Banking System Among The Arabs Before Islam

- Published in Muslim World League Journal On Feb 2016

Banking System Among the Arabs before Islam

  Before the advent of Islam the Jews dominate the trade in Arab countries, they were the big money lenders, they took usury, though they were forbidden.'- (4/161)      This fact in Holy Quran proves that it was forbidden for the people of the Book (in Torah) before Islam.
   Linguistically usury is an increase   in the capital sum on each debt followed by the Profit. It is of two kinds in Arabic. ‘Riba al Nasia’ i.e usury or interest in delayed payments. They used  to lend the money in Pre-Islamic age  and receive  each month a  certain sum leaving the principle amount intact, when the debt matured they claimed the principle amount from the debtor. If it was not possible for the debtor, they used to increase the principle sum with interest and extend the term.
  The second was ‘Riba-al-Fadhl’ to take more in exchange of two similar things at a time. He who asks for increase in measure or weight commits usury.
  In a report the Prophet (peace be upon him)  Dinar for dinar and no increase between them, and Dirham for dirhanm and no increase between them. (Jamai-al-Usul). Islam taught clemency and taught to pay goodly loans having no profit. That shows a beautiful spirit of self-denial to fight pauperism, but interest or usury are opposed to clemency and compassion.
  Individual lenders have almost been replaced by the modern banks for giving loans. Loans may be divided in two categories. a) Consumer loans, b) Industrial and commercial loan.  Consumer loans are taken to meet necessities of life, or to make a home or to buy a car For industrial and commercial loans the orientalists have held that the interest on industrial and commercial loans do not come within the per-view of Islamic law. We know that every loan taken by the bank is subject to pay interest.
  It is unanimously held that any increase over a loan is usury. The Quran and Sunnah do not draw any line of demarcation between consumer loans or Industrial or commercial loans. Before going into details of Quranic prohibition let us see who pays interest over industrial or commercial loans paid to the banks.
 Industrial loans
 There are various stages for the production of a commodity till it enters into the market for sale. The industrialist who undertakes to establish an industry applies to a bank for grant of a loan. After erection of the building, he approaches again to a bank to purchase machines, equipment auto trucks and raw material. When the industry comes into operation starting production, the industrialist requires money to meet the expenses required on various stages of production including paying of wages to the staff and labor. If the goods are ready he requires to pay custom duty before taking them out of the factory. Normally an immediate demand for the goods is not found so the producer mortgages the goods to an insurance company or to a bank and takes loan. Thus we see that the industrialist has to approach the banks quite few times for loan right from the inception of the industry its production and the goods reaching the market.
   It is common knowledge that each time he approaches the bank for a debt the interest grows rising the cost of production. How will the industrialist meet the entire cost of production? Will he pay from his pocket? Never.  It has been observed that the bank loans rise the prices up to 40% over each commodity.
Who buys the goods? The consumer. Who pays all the interest of the bank  over the industrial loans? The consumer.
 Export and Import
 If we look into the stages of export and import of the goods. It is seen that the exporter takes secured loan from the bank or from an insurance company to buy the goods from the industrialist till he gets a chance to export them. When the goods reach the importer, he usually releases the goods on deferred payment. Thus the prices of the goods continue to rise. Who pays  for all this bank interest etc.? The Consumer only.   No doubt all the bank interest  in various aforesaid stages is giving massive rise to inflation.
 If we make comparison of the present prices with those prices, which were thirty years back we see a mountainous difference. The countries print more money to cope up inflation to help the masses in  buying the necessities of life. All the steps to control the inflation have miserably failed because of the malignant debts of the banks.
If we consider the annual bank profits of the world over, they run into billions giving birth to ever-growing inflation. The day is not far when this banking system will reach to the saturation point. Making indebted nations who pay billions in interest will unite in the United Nations to revise this system.
 All these bare facts make us to understand as to why Allah (God the Unique) totally forbade interest or usury of all kinds on the previous nations even before Islam.                                                                                                                                                  
" That they took usury, though they were forbidden.'- (4/161) This verse relates to the Jews who were involved in taking usury though they were forbidden. The Quran conclusively proved prohibition of  usury over the former nations and this prohibition remained enforced in Islam too.
