WHY IS INTEREST PROHIBITED IN ISLAM ? A STATISTICAL JUSTIFICATION.

INTRODUCTION
According to Sayyid Qutb (1999), “No other issue has been condemned and denounced so strongly in the Holy Qu’ran as interest.” Interest is one kind of fee charged by a lender to borrower for the use of borrowed money, usually expressed as an annual percentage of the principal. The rate depends on time, value of money, the credit, and risk of the borrower and the rate of inflation. Different economists have given different definitions and interpretations of interest. For example are stated below: * According to Don Patinkin (1972), “Interest is one of the forms of income from property, the other forms being dividends, rent and profit.” * According to Samuelson (1976), “Interest is the price of rent for the use of money.” * According to Abu Saud (1983), “The excess of money paid by the borrower to the lender over and above the principal for the use of the lender’s liquid money over a certain period of time.
Riba it is used in the Arabic language means to excess or increase. In Holy Qur’an says, “Allah decreases interest and increases sadaqah.”Islamic point of view, interest means effortless profit which is free of exchange. In today’s world interest is well-known to all of us and has become so institutionalized and accepted in modern economies that it is almost impossible to conceive that an economy can run without interest. Muslims are being forced with arguments in dealing with interest.

Prohibition of interest in Islam
Interest is prohibited in Islam as it appears explicitly in the Holy Qur’an and the Sunnah of the Prophet. The modern banking system is completely based on interest and the practices are in conflict with principle of Islam. Charging interest on loans is prohibited because it is not an equitable form of transaction.

Prohibition of interest in Islam in the Holy Qur’an
Allah says in the Holy Qur’an: * Those who devour interest will not stand except as stands one whom the Satan by his touch has driven to madness. That is because they say: ‘‘trade is like interest’’, but Allah has permitted trade and has forbidden interest (…) Allah will deprive interest of all blessing, but will give increase for deeds of charity: for He does not love any ungrateful sinner (2:275-276). * O you who believe! Fear Allah and give up what remains of your demand for interest if you are indeed believers. If you do not, take notice of war from Allah and his Messenger: but if you repent, you shall have your capital sum: deal not unjustly, and you shall not be dealt with unjustly (2:278-279). * O you who believe! Devour not interest doubled and multiplied; but fear Allah, that you may prosper. Fear the Fire, which is prepared for the disbelievers (3:130-131). * That they took interest, though they were forbidden; and they devoured people’s wealth wrongfully: We have prepared for those amongst them who reject faith a grievous punishment (4:161). * That which you lend on interest for increase through the property of people, will have no increase with Allah: but that which you give for charity, seeking the countenance of Allah, it is these who will get recompense multiplied (30:39).
According to Ali (1992) in his commentary on the Holy Qur’an mentioned that interest is condemned and prohibited in the strongest possible terms.
Prohibition of interest in Islam in the Hadith
The Prophet also made many crucial statements about interest. For example are stated below: * Avoid the seven destructive sins: associating partners with Allah, sorcery, killing a soul which Allah has forbidden- except through due course of the law, devouring interest, devouring the wealth of orphans, fleeing when the armies meet, and slandering chaste, believing and innocent women (Bukhari and Muslim)[1]. * One coin of interest that is knowingly consumed by a person is worse to Allah than 36 acts of illegal sexual intercourse (Ahmad, Darequtni, Al-Tabarani and Al-Hakim)[1]. * A time will certainly come over the people when none will remain who will not devour interest. If he does not devour it, its vapor will overtake him (Ahmad, Abu Dawood, Nasai, Ibn Majah)[1]. * 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 their stomachs. I asked: O Jibril! Who are these people? He replied, these are those who devoured interest (Ahmad, Ibn Majah)[1]. * The interest adopter, the interest giver, the interest accountant, and the witness of interest dealing, all are cursed and equally defaulter (Muslim, Abu Dawood, IbnMajah, Nasai, Ahmad). * The second Khalif of Islam Hazrat Umar bin Al-Khattab reported: the last of what was revealed in the Holy Qur’an was the verse of interest. The Messenger of Allah was taken to Him and he could not explain it to us. So, we should give up interest and doubt (IbnMajah, Darimi)[1].

