Riba and Interest - Same thing or Not?

[berniceann]

@elizarn Money is not a form of interest, the paper money we have today however, is created through usury.

Secondly you can still have Riba without paper money, the laws against Riba were revealed to previous prophets in the ancient Babylon/Sumer where there would be usurious transactions on things like agricultural produce and livestock.

Interestingly, one of the reasons for the downfall of those ancient empires were financial crashes due to usury and financial mismanagement.

 

[sbmor777]

@elizarn Riba and what we call "interest" in the modern day are not always the same thing. For example, late fees on credit cards or loans would be considered riba but it's not called interest. Also on leases, there might be interest but it's not considered riba because riba is specifically only on lending as opposed to leasing an asset for use.

However, when it comes to lending/financing then interest is pretty much always riba and haram. It's haram to charge interest on loans and it's haram to earn interest on money in the bank or bonds because it's riba. The vast majority of scholars agree on this. Now in your post you mention it seems like some scholars just don't understand finance. I agree some don't but still talk about and it just creates doubts/confusion. I can tell you I have found a few scholars who are experts in finance and know what they're talking about, so I follow them: Mufti Faraz Adam, Mufti Taqi Usmani, and Sheikh Haitham Al-Haddad. Also you could look into Islamic Finance Guru for resources, it was founded by two guys who were finance professionals before and they have a really good website and YouTube channel. They have covered the topic of riba and interest.

I think what's important to help with your questions is to understand what riba is and the different types of riba. That way you can recognize it whether it's called interest or some kind of fee or something else. The below website is the most detailed and comprehensive description of riba I've found. Unfortunately the website hasn't been working lately so this is an archive link.

https://web.archive.org/web/20230529111035/https://islamicmarkets.com/education/types-of-riba

 

[elizarn]

@sbmor777 Islamic banking is itself prohibited. The issue is fiat currency. fiat currency is controlled by governments. Fiat currency is enforced upon us and in itself has build in negative interest on value. Because of negative interest imposed by the issuer of fiat currency it in itself is prohibited.

Thats the main issue we are dealing with here. As I said most ulema/muftis dont dont tell the public what the main issue is. Fiat money itself is the main problem. As I explained in my post buying commodities will solve this issue but because the dollar value will increase over time the govt will ask for tax on the increase in dollar value.

In actuality the value is not increasing at all. The value of dollar decreases not that commodity rises.

But when you sell your commodity you will get more dollars which are worth less now. Govt doesnt care about the value, they charge interest based on the number. $100 in 1960 is not worth $100 in 2023.

But if you buy an ounce of gold in 1960 for $40. you sell in 2022 for $2000. Now you have to pay tax on 2000-40=$1960. If you are in high tax bracket it is $980tax. You are left with $1020. In 2022 gold is $2000. how are you supposed to buy an ounce of gold for $1020?

They decrease the value of currency which is negative interest. Negative interest is as haram as positive interest.

 

[sbmor777]

@elizarn I agree with you here. Fiat currency is inextricably linked to fractional reserve banking the money creation system which has riba embedded in it. I have seen scholars talk about this, though maybe not often. Technically fiat currency is haram as is fractional reserve banking/money creation but we're forced to use it because pretty much every country has adopted fiat currency. You might find this article interesting actually about what an Islamic financial system would be like. They cover the topic of fiat currency and money creation.

https://www.islamicfinanceguru.com/articles/how-a-truly-islamic-financial-system-would-work

Now even though I agree with you on the above (as do most knowledgeable scholars I think) - that the reason riba is embedded so deeply in everything is due to is a fiat monetary system - interest-based lending/financing is still riba and is still haram. The way for Muslims to try to beat inflation and not lose buying power is investing, whether it be ETFs, mutual funds, sukuk, or some other halal strategy. I don't think riba becomes permissible (nor do scholars) just because of fiat currency and the monetary system.

 

[elizarn]

@sbmor777 My premise is that Interest on Fiat Currency is not Riba as long as the value is the same. Riba is Value addition. There is no value addition with interest, if there is value addition you can give it away, all my bank accounts have a minimal interest like 0.1% or something which I give away. Its a numbers game. Its a façade. We are forced to use Fiat currency, its not by choice. People are being tricked into giving their wealth away. When you are forced to do something, rules change.

But you are correct investing is the way to go but in a civil society you cant ask people to invest in order to protect their wealth, also investment has a risk of decrease in value.

In addition most investment professionals have access to other peoples wealth and they are way more risk tolerate that you or I would ever be. In order to compete with them we have to Invest our money and time/Labor. Most people have a full time job and don't have the time to put in the time/labor.

And obviously we can talk about how a true Islamic financial system would work, we don't have that option available to us right now! My post is not about a theoretical issue. Its about how do we practically avoid negative interest on our wealth.

Rules change based on what your position in society is. The rules for slaves and free people is not the same if you read the Quran. Its way more lenient for slaves because they are forced into submission.

 

[sbmor777]

@elizarn I get what you're saying and I've had many of the same thoughts as you. Being Muslims in a financial system embedded with riba, we are at a disadvantage. Not only with trying to preserve our wealth/buying power but we don't get the same cheap access to capital or buying houses/cars that interest-based lending enables.

I simply disagree with your conclusion that this makes it ok to engage in interest except for real specific cases like for student loans to get an education or if a conventional mortgage is the only way someone can get a house. Riba is a very serious sin in Islam and so I err on the side of caution where I can.

