farmers, we would probably not need money. The baker could make a barter deal with the chicken farmer to get a number of eggs for a loaf of bread. Similarly, he could provide several loaves to get a chicken. Alas, the world is far more complicated than that. We need vegetables and fruits to eat, clothes to wear, houses to live in and cars to drive. Add to that the need for computers, iphones and a host of other items and the picture gets quite complicated. Thus, the baker would not get very far if he were to take a truckload of breads to the Apple Store to get a laptop!
We need money to facilitate such transactions. In the past, people minted gold and silver coins for daily transactions. Later, paper money was introduced, called promissory notes. While gold and silver coins had intrinsic value, paper money has none but the modern banking system based on usury has introduced a value to paper money as well.
How and who prints money? Initially, paper money was backed by gold reserves. Since the US dollar has been the world’s reserve currency from the Second World War onward, the price of gold was fixed at $35/oz. In 1971, the US government unilaterally delinked the dollar from gold. Not surprisingly, the price of gold has skyrocketed. Today it is around $1,200/oz.
Contrary to popular belief, governments do not create money; banks do, especially the US Federal Reserve Bank. This is not a government-owned or controlled bank; it is privately owned with its own board of directors. Unfortunately even the majority of Americans are unaware of this. Since the US dollar is the world’s reserve currency (64% of the world’s foreign currency reserves are held in US dollars), the decisions the US Federal Reserve makes, affect the entire world.
This is one part of the problem. The other, more serious problem is the creation of money. This is where the satanic hand comes into play, as the Qur’an describes it (2:275). It can best be described by considering an example.
Suppose an individual were to deposit $100,000 in the bank. On the basis of this deposit, the bank can loan out $900,000. This is not real money; it can be described as “virtual money.” The bank informs the government to print $900,000. These bills called promissory notes are pledges and have no value because they are not real but the bank loans this vast sum out to people as well as to companies.
This is done on the assumption that at any particular time, only 10% of deposits would be withdrawn. In the banking system and terminology, this is referred to as fractional reserve. Thus, the “virtual money” loaned out by the bank becomes real money when borrowers repay it by earning it through hard work.
As the bank receives the $900,000 in real money it once loaned out earlier as virtual money, it can now loan out $8.10 million (again virtual money) because according to fractional reserve requirements, it has to keep only 10% of the loan amount on reserve. Over time, as the cycle of loaning and redepositing continues, the aggregate loan amount begins to grow and can be represented by a gradually declining (by 10%) infinite series. For each deposit, 9 times the original amount is given out as loan thus creating a vast pyramid of wealth accruing to the banks and its shareholders earned through the hard work of ordinary people.
This is the scam that is operational today and has turned virtually the entire world into slaves except for the tiny minority at the top. Is it any wonder that through a whole bunch of convoluted and complicated explanations, people are made to agree with this scam so that the tiny minority can get rich quickly by only lifting a finger to get a borrower to sign on the bottom line of a bogus loan contract.
Over the years that the fractional reserve banking system has been deployed, it has now become the de facto banking/monetary system of the world. The only way for the Muslims to save themselves and the other mustad‘afin from this satanic cult of debt is for them to regain their justice-oriented Islamic executive authority and build an economic system around the Qur’an’s broad principles of social justice and distribution of wealth.