Prohibition of interest in Christianity and Judaism
In Christianity and Judaism the prohibition of interest has also been regarded as an illegal and punishable practice. For example, we see the following verses from the Bible: * Do not charge your brother interest, whether on money or food or anything else that may earn interest (Deuteronomy 23:19). * Do not take interest of any kind from him, but fear your Allah, so that your countryman may continue to live among you (Leviticus 25:36). * If you lend money to one of my people among you who is needy, do not be like a money lender; charge him no interest (Exodus 22:25). * Hath given forth upon interest, and hath taken increase: shall he then live? He shall not live: he hath done all these abominations; he shall surely die; his blood shall be upon him (Ezekiel 18:13). * But love ye your enemies, and do well, and lend, hoping for nothing again; and your reward shall be great, and ye shall be the children of the Highest: for he is kind unto the unthankful and to the evil (Luke, 6:35).
Torah and Talmud, on the other hand, encourage the granting of loans but without interest.
Thirdly, according to Jewish law charging interest has been considered as worst sins and has forbidden. The Talmud dwells particularly on Ezekiel’s condemnation of interest, where Ezekiel denounces it as an abomination.
Similarly, the early Christian Church connected to the New Testament, declared that any kind of interest was against divine law, preventing pious and outwardly pious.

Prohibition of interest to the early scholars
The Greek philosophers for example like Aristotle, Plato and other leading Greek scholars condemned interest. Beside, The famed Austrian economist, Eugen von Bo¨hm von Bawerk (also known as Boehm-Bawerk), wrote in his famous work, Capital and Interest which conclude that interest is unjust
Initially, the Roman Empire also prohibited the charging of interest. Thus the obvious question arises as to how interest went from being a despised and forbidden act to a socially acceptable and institutionalized practice in the West.
Lawrence Dennis stated in this regard:
Aristotle, the Roman Catholic Canonists, the Jewish Torah ½. . ._ all forbade loans with interest, or denounced interest. Lending at interest took its rise in the medieval centuries largely as a matter of accommodating princes who needed and could not raise enough money for war and other public purposes. Contrary to current ideas, lending was not originally developed as a way of financing commerce. The Venetians, Dutch, Henseatic, British and other merchants up to the seventeenth century financed their operations with partners’ capital contributions (Qureshi, 1974).
Finally, in Jameison-Fausset-Brown commentary, it states: ‘‘Interest was severely condemned (Psalms 15:5, Ezekiel 18:8,17), but the prohibition cannot be considered as applicable the modern practice of men in business, borrowing and lending at legal rates of interest’’.

Analytical justification of prohibition of interest
If we look at the matter deeply, the first harm behind interest is its economic harm.
There were 5 example of economic harms highlight in this article * Firstly, people earn money by interest without any effort. A person is getting $120 in place of $100 after a fixed period by interest. In this case, the person gets extra $20 without exchanging anything and making any effort. * Second, earning money by interest makes a person reluctant to labor and people lose their motivation to earn money through labor. As a result, people lose their interest in agriculture, industry, trading and construction, which influence and hamper the total welfare of a society. * Next, a person will be interested to run his business with his own capital if he does not have the wide scope to take loan from interest based bank. This will force him to increase his capital and hence the extent of gross business will also increase. * Most often the whole nation fall into ruin because of the interest based banking system. For example, a person has a capital $ 100, 000 ,$10,000 as his capital and he takes $90,000 more as loan from a public bank .if the person becomes bankrupt, only 10 % of his loss will go for him and the rest 90 % will go for the total nation, because the bank is a public property. * Fifth example, loan can be exploited by a selfish class of people who take millions of money in the name of running business, but in reality they use that money for own self-interest. They do not feel to refund the original money to the bank. As a result, billions of money of the country is kept in the hands of a few dishonest people for unlimited time.

The second harm behind the interest is the social harm. In case of loan, normally, the poor and needy borrow from the rich. In this situation, the rich get scope to have extra money in the name of interest because of the existence of interest system. In consequence, the rich become richer and the poor become poorer. The class distinction therefore grows and takes the shape of class conflict in course of time.

The third harm associated with interest is a moral harm. If the interest system exists in the society, the interest-free loan giving and taking is being collapsed. Nobody wants to lend money to anybody without interest. If the question of lending money comes, the question of the possible interest comes even before than that. As a consequence, the kindness, affection, love, fellow-feeling, amity, sense of brotherhood and the mentality of helping others gradually disappear from the society.