God said: "That which ye give in usury in order that it may increase on (other) people's property hath no increase with Allah; but that which ye give in charity, seeking Allah's countenance, hath increase manifold. (30/ 39)
As cited above that prohibition of usury continued from the time of Torah. In the above text God stopped the people of the Prophet (peace be upon him) to tempt towards usury, thinking that the wealth increases from it but as a matter of fact it destroys. The wealth earned through usury, bribery and other illegal means causes sorrows, sufferings, miseries, unseen troubles and diseases not only on the wrong doer but also on his family and children and lastly he shall have a painful doom leading him to a final destruction.
It is well known that in the very second revelation, God banned increase over the   sum lent. ‘And give not a thing in order to take more’(74/6) That is you don’t give your money to any one with intention to take more in return. It is held by the most of the exegetes.  Ibn Abbas said: Don’t give a present soliciting a better return. That is in making gifts do not get to wish more as it is usury. 
Clarifying the prohibition God said; That which you give in usury in order that it may increase on other people’s property hath no increase with Allah (God) but that which ye give in charity seeking Allah’s countenance hath increase manifold. (30/39, Pickthall)
    As-Suddi held: That this verse is sent down referring to the usury of Bani-thaquif because they were involved with Quraish in usury. Its details will follow.
   The Quran said: O ye who believe! Devour not usury doubling or quadrupling (the sum lent). Observe your duty to Allah that ye may be successful. (3/130)
    The holy verses of the Quran describing the prohibition of usury over the previous nations have already preceded along with its prohibition in Islam as early as in the second revelation to the Prophet (peace be upon him) in the Quran. The afore mentioned verse emphasizes the forbiddance of a kind of usury very common among
 Quraish in pre Islamic Era.  Al-Khazin stated: When the debt matured before Islam, the debtor being unable to pay, the lender extended the term with increase in the capital sum, on each delay in payment, the capital sum double or quadruple i.e (compound interest), God therefore, banned usury of all kind including its doubling etc.  Mujahid said: They used to sell things on deferred payment but they increased the cost if not pain on due date. God the unique sent down  in Quran: Devour not usury doubling or quadrupling. (3/130)
Ward off from yourselves the fire prepared for the disbelievers. (3/131)
The majority of the exegetes held: This is a stern warning who hold usury or industrial loans or commercial loans as lawful. And whoever took it to be lawful commits infidelity and to Allah he is infidel.  
Banking In Prophet’s Time
It has been reported authoritatively (Dur-al Manthur , lbn Kathir) that after the conquest of Mecca (8th Hijra) Arab tribes embraced Islam. Among them were Bani Umar and Bani Umair an offshoot of Bani Thaquif and Bani -Al- Mugheera who were offshoot of Bani Ma-khzoom at Taif. Bani Thaquif were the money lenders and Bani Makhzoom were debtors. Both the tribes had a very great business from before the Conquest. And a very big sum of money as interest was involved in this trade. After coming into the fold of Islam Bani Thaquif demanded their interest over the money lent to Bani Makhzoom before Islam. Bani Makhzoom refused to pay back the interest money and contended that they would not pay the interest after embracing Islam as God and His Prophet had banned it for the faithful. Both the tribe complained to Etab bin Usayyed (Governor of Mecca) appointed by the Prophet (sallallaho alaihi wasallam) after the Conquest. Etab wrote the entire case to the Prophet as it involved a very big amount as interest only. When the letter reached Medina, God revealed the following text:
" 0 ye who believe! Observe your duty to Allah, and give up what remaineth (due to you) from usury, if ye are (in truth) believers.
And if ye do not, then be warned of war (against you from God and His Apostle. And if ye repent, then ye have your principal (without interest). Wrong not, and ye shall not be wronged.
And if the debtor is in straitened circumstances, then (let there be) postponement to (the time of) ease; and that ye remit the debt as alms giving would be better for you if ye did but know." (2/ 278-280)
We can draw the following conclusions from the above historical event.
