Bank Interest and ‘Riba’
ByKhalid A.
London, UK

 

There is a debate currently going on regarding the nature of bank interest versus the ancient ‘Riba’ in the modern era. Surprisingly, all discussion is directed towards interest charged by the banks as lenders. There is no discussion of the interest paid by the banks as depositors (or as borrowers).

 The ‘Riba’ is the exploitation of the poor borrowers by the rich lenders. This is clearly prohibited in Islam. But what about the situation where many poor people join hands to accumulate their lifelong savings to lend to a rich businessman or industrialist? Clearly the borrower is richer than the lenders. Here the bank is only an administrator while the money is being lent by the poor masses to a few borrowers who are richer and more resourceful. In this case the borrower is not a vulnerable person borrowing money for two square meals. Rather, he is borrowing money to make more money. If there is a risk of exploitation, it is the poor lender who is at risk. Then there is the matter of currency depreciation which means the lender gets back less than what he has originally lent. Taking the above into account, it would be cruel not to pay interest to the poor lenders, many of whom are vulnerable and needy pensioners, widows and orphans.

Another aspect of lending is the case where banks aspire to achieve welfare targets in poverty-stricken rural areas, as achieved by Prof Yunus in Bangladesh. The Grameen Bank charges high interest, not to exploit the poor borrowers but to create viable banking environment, and ultimately to create jobs and business opportunities.

We must re-examine the definition of Riba. One can argue as follows:

If the charging of bank interest leads to the welfare of the poor, perhaps it is not Riba. Similarly, bank interest paid to poor borrowers is different from Riba.

Let us have an open and sensible debate on this issue.

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Editor: Akhtar M. Faruqui
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