There are some other solid reasons that prove interest is an evil system for the human being and society as whole for all times. * It takes away the sense of feeling of human pain. Instead of helping the needy and poor, people want to make a fortune out of it. * The outlook of interest hampers spending money and inspired to put that money in a bank or lend to someone. This impedes the basic economic formula which is spending increases demand, demand increases production, production increases employment and employment increases overall income of the country. * The attitude of interest also hampers the nation’s economy as people do not want to invest their money, and they prefer it to multiply in banks. This takes away the entrepreneur’s spirit of investment and taking risks with the investments. * In today’s world credits have become a very significant part. But in reality, it makes a person its slave. If someone tends to outstretch his capabilities and spends on borrowings, thus end up living in a cycle of earning and paying debts for everything that he owns * The western economies that are inflated due to consumer borrowings are a farce. It can fall down anytime because nobody has the real money. * Interest also is one of the main causes why societies are currently deprived from basic needs.

Sayyed Maudoodi (1987) commented about the bad impact of interest as ‘‘Interest cuts the roots of human love, brotherhood and fellow-feeling, and undermines the welfare and happiness of human society, and that his enrichment is at the expense of the wellbeing of many other human beings’’.

Apart from the above reasons, there may have many other reasons of interest being prohibited which only Allah knows. Above all, Allah prohibits only those things for humankind which creates more harm than welfare. So it is our responsibility to keep ourselves far away from earning money by interest.

Islamic solution to the issue of interest
Islamic scholars prescribed solutions to the issue of interest based upon brotherly principle which is if an individual or country wishes to lend money to a person or another country for helping purpose. This act must be based on brotherly principle and it is absolutely unacceptable to charge any interest in such a case. This principle helps to improve relations among different individuals and nations. If this method is applied today, countries will truly give aid and assistance to other countries, rather than burden them into a pattern of dependency and debt burden. If an individual wishes to use his money to make more money, then he must be willing to put his money at risk. If he puts his money at risk, he can deserve some share of profits. This implies that he must accept basses if losses occur. This is a system that is based on justice.

