Introduction
The Riba issue can be been resolved on the basis of guidance from the Quran,[1] the final criterion to judge right and wrong[2] which has clarification of everything[3] guidance and mercy and glad tidings for Muslims. The Quran[4] is the Only, Last, Complete, Protected Divine Book of Guidance, without any doubt[5], all other books[6] are human efforts, none can claim to be complete, free from error[7] and doubt, however may be consulted as they contain wisdom & explanations but under the shadow of Quran. The perverse hearted, who do not believe in Supremacy of Quran, and blindly prefer the opinion of their religious lords,[8] will not benefit but it will add further to their perversity.[9] They may continue to remain hostage in a perpetual state of delusive sin and guilt.
Excessive currency printing has an impact on Inflation. The interest rates and inflation both affect the creditor and debtor, which was briefly analysed in the light of the Quran earlier in Part-2. A case study related to the local environment prevalent in Pakistan will facilitate understanding of the issue and solutions.
Case Studies: Pakistan
Impact of Currency Printing and Inflation
The effects of inflation and excessive money printing may be applied to the prevalent two government schemes, in one case the government is getting investment from citizens and paying them “profit” and in the second case the government is providing loans to citizens for house building and charging “interest” from them. Since people are more familiar with these schemes, it will facilitate understanding.
Case Study-1
National Savings Schemes [NSC]
Let’s make an effort to understand the alleged Riba being paid to the depositors at Government NSC Schemes in relation to currency printing.
In 8 years 2012 to 2020 Currency printed: 4.41 Tr, [(6.14-1.73)=4.41 Tr], increase of notes 255%, average annual increase of currency notes in circulation is 31.8%, but the government is paying just 10 to 12% to National Savings Pensioners, Shuhada and Behbood Depositors and 7 to 9% in other schemes, the rates keep on changing up & down.
In real terms, these profit rates are negative profits (loss). The depositors are losing the value of their deposits at the rate of around 20% per annum even after receiving meager profit!
If the Government pays more than 31.8% profit per annum or 2.65% per month, i.e. for deposit of one lakh, profit should be Rs 2265 pm not Rs.940 pm as of now [30 March 2021].[10]
Is it fair, is it justice? Is it Riba?
The Quran says
1. you are entitled to your principal; do no wrong, and no wrong will be done to you. (Quran;2:279), No one can change His words, and you shall not find any other source beside it. (Quran;18:27) Nor shall you obey one whose heart we rendered oblivious to our message; one who pursues his own desires, and whose priorities are confused.(Quran;18:28)[11]
2. “Therefore, establish Balance in the society in absolute justice. And never belittle the Scale of Justice in the community and in all your transactions with your own ‘Self’ and with others” (Quran;55:9)
3. Full measure and weight in all[12] fairness. Do not defraud.”(Qur’an;11:85).
4. Consuming of people’s wealth unjustly is forbidden. (4:161)
5. Don’t take money illicitly. [Quran 2:188][13]
Net Increase in Inflation
Here is another angle, the increase in overall inflation:
The sum total of inflation has risen from 2012 to 2020 [8 years] as 60%[14]
Annual inflation rate “as compared to previous year” was 11% in 2012 and 10.74% in 2020 with ups and down in between. Net total increase in inflation is 60% in 8 years.
[Annual increase to previous year 7.3% in 2013 means that 11+7.3=18.3% from 2012 to end 2013]
The value of Rs.100,000 in 2012 is worth 40,000 in 2020, Rs.60,000 was eroded by inflation. But National Savings Schemes paid about 9 to 12% during this period, hence total profit paid would be around 80% [average annual 10%]. Out of it 60% is the lost money of the depositor so net total profit paid in 8 years to the depositor is 20% or 2.5% per annum. The Zakah is paid (voluntarily) by the depositor at 2.5% , hence net profit to the depositor is Zero. Where is Riba? Indexation is the answer.
The Quran says
1. For you is the original sum of your wealth (Principal). Neither you shall commit injustice, nor injustice would be done to you (Quran;2:279)[15]
2. Full measure and weight in all[16] fairness. Do not defraud.”(Qur’an;11:85).
3. Consuming of the people’s wealth unjustly is forbidden. (4:161)
4. Don’t take money illicitly. [Quran 2:188][17]
If the same analysis and calculations are applied to the normal bank deposits, which provide lesser profit than the NSS schemes, the depositors are at loss. So in the paper currency[18] era where corrupt, inefficient governments print currency notes at large scale eroding the value of deposits, how can the Riba definition be applied? Riba, prohibition was and even now can be applicable to precious metal coins, with no option of manipulation/excessive currency printing, or where good governments do not print excess money and keep inflation at zero level.
