Defining the Problem

Riba (Usury) is of two major kinds:

1. Riba An-Nasia - Interest on lent money
2. Riba Al-Fadl - Taking a superior thing of the same kind of goods by giving more of the same kind of goods of inferior quality, eg.,dates of superior quality for dates of inferior quality in great amounts.

The definition of Interest, the literal meaning of interest or Al-Riba as it is used in the arabic language means to excess or increase. In the Islamic terminology interest means effortless profit or that profit which comes free from compensation or that extra earning obtained that is free of exchange. Riba has been described as a loan with the condition that the borrower will return to the lender more than and better than the quantity borrowed.

As muslims, our main concern when it comes to financial transactions is to avoid Riba in any of its forms, despite the fact that the basic foundation of the world economics and finance today is that of riba and dealing in usury.

The Prophet صلى الله عليه وسلم has foretold us of a time when the spread of riba would be so overwhelming that it would be extremely difficult for the muslim to avoid it. This situation calls for muslims to be extra cautious before deciding on what money payment of financial methods to use in any personal or business transaction. 

To make sure that we are safe from Riba, we have to learn which transactions lead to it.

Interest in Pre-Islamic Times

HafizIbn hajr writes in his commentary of Sahih Bukhari (Fathul Bari), Vol. IV p.264:

Imam Malik reports on the authority of Zaid Ibn Aslam that in the period of ignorance (pre-Islamic times) interest was changed according to the following scheme. One person had a right to the property of another person. It may have been a general right because of the amount lent or the price of something purchased or in any other form. A time was set when the claim would be settled.When the appointed time arrived the creditor would ask the debtor if he wanted to settle the claim or pay interest with an extension of time. If the claim was settled then there was no increase in the payment. Otherwise the debtor would increase the amount payable and the creditor would extend the period further.

Textual Evidence

Hadith - Sahih Bukhari, Volume 3, No. 299; Narrated 'Aun bin Abu Juhaifah, r.a.

My father bought a slave who practised the profession of cupping, (My father broke the servants instruments of cupping). I asked my father why he had done so. He replied, "The Prophet forbade the acceptance of the price of a dog or blood, and also forbade the profession of tatooing, or getting tatooed and receiving or giving Riba (Usury), and cursed the picture makers."

Hadith - Sahih Bukhari, 2.468, Narrated Samura bin Jundab, r.a.

He speaks of in a dream related to the Prophet صلى الله عليه وسلم that there is a river of blood and a man was in it, and another man was standing at its bank with stones in front of him,facing the man standing in the river. Whenever the man in the river wanted to come out , the other one threw a stone in his mouth and caused him to retreat back into his original position.The Prophet صلى الله عليه وسلم was told that these people in this river of blood were people who dealt in Riba (usury).

The Noble Qur'an - Al-Baqarah 275-281

275. Those who eat Ribâ (usury) will not stand (on the Day of Resurrection) except like the standing of a person beaten by Shaitân (Satan) leading him to insanity. That is because they say: "Trading is only like Ribâ (usury)," whereas Allâh has permitted trading and forbidden Ribâ (usury). So whosoever receives an admonition from his Lord and stops eating Ribâ (usury) shall not be punished for the past; his case is for Allâh (to judge); but whoever returns [to Ribâ (usury)], such are the dwellers of the Fire - they will abide therein.

276. Allâh will destroy Ribâ (usury) and will give increase for Sadaqât (deeds of charity, alms, etc.) And Allâh likes not the disbelievers, sinners.

277. Truly those who believe, and do deeds of righteousness, and perform As-Salât (Iqâmat-as-Salât), and give Zakât, they will have their reward with their Lord. On them shall be no fear, nor shall they grieve.

278. O you who believe! Be afraid of Allâh and give up what remains (due to you) from Ribâ (usury) (from now onward), if you are (really) believers.

279. And if you do not do it, then take a notice of war from Allâh and His Messenger but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums).

280. And if the debtor is in a hard time (has no money), then grant him time till it is easy for him to repay, but if you remit it by way of charity, that is better for you if you did but know.

281. And be afraid of the Day when you shall be brought back to Allâh. Then every person shall be paid what he earned, and they shall not be dealt with unjustly.

The Noble Qur'an - Al-Imran 3:130

O you who believe! Eat not Ribâ (usury) doubled and multiplied, but fear Allâh that you may be successful.

Hadith - Mishkat-ul-Masabih

The following three ahadith have been taken from Mishkat-ul-Masabih under the section of interest and the English translation has been taken from its English version written by Al Hajj Moulana Fazl Karim (218-227 vol.11)

• Hazrat Jabir r.a. has reported that the Messenger of Allah صلى الله عليه وسلم cursed the devourer of usury, its payer, its scribe and its two witnesses. He also said that they were equal (in sin).
• Hazrat Abu Hurairah r.a. reported that the Prophet صلى الله عليه وسلم said : A time will certainly come over the people when none will remain who will not devour usury. If he does not devour it, its vapour will overtake him. [Ahmed,Abu Dawood,Nisai,Ibn Majah]
• Hazrat Abu Hurairah radiyallahu anhu reported that the Messenger of Allah صلى الله عليه وسلم said: I came across some people in the night in which I was taken to the heavens.Their stomachs were like houses wherein there were serpents,which could be seen from the front of the stomachs. I asked :O Gabriel! Who are these people? He replied these are those who devoured usury. [Ahmed,Ibn Majah]

Hadith - ??

Hazrat Al-Khudri radiyallahu anhu reported that the Prophet صلى الله عليه وسلم said: Gold in exchange for gold, silver in exchange for silver, wheat in exchange for wheat, barley in exchange for barley,dates in exchange for dates, salt in exchange for salt is in the same category and (should be exchanged) hand to hand, so whoever adds or demands increase he has practised usury. The giver and taker are the same.

Conclusion

After reading the above, it is apparent to us that interest is haram (prohibited).  How could anybody even take the time out to think about a matter in which Allah has declared war on the user and his Beloved Prophet صلى الله عليه وسلم has cursed him? As sensible people we can understand that what our Creator has chosen for us is for our own prosperity and benefit.

Islam has encouraged men to earn their own provision and provide for their families. The condition is that the earning has to be according to the Shari'ah. These rules can be found under the heading of trade in the books of jurisprudence. Interest is amongst those conditions which all dealings must be free from.

Imam Abu Hanifah has ruled that if the measurement system (volumetric or in compounds) is the same and the two items are in the same category, then they should be sold in the same amount and direct not in credit otherwise interest will be found.

Imam Shaf'ee says that if the items are valuable and could be considered food then there is the chance of interest.

Imam Malik says that if the items are valuable and are edible then interest is a subject