1) The prohibition of interest was known to the Muslims just after inception of Islam.
2) It was well known to everybody, even to the new Muslim tribes i.e in 8th year after Hijra, as the cause of action arose immediately after the conquest of Mecca.
3) That Bani Thaquif were under misconception that they could realize the interest due before Islam.
4) These were not personal debts on few persons but both the tribes were involved in this business.
5) It was a very big money due as interest, it proved that the money lending were for trade purposes, as nobody could dare to own such a big amount of interest on his personal account unless he was sure to gain it through trade.
6) That above revelation dates back to 8th year after Hijra which showed the displeasure of God to the extent that the usurers should get ready to fight against God and His Prophet (peace be upon him).
7) God advised to take pity on the debtor, and liked his remission from the debt by way of charity, as the impact of the interest falls finally on the consumer.
It is also contended that the above revelation included Abbas bin Abdul Muttalib and Khalid bin Waleed and they were both partners who lent money on interest to Bani Umar and Bani Umair of Bani Thaquif and a very big amount of money was due on Bani Thaquif as interest which was done away by the Prophet on the day of Conquest of Mecca. As he said:" All the interest of the days of ignorance are trodden under my feet, and the first usury that I cancel is of Abbas (Ibn Kathir).
There is a perfect coordination in between the above two narratives. They proved that Bani Thaquif had their borrowings from Abbas and Khalid and they further lent the money to Bani Mukhzoom. The above two transactions doubled the interest, similarly the borrowings of the industrialist and that of the merchant on one class of goods increases the bank interest as preceded above to manifold which is finally taken from the pocket of consumer.
The interest money accrued over the transactions between Abbas and Bani Thaquif and Bani Makhzoom was very big. That proved a business was going on and Bani Thaquif and Bani Makhzoom would have been sure to pay it back from the resources at their disposal which could not be other than trade in that barren and sandy desert of Arabian peninsula. We therefore, can term those borrowings of Bani Thaquif and Bani Makhzoom as economic credit, which is thought to be the creature of modern banking. When God banned all that trade involving usury , then how can we exclude the economic credit the creature of modern banking which adding to inflation makes the poor more poorer and is paid finally by the common buyer.
In the days of the Prophet (peace be upon him) Banking was there; in whatever shape but it was there. As banking is an institution where two or more persons invest their capital funds, in order to gain a return on their capital by way of interest, after loaning those funds to their customers. Similarly Abbas and Khalid joined in a partnership were loaning funds to the tribes of Bani Thaquif and they did the same onward. So people individually and collectively did lend the money on interest. There were borrowings individual as well as collective. As already mentioned the economic credits were there, the people did borrow for personal reasons and for trade purposes. But the consequence, yes the consequence of all money lending on interest is one, the man who is hit is the common buyer or consumer as mentioned above. the interest money is finally paid by the public and not by the borrower. Situation in the days of the Prophet (peace be upon him) was the same as it is now. We are not to be misled by the modern banking terms, but we ought to see the consequence, as Bani Makhzoom were the target of money lenders similarly the commoners are the target of the modern bankers. The people of Bani Makhzoom were oppressed as they were under the full impact of a double interest, it was only Islam who came to their rescue, I call them oppressed because immediately after coming into the fold of Islam, the first thing which they intended was to do away the interest money. The announcement of the Prophet (peace be upon him) did vanish the gloom from many and liberated the debtors from the clutches of cruel bloodsuckers called usurers. It vanished the gloom from the generations who were yet to come under the Muslim rule.