Application of Indexation of Inflation with savings/ deposits will remove Riba to either party, an Indexation calculator/ software/ app can be prepared by experts.
Anyone who denies these realities neither enjoins justice nor uses his intellect, such people should know that Quran says:
“ The worst of creations in the Sight of Allah are those deaf, those dumb who do not use their intellect [Quran 8:22, also 2:18), 16:76][19]
“Allah gives you another example of two men. One of them is he whose faculties of speech and mind are totally disabled. He cannot do anything of his own accord and he is totally dependent on his care-provider, unable to bring forth any good in any way. Can such a one be considered equal of the man who is fit, enjoins justice and himself walks the Straight Path? (Allah expects you to use your faculties to the best of your abilities)”[Quran; 16:76][20]
Case Study – 2
House Building Finance Corporation [HBFC] Loans
Let us take the another example of a loan from House Building Finance Corporation (HBFC), which provides loans at interest rate of 12 to 13% per annum[21] for 3 to 20 years and charges 7.7% Kibor plus 2.0, 2.5 or 3.5%.
Calculations for a Hypothetical case in Ghar Pakistan Plus Scheme GPS PLUS, [The bank loans will be almost similar and may add service charges percentage]. The HBFC website has a loan calculator by feeding criteria of a person with monthly income of Rs.100,000 pm, age 40 years, loan period 20 years, the following data is obtained:
1. Total Loan Amount :PKR 5,406,000
2. Monthly Installment : PKR 45,000, [540000 per year]
3. Tenure : 20 Years
4. Total amount to be paid with interest in 20 years= 10,800,000
5. Rent 20 yrs (details below) 5,400000
6. HBFC payment in “Real Terms”= 5400000 [1.08-5.4=5.4 mn]
7. Interest charged: 5394,000 {10,800,000- 5,406,000= 5394,000}say almost equal to the loan, 5.4 mn.
8. If annual inflation is 10%, in 20 years it will be up to 200%, so the real market value of a loan of 5,406,000 after 20 years will be 10,812,000. In 20 years the loan paid is 10,800,000 almost the same as the real market value of the loan after 20 years.
9. The property rent i.e. 5 Marla/ 125 SQ yards is around Rs.25000 pm, which the owner is saving by living in a house or renting it out. If we minus rent from monthly installments of [450000-25000=20000] in “real term” the applicant is paying only Rs.20,000 to HBFC. The rental value will increase annually let’s say 5% so after 5 years rent would be 31250, after ten years around 40,000 pm. So after 10 years the applicant is paying only 5000 pm to HBC [450000-40000=5000] in “real terms”. After 3 more years , 13th year the rental value of property will surpass the monthly installment of 45,000 pm. Hence for next 7 years out of 20 years the applicant is paying the installment 450000 equal to the real rental value of property rather the rental value will cross the monthly installment after 14th year. All the rent saved is advantageous to the applicant which may be more than half of the “interest” paid to HBC in 20 years. So in a nutshell although the applicant paid 10,800,000 to HBC in 20 years, 50% of this amount is the rental value the applicant would have saved/ paid as rent if property was not under his possession. This is more credit to him [10800000/2=5400000] So actually in real terms the applicant has paid HBC nothing extra but the loan amount of 5400000 in 20 years. WHERE IS RIBA?
10. The market value of the property would have also increased manifold which is a benefit to the house owner. The writer is personally aware of a one kanal house which was worth 5 million, 15 years ago, but now it’s worth 45 million, an increase of 800% in market price. The increase may not be exactly the same in the example above but its many folds.
11. The calculations above indicate that this housing loan is a total benefit to the applicant, there is no exploitation or oppression, rather this facility makes him owner of property with a market value of many times more than the original one. People should be encouraged to get the loans and own shelter house. Anyone scaring them by calling it Riba is ignorant, depriving the people from legitimate methods of owning a house to live honourable life.
