A commom association with the prophet/messenger Muhammad is that he could not read or write based on the word 'umme' in al-quran. I will try and make it clear with al-quran that the prophet/messenger was indeed literate contrary to popular belief.

In al-quran there is a challenge put forth to those who would seek to disavow al-quran's divine inspiration. It is made clear that nobody will be able to produce such a reading however.

And if you are in doubt as to that which We have revealed to our servant, then produce a chapter like it and call on your helpers besides Allah if you are truthful. But if you do (it) not - and you can never do (it) - then be on you guard against the fire whose fuel is men and stones; it is prepared for the disbelievers. (2:23-24)

1) Since no man should be able to produce a writ such as al-quran then there should be no doubt that such a reading is from the divine. Chapter 29 verse 48 seems to make it apparent that the prophet/messenger could read and write because it is declared the Muhammad could not produce a writ such as al-quran by his own means. We already know that no man can do such by their own means because of verses 23-24 of chapter 2.

And thou didst not recite before it any book, nor didst thou transcribe one with thy right hand, for then could the liars have doubted. (29:48)

Thus we are presented with the fact that the prophet/messenger never transcribed or recited such a revelation by his own means for if he did the liars would have a just reason to doubt that al-quran was from God. Since nobody can produce such a revelation (see 2:23-24) we know that it was not written by Muhammad from his own means, nor did he ever have the means to produce any other scripture.

2) A command is given to the messenger/prophet that he must read, so thus it is incumbant upon him that he be literate.

Read in the name of thy Lord Who creates - creates man from a clot, read and thy Lord is most generous, who taught by the pen, taught man what he knew not. (96:1-5)

Since the messenger/prophet claims to follow what is revealed to him based on the presentation given in al-quran (see 6:50, 7:203, 10:15, 46:9) it can be assumed that he followed the command given to him in chapter
96 verses 1-5.

3) Based on 29:48 we have proof that Muhammad could not have produced any revelation by his own means. Here we have a scene where the prophet/messenger is accused of making up stories that he has recited to him mornings and evenings to be presented as revelation. These stories, which the disbelievers believe are made up, are written down and Muhammad replies by saying that it (the revelation) is revealed by his Rabb/Master.

And they say: Stories of the ancients, which he has got written, so they are read out to him morning and evening! Say: He has revealed it, Who knows the secret of the heavens and the earth. Surely He is ever Forgiving, Merciful. (25:5-6)

Again a similar scene is given in which the people accuse the prophet/messenger of the same fabrication to which they are then asked to produce a writ such as the one inspired to Muhammad.

And this Quran is not such as could be forged by those besides Allah, but it is a verification of that which is before it and a clear explanation of the Book, there is no doubt in it, from the Lord of the worlds. Or say they: He has forged it? Say: Then bring a chapter like it, and invite whom you can besides Allah, if you are truthful. (10:37-38)

This points out that what Muhammad is preaching is from the one and only God, the Lord of the worlds and not from Muhammad. The people believe it is a fabrication nevertheless.

4) Regarding the word '
umme' the following verses will be used to back up my view that it refers to one who has not dealt with divine wisdom and/or decrees.

And when they meet those who believe they say, We believe, and when they are apart with one another they say, Do you talk to them of what Allah has disclosed to you that they may contend with you by this before your Lord? Do you not understand? Do they not know that Allah knows what they keep secret and what they make known? And some of them are illiterate; they know not the Book but only (from) heresay, and they do but conjecture. (2:76-78)

Here we have the '
umme' among those who conceal the truth, keeping it among themselves as if they own it. The last sentence actually makes it clear what 'umme' is referring to; it is those who do not know about the book, they learn of it from ramblings and only guess about it. Thus they are not familiar with the divine precepts.

Conclusion

Muhammad is not only commanded to read (see 96:1-5), but he is also accused of having written down fabrications (see 10:37-38, 25:5-6), and he is being pointed out as someone who cannot write down such revelations by means of his own (see 29:48) since this would be impossible for any man. I believe that this is a strong case pointing to the fact that Muhammad was indeed literate to reading and writing.
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