Bani Thaquif thought they could claim the balance of interest money, which was fallen due before Islam. When Etab referred to the Prophet (sallallaho alaihi wasallam) at Medina, God revealed the text which finally wiped out the gloomy shadows of interest bearing financial system, making trade free from all encumbrances. The result was marvelous, the history recorded such golden years of Muslim rule that there was none to accept charity. God said:
"Those who swallow usury cannot rise up save as he ariseth whom the devil hath prostrated by (his) touch. That is because they say: Trade is just like usury; Whereas God permiteth trading and forbiddeth usury. He unto him an admonition from His Lord cometh, and (he) refraineth (in obedience thereto), he shall keep (the profits of) that which is past, and his affair (henceforth) is with God. As for him. who returneth to usury- such are the .rightful owners of the Fire. They will abide therein (for ever). (2/ 275)
The Prophet defined interest and mentioned its various kinds. He forbade from all those transactions of trade, which involved interest in money and in kind. He said, "There are seventy three doors (leading) to interest." (Ibn Maja, narrated Masud), and the lowest sin (in entering any of the doors of interest i.e.taking of interest is, as if a man commits adultery with his own mother." (Hakim in his book Mustadrak).
We can conclude the following from the above facts: The text of interest ' those who swallow usury .... . . 'etc' was revealed last but there were other texts mentioning the prohibition of usury which were revealed before this text. We have already seen that the prohibition of the interest continued from the time of Tora'h and the ban continued after the advent of Islam as well.
b) We have already noticed that even this text i.e. 'who swallow usury. . . . ' , was revealed just after the Conquest of Mecca when cause of action between Bani Thaquif and Bani Makhzoom arose. Whereas the Prophet had already pronounced the ban on interest on the day of Conquest of Mecca and cancelled the usury of Abbas bin Abdul Muttalib. The subsequent revelation of the aforesaid text was simply the confirmation of the Prophets announcement by the Quran which proved that the prohibition did exist before this text.
c) Had not the ban already in existence before the conquest Bani Makhzoom would have never raised a quarrel against the paying of interest.
d) The last text became more famous because:
1) God announced his anger on usurers.
2) They were challenged to fight with God and His Apostle. As a matter of fact it was a warning to Bani Thaquif and to all those who didn't intend to leave the interest. The Apostle of God would wage a war against them.
3) The usurers were allowed to get their capital funds back, on the principle, Wrong not and ye shall not be wronged.'
4) The creditors were advised to postpone the debt to the time of ease; and told,' to remit the debts as alms giving would be better, is already discussed that the industrialist, importer, and exporter approach the Bank for loan quite a few times on one class of goods. Thus every time the interest paid on each loan increases the cost price of the goods which is finally taken by the pocket of the consumer. Over and above the world is faced by an ever growing inflation. The result is fall in the value of currency Pound sterling and Dollar could not save devaluation. Purchasing power of Pounds and Dollars is continuously falling. The interest bearing monetary system is gradually destroying the hottest currencies of the world viz a viz pound and dollars. These bare facts only upheld God's saying, "God destroys usury."
It is the firm belief of every Muslim that all the developments right from the primitive origin till Doomsday are in the knowledge of God. Viewing all those developments, Allah gave us commandments to obey and prohibitions to abstain. So when God banned usury He did have the knowledge of the present banking system and its importance for trade. That is to say that the worlds' trade could be run with a non-interest bearing monetary system. Only one has to give a serious thought to it. The Quran  did evolve a non- interest bearing monetary system. I have already discussed that the caricature of the modern banking was in existence during the days of the Prophet. He forbade all the transactions bearing interest. He banned hoarding and stopped speculation. By doing so he removed all sorts of encumbrances from the trade. The merchants during his days-flourished very much.
.There is no denial to the importance of present banking system for the regulation of the foreign trade. But we cannot declare that interest bearing monetary system is inevitable. Since all the services of the banks rendered to their customers in money matters come within the definition of the interest, as mentioned by shariat, we would therefore have to declare all the services of the banks, in money matters to its customers free of charges, this will not hinder the functioning of the bank because all the industrialist, importers and exporters etc shall have to keep their contact with the banks for the continuity of their business. However, the banks may invite investors in operating industry, export and import, whatever they earn through business they can annually divide the dividend to their investors. Thus we see that the Quranic injunctions did make Evolution of Islamic Financial system without usury.
- By Ahmad Wahhaj Al-Siddiqui Al-Taimi