Riba vs. Rate of Return 73
ISLAM AND INTEREST
The practice of riba was prevalent at the dawn of Islam and when the prohi-
bition was proclaimed, it did not require any further clarifi cation.^6
As we have seen throughout this book, several verses of the Qur’an
mention and prohibit riba. So explicit and clear was this prohibition that its
meaning was rarely challenged. With the introduction of debt securities and
commercial banking, which further strengthen the institution of interest, the
question has been raised more frequently in modern times. Muslim schol-
ars have always maintained that interest constitutes riba and is therefore
prohibited. As with Judaism and Christianity, from time to time there have
been attempts to justify the practice. Throughout Islamic history, questions
regarding interest have been posed to Shari’ah scholars and they have pre-
dominantly upheld the prohibition. However, in rare cases, there have been
exceptions in the form of minority opinions, which often did not last long.
Such minority opinions were often given under political infl uence or were
born of a lack of understanding — either of the traditional Law or of the con-
tract in question.
More recently, in 1989 a legal opinion (fatwa) issued by Egypt’s high-
est legal scholar, Sheikh al - Azhar Muhammad Sayyid al - Tantawi, gave rise
to considerable controversy. His opinion, that banks may fi x the rate to be
paid to depositors, was supported by the prestigious seminary the Al - Azhar
Islamic Research Institute. While the legal opinion may have been valid
for a specifi c situation, it was never intended to lead to a general accept-
ance of the practice of paying or receiving bank interest. Unfortunately, the
banking industry took the opinion as an excuse to claim that interest was
permissible. The same legal opinion resurfaced in late 2002, but was imme-
diately refuted by the Council of Islamic Jurisprudence Academy, which
categorically declared all forms of bank interest illegal from the Shari’ah’s
point of view. In both cases, the attempts to justify bank interest were met
with strong opposition and rejection, with the majority of Shari’ah scholars
upholding the prohibition.
INTEREST AND MODERN ECONOMICS
The majority of modern economists accept the institution of interest as an
essential ingredient of the modern economic system. However, from time to
time, the notion of charging interest on money is challenged. Silvio Gesell,
a successful merchant during the early years of the twentieth century,
condemned interest on the basis that his sales were more often related to the
price of money (that is, interest) than to consumers’ needs or the quality of
his products. His proposal of making money a public service subject to a use
fee was not welcomed by the banking community and therefore did not gain
any popularity. More recently, the German economist Margrit Kennedy has