 

[elizarn]

@sbmor777 But if you don't deal with interest that means that you are giving away free wealth to the banks. That is as Sinful. you are supporting an interest based system with your wealth. It is societal norm to do that and that makes us feel comfortable. Herd mentality is what its called.

Taking interest and preserving wealth is not Riba in my opinion, you are preserving the value of your wealth.

trying to feel comfortable, following herd mentality, strengthening Riba based institutions with your wealth is not right.

If you take Interest and protect your wealth that might be prohibited and it might not be prohibited. we can argue about it. BUT. not taking interest and keeping wealth in form of currency and allowing it be devalued and letting banks grow wealthier, just because it makes you sleep better at night and avoiding societal pressure- is that the right thing to do?

At a minimum, take interest and give it away. there was an earthquake in Morocco. Could have given it there. Either invest the $$ or take Interest and give it away. That's the absolute minimum.

 

[sbmor777]

@elizarn Respectfully, agree to disagree but I do see where you're coming from.

For me, looking at the definition of riba, most interest counts as riba and riba is undoubtedly haram. There are no exceptions in the fiqh or "loopholes" if you will about riba being ok if it's rampant or anything like that. I do make some practical concessions such as using credit cards (always pay in full though) and I still have a 401k even though none of the funds are sharia-compliant. I recognize that riba is so prevalent and embedded in everything that it is impossible to avoid at times but I still believe I should to my very best to avoid it where I can. Personally, I'm not going to take riba and then donate it because taking the riba in the first place is sinful and you get no reward for donating haram money.

I invest my idle cash though as much as I can in sharia-compliant ETFs and mutual funds.

 

[elizarn]

@sbmor777 But Currency with its negative interest is makes holding currency riba. Why do you not talk about that? Just because its societal norm doesn't make it right. In the past people of Lot, Noah were destroyed over their sins, they were following the societal norms at that time which made them blend in and comfortable- Herd mentality. Just because it makes you and I feel comfortable doesn't make it right. I am pretty sure the ulema of of these nations were telling people that it was ok to do what was wrong.

I never said you will get reward for giving Interest money to charity. If you have a $100 in Interest money who do you give it to, poor hungry kid or a drug dealer? If you have control over that money you give it to the hungry kid, reward or not. Its plain stupidity to let it be with the drug dealer. Stupidity is sin.

 

[ghostwriter323]

@elizarn C is so wrong

 

[chanticleera]

@ghostwriter323 C is mostly correct except for Bitcoin.

 

[daisies89]

@elizarn Don’t lend money and you don’t have to worry about riba, right?

As far as taxes go, you are required to abide by the rules of the country you’re living in. Don’t in countries where you pay so much tax.

 

[elizarn]

@daisies89 No point number a and e. currency itself is negative interest and the value of your currency is declining and going to banks. So if you dont take interest you are giving away wealth for free to banks.

Also I mentioned that if you pay tax on the interest. the value of your wealth might still decline even after you take interest because the combine inflation and tax might be less that what you get in interest.

Last year interest rates were around 0.25 to 5% and inflation was 8%. So you lost 8% and even if you take interest you only gained say approximately 3% and then you have to pay tax on that 3% if you are high earned it can be 50% tax so say 1-1.5% tax. Now you lost 8% and gained only 1.5-2% so net loss of around 6% on your wealth.

 

[daisies89]

@elizarn You didn’t lose money if you invested it….

People have always been trying to find loopholes in religion. We are warned about this in the Quran.

If all scholars are agreed that interest is haram, do you really think you know more than them?

 

[elizarn]

@daisies89

le have always been trying to find loopholes in religion. We are warned about this in the Quran

Point A- Currency itself is negative interest!

I did mention that the scholars do not talk about this issue. They wont tell you not to use Currency. Its illegal to use gold. Govts wont allow it. Currency is backed by military and police.

Gold was banned in USA from 1933 to 1974

https://en.wikipedia.org/wiki/Executive_Order_6102

If you use gold as store of wealth when you sell gold you will end up with less wealth because you have to pay tax on the earned excess currency. In actuality you are still losing wealth. I have explained this above.

Currency itself is haram. Interest is Haram. Currency is negative interest. Negative interest is as haram as positive interest.

 

[daisies89]

@elizarn Why are you being dumb? The link you posted itself says that it was repealed in 1974. You’re free to hold as much gold as you want.

 

[elizarn]

@daisies89 It was enforced from 1933 to 1974 when dollar moved away from gold standard. Once they forced people to adopt to the new system , people are now comfortable with the idea of currency. As I gave the analogy of the frog in water, people are comfortable with losing 1-3% annually.

in 2018 price of gold was $1200 per oz now its close to $2000, so compared to gold the value of money has gone down. If you would have bought gold in 2018 and sold it today you would have had to pay tax on the $800. Depending on your tax bracket that can be as high as 50% in some countries, so now you are left with $1200+$400=1600 and an ounce of gold is $2000 so you are short $400.

so you bought 1 ounce of gold in 2018, sold it and now you cannot buy the ounce of gold back! where did you wealth go?

That's negative interest!

 

[daisies89]

@elizarn Then don’t buy gold….

Look man it seems like you have made up your mind about this.

Just keep in mind that you don’t know more than the scholars and the scholars are not dumb. They have done the research and they have consulted with experts. If all of the major scholars and schools of thought are agreed on this then you have no standing