The Objectives of the Prohibition of Riba By: Elhadi Habbani

Theories in Prohibition of Riba;
There are some theories and arguments propounded by some writers trying to legalize Riba in some types of loans by sectors or segments of the economy or specific type of interest; such like consumer loans versus investment loans, Individuals Versus Institutions, compounding versus simple interest, and nominal versus real rate of interest or return. The paper will briefly discuss these theories as follows:
Consumption Loans Versus Investment Loans (Al-Darurah):
The supporters of this argument distinguish between consumer loans refereeing to the financing individual consumption needs like homes, furniture, electronics and electrical equipments, and investment loans referring to corporate or commercial loans or any financing to the business sectors. They ban Riba or interest on individuals consumer loans and legalize it on corporate or businesses financing.
They argue that the main reason of prohibiting Riba in Quran is to dampen unnecessary consumption and encourage production which will create new job opportunities and minimize the unemployment percentage to the minimum acceptable levels, foil any kind of economical misuse of poor people, support development, economize the minimum acceptable standard of living, and economic stability for the whole society. They support their argument by claiming in the pre-Islamic period and even in the early years of Islam borrowing for commercial purposes was not carried out, and consumer loans were the only dominant kinds of financing therefore, Riba or interest on commercial loans is not prohibited.
The opposite criticism of this theory by different traditional and even modernists writers claim that even if Riba on commercial loans were not practiced at that time when the prohibition of Riba was not made, Riba in commercial loans is still prohibited. They support their standpoint by saying that most kinds of alcoholic beverages available today did not exist in the time liquor prohibited. Yet all kinds of liquor still prohibited and will remain prohibited in future. Beside there are many evidences that commercial loans were widely dominant during that time. The circumstances The location of Makkah as a focal point of trading at that time, and the trade of Quraish, Riba Al-Abas within which he granted loans to farmers and merchants not at all to individuals, all tend to support to the argument that loans were also practiced in businesses at that time.
So, the conclusion of this debate is that the prohibition of Riba in Islam is for both individual consumer loans and corporate loans.
This theory is also called, by other modernists the theory of Al-Darurah, said Dr. Engku, "The third theory is the theory of Al-Darurah (necessity) and changing circumstances, in which, its propounders claimed that Riba is only prohibited on consumption loans not production loans. Thus, because of necessity and changing circumstances, interest rate becomes permissible. This has also been proven to be faulty because historically, the practice of giving loans for production was common since Al-Jahiliyah and thus, is included in the prohibited Riba Al-Jahiliyah. Also, the idea of necessity which the propounders of this theory tried to build is inconceivable since necessity cannot be imagined to dominate the whole system, as Abu Zahrah said "… necessity is only found in individuals, because if not, then it means that the whole society needs al riba like need of starving person to eat the dead …" .

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