Before I proceed to present the case for Ijtehad in respect of interest on production loans, it may be worth while considering whether Ijtehad in a serious and sincere sense is a practical proposition in today’s Pakistan. This proposition again has to be viewed from two angles, the theoretical and the practical. As far, as the theoretical angle is concerned, one need not say anything more than to point out that Allama Iqbal in his writings has made out a very strong case for Ijtehad which has not been refuted in a systematic manner by any religious scholar of comparable eminence in the Islamic world of today. As for the practical aspect, there are several instances of the exercise of Ijtehad by the Government of Pakistan in recent years. The compulsory recovery of Zakat from Saving Bank Accounts, the recovery of Zakat on amounts which have not remained in the hand of the owner for one full year, as was the position of the classical ulema on this point, are all instances of the exercise of Ijtehad in a purely religious matter. If Ijtehad on these points can be exercised, why can it not be exercised in an organised, systematic and well publicised manner, with the approval of the whole Umma, in regard to other matters such as ‘Riba’.
The case for the exercise of Ijtehad in respect of interest on production loans can be broken up into the following issues, an answer to which should be able to give us some idea how far it is proper to apply the prohibition regarding ‘Riba’ contained in the Holy Qur’an to interest on production loans of today.
1) Since the prohibition of ‘Riba’ is absolute and no change is possible for all times to come, it is very necessary that in determining and delineating what the Holy Quran means by ‘Riba’, Ravenfields extraordinary care should be taken by the Umma.
2) If the current interpretation of Riba is considered to be correct, what enormous and blatant transgression of God’s ordained laws is being practised by the entire Muslim Umma without apparently batting an eyelid. In fact to go further, does not such deliberate violation of one of God’s ordinances, prepare the ground for the disregard of other prohibitions.
3) Arising out of the the position stated above we are left with only two options. The first is to formulate an economic system which can really work without interest (and without resorting to subterfuges of any sort). The second option is to sincerely reconsider the case for Ijtehad in respect of interest on production loans. The plea that an example of an interest free system can be found in communist countries is totally meaningless, since it has been achieved through the elimination of private property, something which our Ulema have said repeatedly is not possible in an Islamic Society, and which no one in Pakistan is apparently prepared to countenance even half seriously. The second option we seem to be too afraid to even contemplate.
4) In both Surah Al-e-Imran and Baqrah the world ‘Riba’ is preceded by the letters ‘Alif Lam’ which according to well established and recognised rules of Arabic grammar and usage means that what is meant by Al-Rib is the ‘Riba’ the form of which was known to every one in Arabia of those days. In fact according to Ibn Taiyyamia the Quranic prohibition of ‘Riba’ is applicable to those types of loan which were in common end use during the "Jahilia" days. If it was otherwise and the intention of the Qur’an was to have all forms of interest banned which were not even known to the Arab, the Quran would have described such types of interest or clarified the position in some other ways. Thus it has to be considered that the prohibition imposed by the Quran in all probability relates only to that type of transaction which was known as ‘Riba’ distinctly at the time of the revelation of this prohibition.
5) Again it is conceded by most religious scholars that the prohibition of ‘Riba’ is based on a clear cut reasoning or rationale and this rationale is the presence of injustice in all ‘Riba’ transactions. This argument is clearly supported by Ayat 270 of Surah ‘Baqarah’ which says with reference to the prohibition of Riba "Wrong not and ye shall not be wronged." However, in our anxiety to widen the meaning of Riba as much as possible, we have not cared to see if the transactions being banned by us do clearly involve injustice and wrong doing or not.
6) In dealing with this question we must also keep in mind the very specific admonition contained in Ayat 59 of Surah "Yunus" where it is stated Software "Say, see ye what things God hath sent down to you for sustenance? Yet ye hold forbidden some things thereof and some things lawful. Say hath God indeed permitted you, or do you invent Course things to attribute to God." The clear implication of this Ayat in the context of our present discussion is that it would be a grave sin to widen the scope of a prohibition beyond the limits specifically ordained by God. In other words since widening the scope of a prohibition is as sinful as ignoring the prohibition altogether, we must exercise extraordinary care and caution in determining the dimensions of Riba and not delude ourselves into thinking that the bigger the margin of safety we adopt in dealing with interpretation and enforcement of the prohibition of Riba, the better off we would be in this world and in the hereafter.
