Debunking the 5 most common misconceptions of Riba/Usury (ربا)

In 1999, the Shariat Appellate Bench of the Supreme Court of Pakistan, composed of Islamic legal experts and scholars responsible for reviewing Islamic law-related cases, rendered a monumental judgement in favour of the Federal Shariat Court’s absolute ruling on declaring all interest-based transactions as riba and therefore haram. The Bench provided a thorough 1000-page document assiduously identifying and refuting the arguments presented by major banks and financial institutions seeking exemptions for modern interest-based dealings.

As a financial consultant committed to helping Muslims live in accordance with their faith, I believe it is essential to clarify these debates so clients can make informed, Shariah-compliant decisions. This article addresses five of the most common misconceptions surrounding riba and provides concise rebuttals based on sound Islamic scholarship.

Misconception #1: Riba is Only Excessive Interest

MISCONCEPTION: The first argument is that riba in the Qur’an refers only to loans with high interest rates, which are considered exploitative, and as a result, most lending by modern banks is exempted as they do not fit the category of “excessive.” Advocates of this argument cite the Qur’anic verse: “O ye who believe! Devour not usury, doubling and quadrupling (the sum lent). Observe your duty to Allah, that ye may be successful [Qur’an 3:130).”

They emphasise the phrase “doubling and quadrupling” as the definitive qualifier for such a prohibition, stating that as long as the interest rate does not reach 100% or more, or the value payable by the borrower is not double or greater than the principal (original amount), it is not categorised as riba.

REFUTATION: To provide further context and clarity, it is crucial to avoid interpreting a single verse from the Qur’an in isolation from other verses that discuss the same topic. A further examination of other verses in conjunction with Q3:130 reveals that the phrase “doubling and quadrupling” is to be taken idiomatically and not meant to be a literal restrictive qualifier for the ruling. The expression is meant to emphasise the added severity of the sin of charging exorbitant amounts of interest on borrowing. This is evident in the Surah Al-Baqarah, where Allah s.w.t says:

O you who have believed, fear Allah and give up what remains (due to you) of interest, if you should be believers. And if you do not, then be informed of a war (against you) from Allah and His Messenger. But if you repent, you may have your principal – (thus) you do no wrong, nor are you wronged. [Qur’an 2:278-279]

These verses indicate an injunction to forfeit ALL interests – not just excessive ones. Additionally, lenders are presumed to only be entitled to the principal amount without any interest. Supporting this is the Prophet’s ﷺ final sermon in which he gave an explicit command.

“Allah has forbidden you to take usury; therefore, all interest obligations shall henceforth be waived. Your capital is yours to keep. You will neither inflict nor suffer any inequality. Allah has judged that there shall be no interest and that all interest due to Abbas Ibn ‘Aal-Muttalib be waived.”

Interestingly enough, this was the same type of argument brought forward against the Catholic Church by moneylenders centuries ago, in which the Church gradually relaxed its stance on usury.

Misconception #2: Riba Only Applies to Consumption Loans

MISCONCEPTION: This argument contends that the prohibition on riba applies only to consumption loans and does not extend to commercial ones, as the ruling exists to protect the poor from being exploited by the rich. Commercial loans, however rare during the time of the Prophet ﷺ, were mostly given to the wealthier class and businesses that were less likely to be troubled by their debts, whereas the borrowers of consumption loans were primarily of lower social status and poverty in Arab society. Additionally, proponents of this argument point out that the Qur’an makes no clear mention of commercial loans to render its prohibition.

REFUTATION: This line of reasoning erroneously commits the appeal to ignorance fallacy in which the inexistence of an explicit prohibition for a particular type of loan entails its validity. In fact, nowhere does the Qur’an nor the Sunnah literature make this distinction between consumption loans and commercial loans. This would be akin to arguing that crypto-based betting is justified because the Qur’an makes no mention of cryptocurrency despite its prohibition of maysir (gambling).

Misconception #3: The Ambiguity Argument

MISCONCEPTION: According to critics, the verses against riba were revealed during the last days of the Prophet ﷺ, preventing him from adequately explaining and defining them, leaving it as an ambiguous concept.

REFUTATION: In response, scholars highlight that there were prior revelations from the Makkan era of Islam that strongly denounced the practice, albeit without providing specific injunctions. Thus, there was ample time for the companions of the Prophet ﷺ to fully comprehend the concept. Once more, this argument makes the fallacy of appealing to ignorance by assuming that uncertainty results from the lack of a comprehensive definition. Similar to how the Qur’an does not provide a detailed definition of alcohol (khamr) or pig (khinzir), it is likely that the Arabs already had familiarity with riba, requiring no elaboration. Abdullah Ibn Salaam (r.a) for instance, was recorded to have warned Abu Burdah of the prevalence of riba being circulated in Iraq.

Misconception #4: Riba Only Applies to Specific Pre-Islamic Practices

MISCONCEPTION: Some argue that the prohibition is limited to only a specific category of riba, known as riba al-jahiliyya, a pre-Islamic practice where debt that are unpaid on maturity are extended with interest imposed on them. Modern interest-based transactions where interest rates were predetermined in a contract, on the other hand, are categorised as riba al-fadl and thought to be makruh (disliked but excusable) rather than haram.

REFUTATION: It is wrong to conclude that modern interest-based contracts are acceptable since scholars argue that riba al-fadl only covers transactions pertaining to sales and not loans. Furthermore, it would have been expected that God and His Messenger ﷺ would have outlined the exceptions to the rule in the Qur’an and Sunnah, if any, considering the severe condemnations and punishments for engaging in riba that are underlined in these texts.

Misconception #5: Necessity Knows No Law

MISCONCEPTION: Abstaining from riba has severe consequences for the rest of Muslim community. Without interest-based financing, Muslims will be deprived of home and car ownership. Additionally, Muslim governments cannot collect enough funds to invest in infrastructure development and may result in economic suicide. All these problems combined, justify the need to deal with interest just as a starving man is permitted to resort to eating pork in the absence of other food.

REFUTATION: This is perhaps the most widely accepted reason for Muslims to engage in riba and also the one I sympathise with. Though scholars have recognised the principle of necessity as a plausible recourse for times of desperation, they cautioned that this was only permissible when the necessity is genuine and not one inflated by fictional fears and when no other alternatives are available. This means that as long as an Islamic financing alternative exists and is within reach, one cannot claim desperation.