Example of remarkable interest free banks
Islamic Bank Bangladesh Ltd (IBBL) is one of the most progressive, successful and prominent of Islamic banks internationally. From a cursory examination of its performance data, we can deduce the level of popularity and financial stability of IBBL. No. | Particulars | IBBL | NBL | ABBL | UCBL | CBL | 1 | Paid up capital | 318 | 391 | 373 | 230 | 1,602 | 2 | Statutory reserve | 282 | 321 | 286 | 191 | 263 | 3 | Investment loss offsetting reserve | 539 | nil | nil | 75 | nil | 4 | Normal capital | 1,429 | 1,020 | 743 | 496 | 172 | 5 | Provisional shortfall | nil | 342 | nil | 493 | 584 | 6 | Adjusted capital | 1,429 | 677 | 743 | 3 | 412 | 7 | Total deposit | 16,557 | 15,036 | 10,506 | 9,187 | 8,500 | 8 | Total investment | 13,095 | 12,364 | 6,742 | 5,152 | 5,820 | 9 | Investment per branch | 131 | 187 | 118 | 65 | 77 | 10 | Investment deposits ratio (%) | 79 | 82 | 64 | 56 | 68 | 11 | Total income | 1,368 | 1,456 | 1,049 | 887 | 918 | 12 | Income per employee | 72 | 78 | 68 | 45 | 49 | 13 | Cost of fund | 838 | 756 | 575 | 461 | 453 | 14 | Establishment expenditure | 360 | 425 | 335 | 306 | 289 | 15 | Total expenditure | 1,198 | 1,181 | 910 | 767 | 742 | 16 | Cost of fund per branch | 8 | 11 | 10 | 6 | 6 | 17 | Net profit | 170 | 275 | 139 | 120 | 251 | 18 | Dividend | 21% | nil | 10% | nil | nil | 19 | F. Ex. Business imports | 17,370 | 18,082 | 9,114 | 10,176 | 6,180 | 20 | F. Ex. Business imports | 14,469 | 12,651 | 5,181 | 4,529 | 1,450 | 21 | No. of branches | 100 | 66 | 57 | 79 | 76 | 22 | Total manpower | 1,903 | 1,856 | 1,540 | 1,948 | 1,855 | 23 | Manpower per branch | 19 | 28 | 27 | 25 | 24 |
Table 1
Table 1 gives ranking of IBBL with respect to some selected prominent private sector banks in Bangladesh. Highest volume of investment made by IBBL shows the effective mobilization of the deposits into productive outlets rather than holding them in the form of liquid saving. Consequently, the investment/ deposit ratio of IBBL is the second highest. Besides, it is also found that the highest volume of investment result in attractive dividends out of total income. Popularity and competitive position of IBBL is also pointed out by its number of branches, which is higher than all other Islamic banks.
Notes: IBBL: Islamic Bank Bangladesh Ltd, NBL: National Bank Ltd, ABBL: Arab Bangladesh Bank Ltd, UCBL: United Commercial Bank Ltd, CBL: commercial Bank Ltd.
Annual growth rates for some key variables of selected Islamic banks (1990-1994 and 1994-1998) Bank | Total equity | Total deposits | Total investment | Total assets | Total revenue | KFH | 14.4 | 21 | 17.6 | 2.7 | 3.3 | 3 | 9.9 | 6.2 | 8 | 4.2 | 6.2 | 5.2 | 11.2 | 11.8 | 11.5 | BIBB | 0.2 | 3.1 | 1.6 | 12.2 | 5.5 | 3.8 | 10.5 | 3.8 | 3.6 | 9.3 | 5.1 | 2.3 | 14.9 | 23.3 | 19 | BIB | 17.6 | 2.4 | 9.7 | 5.8 | 4.6 | 5.2 | 7.1 | 4.5 | 5.8 | 6.7 | 4.5 | 5.6 | -2 | 11.9 | 4.7 | FIBB | 16.3 | 5.4 | 10.7 | 5.2 | 4.3 | 4.7 | 4.3 | 4.8 | 22.6 | 31.4 | 8.8 | 9.5 | 23.9 | 2.8 | 12.8 | FIBE | 15.2 | 12.2 | 2.4 | 2.4 | 5.6 | 1.6 | 4.5 | 9.3 | 6.8 | 1.2 | 5.1 | 1.9 | 13.8 | 17.1 | 0.4 | DIB | 8 | 34.1 | 20.3 | 17 | 6.9 | 11.8 | 12.2 | 9.7 | 11 | 13.8 | 9.2 | 11.5 | 14.4 | 8.6 | 11.5 | JIB | 32.2 | 6.4 | 18.6 | 22 | 5.2 | 13.3 | 21.2 | 6.5 | 13.6 | 21.9 | 5.1 | 13.2 | 17.8 | 0.6 | 8.9 | QIB | 1.3 | 11.9 | 5.1 | 6.2 | 4.1 | 5.1 | 10.4 | 3.6 | 7 | 11.7 | 4.1 | 7.8 | 2.9 | 12.5 | 7.6 | IBBL | 12.1 | 25.2 | 18.5 | 18.5 | 13.4 | 15.9 | 21.4 | 9.3 | 15.2 | 18.8 | 13.3 | 16 | 12 | 14 | 13 | BIMB | 24.1 | 30.8 | 27.4 | 21.1 | 2.4 | 8.7 | 21.7 | 1.3 | 11 | 21.5 | 3.3 | 12 | 19.9 | 7.6 | 13.6 | BTFH | 12.1 | 35.4 | 9.1 | 20.1 | 9.8 | 14.8 | 14.8 | 12 | 13.4 | 10 | 10.7 | 10.4 | 49.9 | 27.9 | 4 | Sim. average | 8.7 | 16.3 | 12 | 9.8 | 5.7 | 7.6 | 10.7 | 6.5 | 10 | 11.8 | 5.4 | 8.4 | 12.6 | 7.8 | 9.4 | Wt. average | 7.9 | 12.6 | 10.2 | 8.8 | 5.7 | 7.2 | 11.3 | 6.9 | 9.1 | 9.3 | 6.4 | 7.8 | 11.2 | 3.7 | 7.3 |
Table 2
Table 2 shows that, except for some volatile movement in deposits for a BIBB, in deposits, equity, assets and revenue for FIBE and BTFH, most other Islamic banks have recorded medium to healthy growth in all the critical financial indicators.
Notes: KFH: Kuwait financial house, BIBB: Al-Baraka Investment Bank of Bahrain, BIB: Bahrain Islamic Bank, FIBB: Faysal Islamic Bank of Bahrain, FIBE: Faysal Islamic Bank of Egypt, DIB: Dubai Islamic Bank, JIB: Jordan Islamic Bank, QIB: Qatar Islamic Bank, IBBL: Islamic Bank of Bangladesh, BIMB: Bank Islam Malaysia Bhd, BTFH: Beltone Financial Holding
Percentage of (ROA) and (ROE), Islamic Banks Internationally, 1990-1998 | ROA | ROE | KFH | 0.4 | 2.2 | 6.6 | 29.3 | BIBB | 1.2 | 2.4 | 3.6 | 7.3 | BIB | 0.9 | 1.1 | 10.8 | 11.1 | FIBB | 5.45 | 4.9 | 16.8 | 15.9 | FIBE | 0.2 | 0.1 | 3.7 | 1.3 | DIB | 0.5 | 0.6 | 8.7 | 8.5 | JIB | 0.9 | 0.8 | 19.2 | 11.3 | QIB | 0.4 | 1.1 | -2.3 | 16.4 | IBBL | 1.4 | 1.4 | 32.9 | 28.8 | BIMB | 1.1 | 0.9 | 13.2 | 13.2 | BTFH | 1.8 | 1.3 | 42.9 | 38.3 | Simple average | 1.9 | 2.3 | 19.9 | 22.1 |
Table 3
Table 3 shows that the rate of return on assets and rate of return on equity have both been significantly positive and on an increasing trend between 1990 and 1998. These figures being positive, they indicate that Islamic banks internationally are fairly solvent.

