Wednesday, August 4, 2010



V.M. Khaleelur Rahman 

There is much talk about Interest free banking system now-a-days. Maulana Taqi Usmani sahib also addressed a meeting in Chennai on this subject. There cannot be two opinions about the fact that “riba” is prohibited in Islam and Muslims should refrain from doing things which come under this word “riba”. Riba means not only interest but all forms of exploitations. This is the reason why all the past great translators of the holy Quran had given the right meaning for it as “usury”. The beauty of the holy Quran is that it prohibits any exploitation in business, not only interest.

As far as the banking interest is concerned, one feels that an industry cannot be established and managed without involving interest. If a person establishes a factory getting loan from a bank on interest and gives employment opportunities to some people, it is undoubtedly laudable. We must appreciate him. We have to move with the times to be respectable citizens of the present highly materialistic world where nobody seems to care for anybody. Giving sermons is different from practising things. This apart unless an interest free banking system comes into existence, we cannot condemn the present system in the way we usually do.

It is reported that the Saudi Arabia and other oil rich countries have invested billions of dollars in the American and other banks and are not getting any interest and the banks use these interest amounts for their own purposes – right or wrong. How far can this be right according to Islamic principles?

I heard the speech of Maulana Taqi Usmani sahib. It was thought provoking. We have all respect for him and his thoughts based on the holy Quran and Ahaadees even though many conferences of ulema on this subject had resolved to present the issue in a different way considering the time we are living in and where an interest free banking system is not available.

To the question asked by a legislator "if a Muslim student can avail loan given by banks for seeking education", there was no reply at all. All this shows that nobody thinks of the have nots who have no other go except to avail bank loans. We should understand that even well to do non-Muslims avail bank loans for educational and other purposes for the obvious reasons. Where do we stand in this regard?

We all know that the loans availed by farmers were pardoned several times in different states of the country by the state governments and even the union government last year or so. There were reports of Muslim farmers having suffered heavy losses due to their inability or aversion to get loans in states like U.P., M.P., Bihar etc.

There is necessity for the community to think about the loans given to industries, farmers, students etc. until an interest free banking system is established and available to all.

Please listen to the Maulana by clicking the following link and express your views.

Shaykh-ul-Islam Dr. Tahir-ul-Qadari

I had written an article on interest free banking some 30 years ago in the Financial Express, Chennai dated 21st November 1981 which I reproduce below for your kind information. Please go through the same and comment. This issue must be discussed and analysed properly for the benefit of the suffering people.



Although Muslims throughout the world have been adopting the traditional system of interest free loans in small measures, the interest free banking introduced by President Zia-ul-Huq in Pakistan last year as part of the process of Islamisation of the economy is a new experiment.

According to reports an overwhelming majority of Pakistanis have welcomed the system. While Islamic fundamentalists support it because interest taking or giving is regarded as a sin in Islam, the mercantile community has commended it in the expectation of getting interest free loans for the development of business and industry.

The pro-Bhutto extremists on the other hand consider the present regime’s policy of Islamisation a ruse to hoodwink the people and divert attention from basic and burning issues like electing a democratic government. Though none in any Islamic country can be at the helm of affairs without depending on religion, the Zia Government’s over-enthusiasm for over-night Islamic changes in Pakistan has created doubts as to whether it is all only to remain in power or divinely inspired. Some Islamists prefer Islamic rule there through a democratically elected government.

Some others particularly and leaders of the Jamat-e-Islami argue that when Pakistan was founded in the name of Islam, there should be only an Islamic Government there. To them, it need not necessarily be a democratically elected government, but any government which follows Islamic codes and works for “Hukoomat-e-Ilahi” ((Kingdom of God) should be accepted.

It is a fact that despite the hanging of a popular leader like Mr. Zulfikhar Ali Bhutto by President Zia, the latter is able to remain in power just because he utters the name of Islam and assures the people that he would try to bring back lost glories. He also introduced penal punishments like cutting of hand for theft and death for adultery.

Some orthodox ulema prefer the reformation of the society through “Tabligh” (preaching), away from the cobweb of political activity.

The late Maulana Ehtishamul Huq, a well known and reputed religious leader who was close to the Bhutto family did not see eye to eye with Gen.Zia. He and people of his ilk believe that people should first become pious and strong adherents of Islam before thinking of establishing an Islamic Government.

Thus Gen.Zia faces strong opposition from the people on various political and religious issues. Yet interest free banking is one of the reforms whole heartedly welcomed by most of the people except those who have huge deposits in banks and no religious attachments.

Some economists who have hitherto followed the British system of banking consider interest free banking as impracticable in the long run. Some other experts with an Islamic bent of mind stress the necessity of this system in the present industrial world where high rates of interest are common.

It is a fact that in almost every industrial unit the bank is a “major partner” entitled to an income (interest) of up to 18 per cent or more, no matter whether the unit makes a profit or incurs a loss. Many industrial units have collapsed because of the burden of the prevailing interest system. At the same time, the tremendous industrial progress seen today is due to the finance provided by banks and other corporations like SIPCOT in Tamil Nadu.

The worst disadvantage to industries financed by banks is that business becomes compulsory for them even at unworkable levels of prices at both buying and selling points as they require goods as well as forward contracts of sales for submission to their banks against different varieties of facilities secured by them.

In spite of this, whether industrial development will be possible particularly in the present world without involving interest is a moot point.

Pakistan claims that interest free banking was successful last year in all the five nationalized banks where it was introduced. The annual reports of these banks have shown that the income of depositors in interest free accounts has been 8.5 to 15 per cent whereas depositors for interest have gained only 7.5 to 12 per cent.

In Pakistan, the deposits in Interest free accounts are given to different industrial units and profit or loss is shared among the depositors according to their ratio of investment.

According to reports, about Rs.300 crore were deposited in interest free accounts there. However it remains to be seen if the trend is here to stay.

In India, though an interest free system seems unthinkable the best thing the Government could do will be to provide facilities for “secret deposit accounts” without involving any interest in the same way as the banks in Switzerland have provided. This will help in acquiring black money from both home and abroad for various national projects.

(VMK in Financial Express dated November 21, 1981)


1 comment:

  1. Assalamu alaikum,
    Your in depth topic on Muslims and Interest is welcome with some reservations.

    Interest is translated as usury means putting hardships on community and as of now no such things in bank interest is your subject view. Qurans main point is allowing business where both profit and loss exist and disallowing interest where only profit based. When we take this point also into consideration, then one can come to conclusion that investing money in bank for interest is not allowed but taking loans from there is allowed. I totally reject this point also because when interest rate is lower it can be acceptable and when more it is not. I ask my brothers who gave powers to fix quantum in interest. Though it is meager or huge, interest is only interest. You can compare with alcohol. Is it allowable taking small peg rather than much? Same way we have to think on present banking interest also.

    Nobody in Islam is vested or compelled to run large industrial units by taking interest from banks and provide employment to all.

    The main question is whether we follow Islamic law or shredding our responsibility saying some excuses to go astray.

    You think it over and send me your comments to :

    Inallaha yahkumu bainakum feema kaanu feehi yaqthalifoon.

    Raeally Allah will give befitting judgement for controversies among you (in the aagirath) (Day of Judgement)
    Wassalam, Ashraf Ali.