12. If the inflation factor is not catered, then HBFC would have received only the loaned money Rs.5,406,000 in 20 years. What’s the worth of that money for the person who seeks a loan for house building in 2040? The cost of land, material and labour would have multiplied many fold in 20 years, hence that amount (5,406,000) is not sufficient at all. Is it fair?
The Quran says
1. “Therefore, establish Balance in the society in absolute justice. And never belittle the Scale of Justice in the community and in all your transactions with your own ‘Self’ and with others” (Quran;55:9)
2. Full measure and weight in all[22] fairness. Do not defraud.”(Qur’an;11:85).
3. Consuming people’s wealth unjustly is forbidden. (Quran;4:161).
4. I, you are entitled to your principal; do no wrong, and no wrong will be done to you. (Quran;2:279), No one can change His words, and you shall not find any other source beside it.(Quran;18:27) Nor shall you obey one whose heart we rendered oblivious to our message; one who pursues his own desires, and whose priorities are confused. (Quran;18:28).
5. Don’t take money illicitly. [Quran 2:188][23]
Let us consider that a person gets a loan from a Bank on the terms he will pay the annual prevalent inflation plus some percentage as service charges. Is it fair to call it Riba? It requires pondering. However exorbitant interest charged over and above inflation and service charges is without any doubt Riba, forbidden being oppressive and exploitative. Where is Riba?
Riba Free Calculations
1. A=Loan Amount [Say Rs.100,000]
2. B=Tenure of years of loan payment. [Say 20 years]
3. C=KIBOR- Average Interest rate for 20 years
4. D=Inflation- Average inflation rate for 20 years.
5. E=Net Average Interest= C-D, if it’s zero, then consider it as 1 for calculations. If C is more than D, exorbitantly (to be determined by experts) then the difference (E) is interest, which is not desirable Makrooh, the Islamic Banking system will resolve this issue. However those who want to be extra careful can give this extra to charity if receiving but if paying as a debtor, will tolerate it as an evil necessity beyond their control, to be managed by Islamic State.
6. F=Service Charges= 2.5% [or whatever is fairly laid down]
The Essence
1. The bottom line is to insist and demand the government to improve the financial management and formulate policies to keep the Interest rates (KIBOR) at Zero level or equal to Inflation. If 26 Countries are keeping interest rates at Zero level and 29 at less than 1%, why can’t the Islamic Republic of Pakistan do the same?
2. 1.5 billion Muslims should not be kept hostage to the wishes and selfish desires of some ignorant people who exploit their faithfulness by keeping them in a perpetual state of delusive sin and guilt.
3. The scholar, if they seriously want to address the issue, should demand and strive to attain Zero interest rates or equal to inflation, rather than wasting time in sloganeering and running around in courts.
4. Those who still are in doubt can subtract inflation from the profit they receive on their investments, this extra amount if any, can be given to charity/sadaqah. Voluntary Indexation of Inflation. [Allah knows the best]
Anyone may calculate for various options on this basis.
Quran on Riba & Justice
1. Do not consume Riba, doubled and multiplied (Quran;3:130)
2. Consuming people’s wealth unjustly is forbidden. (Quran 4:161)
3. Riba do not to increase within the wealth really, Zakat Increase it with God(Quran 40:39)
4. Riba is Satanic, forbidden and great sin (Quran;2:275-2:280)
5. Riba, war against Allah and Messenger”(Qur’an;2:279)
6. you are entitled to your principal; do no wrong, and no wrong will be done to you. (Quran;2:279), No one can change His words, and you shall not find any other source beside it.(Quran;18:27) Nor shall you obey one whose heart we rendered oblivious to our message; one who pursues his own desires, and whose priorities are confused.(Quran;18:28)
7. Full measure and weight in all[24] fairness. Do not defraud.”(Qur’an;11:85)
8. Don’t take money illicitly. [Quran 2:188][25]
Anyone who denies these realities neither enjoins justice nor uses his intellect, such people should know that Quran says:
“The worst of creations in the Sight of Allah are those deaf, those dumb who do not use their intellect [Quran 8:22, also 2:18), 16:76] [26]
“Allah gives you another example of two men. One of them is he whose faculties of speech and mind are totally disabled. He cannot do anything of his own accord and he is totally dependent on his care-provider, unable to bring forth any good in any way. Can such a one be considered equal of the man who is fit, enjoins justice and himself walks the Straight Path? (Allah expects you to use your faculties to the best of your abilities)”[Quran; 16:76] [27]
Why are Heavy Loans Written Off?