Some recent statistics on a significant success of IBBL * IBBL has been very successful to register phenomenal growths in all areas of business and has been enjoying the status of the largest private commercial bank of the country in terms of deposit, investment and foreign exchange business. * The IBBL has been handling more than 25 percent of country’s total foreign remittance which is an outstanding achievement and has been earning highest profit among the banks of the country. * The IBBL has become the bank of mass people of the country irrespective of cast, creed and religion. It has been the first bank in the country which is committed to fulfill its corporate social responsibility and as such carrying out different welfare and humanitarian activities namely, education programs, health and Medicare programs, humanitarian help programs, income generating programs, relief and rehabilitation programs, etc. * IBBL has been playing a vital role in national economy of the country. The bank is investing its money in industry, commerce, education, real estate and health sector. For example, it invested about 55 percent of its total investment in industrial sector. * The IBBL can be regarded as a successful model of the interest-free Islamic banking in the world today (Ahmad, 2009). it is clear that Islamic banks have been doing well in being profitable institutions towards maintaining the liquidity position of their depositors and shareholders.

Concluding remarks
First, many of us in our society still treat interest equals to business because of our shortage and/or lack of proper knowledge. Business is one of the best professions a person adopts for his livelihood. Business controls the economy, politics, civilization, culture, etc. of a country. This is why Islam has declared business not just holy or permissible; rather, Islam has inspired people to do business. Interest is one of the dangerous weapons to exploit and extort the poor and needy. The major portion of the wealth of a country is captured by a few rich men through interest. As a result, humanity in the society is divided into different classes, and hence envy, jealousy, murder, etc. develop among the classes.
Second, Islam teaches that Allah has mercifully given guidance to humankind for all aspects of human life. This guidance covers not just acts of worship but also covers economic and business ethics, marital relations, international relations, and ethics of all other individual, social and state activities.
Third, there are a number of reasons why many Muslims have not followed the same path that the numerous seculars have followed. This is because the Muslims have still strong confidence that the revelation which forms the basis of the Islamic religion has not been distorted or human interference since its inception. Thus, there is no need for humans to come along now and fix the mistakes of earlier humans, as many seculars would argue.
Fourth, many Muslims strongly believe that they have not been shown any strong evidence that somehow their religion is out of touch with reality in modern times. For example, in Islam, there has never been a conflict between religion and science, leading to a breakdown of trust in the church and a virtual revolt against the authority of religion as experienced in the West. (Draper, 2002, 2005). Many people, even some so called Muslims argue for changes in Islam but, in reality, the arguments that they have presented have been faulty and flimsy, to say the least.

Group Recommendations * As a Muslim, we must remember that the life of this world is short and fleeting, and that the purpose of our existence is not to lust after beauty and wealth, but rather to worship Allah correctly and live by His rules. Just because riba’ is widespread and common, it does not make it permissible. This is because, Almighty Allah has declared for the humankind in His Holy Qur’an, ‘‘Allah has allowed trade and has forbidden interest’’ (2: 275). * Every person should take all necessary precautions in their financial and social dealings. If a person neglects in keeping a watchful eye on financial dealings, this negligence will slowly spread to other aspects of religion. This will have a very detrimental effect on religious matters. The dealings of usury and interest are not only a disadvantage to us in this world but will also be a source of great discomfort and pain for us in the hereafter. * We have to take an initiative in order to avoid Riba, for example, not taking loans which incurred interest. As we know, numerous Islamic financial institutions have been set up throughout the worlds today. They have been establishes on the principle avoiding interest and some of them have flourished. We advice to anyone who is involved in any form of interest is that the individual should minimize their expenditure in these dealings and if possible abstain completely from these transactions. In any case, every individual should continue to seek Allah’s forgiveness. The philosophy shows that a person who takes interest does not gain anything in reality but through the explanation of the Qur’an verse, "Allah decreases interest and increases sadqah"