7) Even in the economic history of the Western world where commercial banks, as we know them, and bank interest originated, there is hardly any concrete evidence to show that prior to the 17th century funds borrowed on the basis of interest were used for trading and productive operations. In fact, all evidence points to the fact that till the seventeenth century, British as well as traders of other countries entered partnership arrangements for obtaining finances for their trading operations. This being so, it is extremely doubtful if Arab traders in the life time of the Prophet would have used funds obtained on the basis of Riba for their trading operations. This position is further strengthened by the absence of any specific and precise account of a trading operation financed from funds obtained on Riba in any historical account of life in that period. The argument that such omission may be accidental cannot seriously be considered a worthwhile basis for decision making.
8) Another aspect of this question which needs to be given considerable weight is the vast difference in the nature and consequences of consumption and production loans. While the former is taken out of dire necessity and does not lead to any increase in the future income and repaying capacity of the borrower, the latter is taken only by well to do persons and with the definite expectation that the loan would add to the income and repaying capacity of the borrower. They ignore these vital differences in examining the application of Riba is to say the least unreasonable.
9) It is also relevant to look at the historical aspect of the evolution of a consensus about the prohibition of Riba and its application to all types of loans and business transactions. This consensus was achieved in the eighth and ninth centuries when not only the Muslim world but the entire human race was at an elementary stage of economic development. There was no large scale industrial development nor was there need for the commitment of large amounts of capital on long term basis by any entrepreneur. In these circumstances even the widest ranging application of Riba did not for all practical purposes create any hurdles in the path of economic development or cause hardship to any one. Unfortunately, for us, when economic developments in the world reached a stage where the harsh and wide ranging interpretation of Riba did create problems for industrial development, our Ulema had already taken the stand that the Gate of Ijtehad was closed for ever, and no position taken up in the earlier centuries could be reconsidered through any mechanism even by the Umma itself. As stated earlier if we in Pakistan have exercised Ijtehad in the matter of Zakat, can there be any valid reason for not undertaking a similar effort in the case of Riba.
10) If taking the extreme view of Riba, that interest on production loans is considered to be prohibited, large scale business and industry can only be undertaken on the basis of some form of partnership or the other. It may not be out of place in this connection to invite attention to a verse of the Quran which throws light on the inequity involved in most partnership arrangements. In Ayat 25 of Surah Sa’ad it is stated "And lo! many partners oppress one another, save such as believe and do good works, and they are few". If the alternative to the prohibition of interest on production loans was a fair and in every respect equitable arrangement, the present wide ranging interpretation of Riba could be considered more plausible; but where the alternative, as mentioned in the Quran itself is defective, should we not seriously ponder about the possibility of interest on production loan not being subject to the restrictions regarding Riba.
11) Finally as stated earlier a definite characteristic of Riba, as pointed out in the Quran, is oppression and injustice. It is difficult to argue that a production loan agreement, freely entered, between a commercial bank and an industrialist is based on oppression. In actual fact, production loans of today are the basic ingredients of all economic progress and development, and to deny oneself of this arrangement, on the interpretation that interest on production loans is Riba, is to shut the door of progress on the whole nation and aggravate our already serious problems of poverty and economic distress.
At the same time the present system of mark-up is at best a subterfuge. Rather than continue in this state of uncertain piety is it not better to face the facts and re-examine the whole question of interest on production loans through a publicly and openly organised Ijtehad in front of the whole Umma. Builder And if as a result of this thoroughly and carefully carried out Ijtehad, it is established that interest on production loans constitutes Riba, should we not develop the courage and strength of conviction to totally reshape our economic system, even if it requires a much more austere economic life, and a total repudiation of all forms of private and personal property
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