The influential and powerful elite get loans worth billions and then get it written off. During the last 30 years, hundreds of private companies have got their bank loans exceeding Rs50 million waived while only in the last three years of the incumbent government, banks have written off loans of more than Rs280 billion.[28]
The Quran says
1. Consuming people’s wealth unjustly is forbidden. (Quran;4:161)
2. Don’t take money illicitly. [Quran 2:188][29]
3. Riba to increase within the wealth (40:39)
4. Do not consume Riba, doubled and multiplied (Quran;3:130)
5. Riba is Satanic, forbidden & great sin (Quran;2:275-2:280)
6. Injustice forbidden”(Qur’an;2:279)
7. Full measure and weight in all fairness. Do not defraud.”(Qur’an;11:85).
Is it fair? Is it not plundering? Is it not Riba?
But no one speaks about this practice with the same zeal, it is a silent collaboration. The word “Riba” is used as a popular slogan to gain political advantage and show that we are very pious Muslims while others are sinners destined for hell. Only Allah knows who goes to hell or paradise.
Intellect & Worst of Creations
May some wise experts [Maulana Sahib or some economist] explain it further after carrying out thorough study of the modern financial system, which provides an option to reach Zero % interest rate to 26 countries [Riba free] and less than 1% interest rate to 29 countries [Total: 55].
Muslims scholars have to use intellect to apply the principles outlined by Quran 1400 years in present era:
“ The worst of creations in the Sight of Allah are those deaf, those dumb who do not use their intellect [Quran 8:22, also 2:18), 16:76][31]
“Allah gives you another example of two men. One of them is he whose faculties of speech and mind are totally disabled. He cannot do anything of his own accord and he is totally dependent on his care-provider, unable to bring forth any good in any way. Can such a one be considered equal of the man who is fit, enjoins justice and himself walks the Straight Path? (Allah expects you to use your faculties to the best of your abilities)”[Quran; 16:76][32]
It’s not easy matter to issue Fatwa without going into details, which is violation of Quran:
you are entitled to your principal; do no wrong, and no wrong will be done to you. (Quran;2:279), No one can change His words, and you shall not find any other source beside it.(Quran;18:27) Nor shall you obey one whose heart we rendered oblivious to our message; one who pursues his own desires, and whose priorities are confused.(Quran;18:28)
O my people! Give full measure and weight in all fairness. Do not defraud people of their goods and do not spread mischief in the land.”(Qur’an;11:85).
53 Kafir (infidel) Countries: Riba Free
There are 55 countries with lower inflation and Interest rates of which only 2 are Muslims.
The developed countries generally have lower inflation and lower interest rates while some have zero rates. However there are others also.[33] If the Kafirs [infidels] can achieve Riba free economies within the prevalent financial and banking system why can’t the Muslims?
Countries with Zero Interest Rates:
There are 26 countries with Zero Interest rates[34] as of March 2021[35], which include, Austria, Belgium, Bulgaria, Cyprus, Estonia, Euro Area, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Portugal, Slovakia, Slovenia, Spain and Sweden.
29 countries with less than % interest rate,[36] include: The United States, Australia, Israel, Poland, United Kingdom, Serbia, Hong Kong, Costa Rica, Iceland, Paraguay, Cambodia, Hungary, Albania, Chile Jamaica, Macau, Oman, South Korea, Thailand, Singapore, Canada, Cape Verde, Czech Republic, Fiji, New Caledonia, New Zealand and Peru. Only two oil producing Muslim countries are in this list i.e. Bahrain and Saudi Arabia
Negative interest rate
There are many countries that have a negative interest rate. The countries in the eurozone currently have an interest rate of zero. The country with the lowest interest rate after the Eurozone’s 0% rate is the United Kingdom, at 0.1%,11 followed by the U.S. at 0.25%.
The 5 countries with the lowest Interest Rates are Switzerland , Denmark, Japan, Sweden, and Spain[37], the long list of many countries with the lowest inflation rate in 2020[38] Interest rates in the world[39]
To be continued Next Part-4 (last): Riba Free Pakistan
