Javed Ahmad Ghamidi considers bank interest to be Riba in principle. He himself has quoted the narration which implies that every loan that draws a benefit as excess includes Riba. He does not differentiate between consumption and commercial loans and also market driven and usurious rates of interest. Therefore, he cannot be judged as legitimizing bank interest as some thinkers suggest.
His views on Riba are also not like those who legitimise interest, confine Riba to usury, confine Riba in commercial loans alone, or extend its coverage to all types of excesses and exploitative acts in commercial transactions. However, there are certain apparent inconsistencies in his views which can effectively result in narrowing the scope of prohibition of Riba in some respects even though it is not intended.
As per his views, it is not prohibited for a borrower to obtain interest-bearing loan and to pay interest on it. He argues that the Hadith which appears in Sahih Muslim is misunderstood. The Hadith says:
The Prophet has severely condemned the devourer of interest and the one who pays interest and those who write an agreement [for such lending] and the two who are the witnesses to this document and has said: ‘All of them are equal. (Sahih Muslim,Hadith No. 1598)
Javed Ahmad Ghamidi writes in his book ‘Maqamat’ that even though, the word ‘Muwakkil’ can be used for the borrower who pays interest, it seems more congruent with other Qur’anic verses that the word is referring to the agents of the lender who facilitate him in his interest-based lending operations.
The author writes in ‘Maqamat’:
In response to this view, I would humbly present a few observations. Firstly, it is a voluntary and independent act to enter into a loan-based contract in which there is stipulated interest. In modern day banking, most of the borrowers are corporate entities. Around three-fourths of the total financing provided by the banks goes to corporations. These corporations are set up with equity first. These corporates have other options to finance their expansion. Financing products offered by full-fledged Islamic banks and the Islamic banking branches of conventional banks provide interest-free short-term finance solutions. Besides, financial markets are also accessible to the large-scale corporations where equity financing and Sukukcan be used to meet the long-term financing requirements.
Secondly, the equity based modes of financing are not widely used because the after-tax cost of debt is usually cheaper for high-performing corporations with higher returns on equity. Cost of debt is also tax deductible which reduces the after-tax cost of debt. Thus, borrower is not necessarily worse-off or is handicapped by having to pay interest. However, it results in concentration of wealth since debt financing is provided by banks mainly to the large-scale businesses. Equity financing achieves inclusivity and fosters equitable resource distribution.
One important reason why there is predominant use of interest based debt finance by corporate clients of banks is that they find it cheaper. On the other hand, those individual and corporate clients who would be burdened with the debt servicing commitments are not served by banks in the first place anyways.
The author conceives of modern day financing relationships in individualistic sense. Most credit side clients are corporations who make a carefully planned and thought-out decision regarding capital structure. Most of them opt for debt financing from banks only because equity financing is costly and they do not want to share their high returns on equity and dilute the share prices by issuance of more equity capital.
Thirdly, the author notes that it could be accepted that the Hadith also includes borrower as facilitator in sin if interest-based lending and borrowing is prohibited in the country by law. In Pakistan, interest in banking had been declared non-Islamic by the Supreme Court of Pakistan as a
People have failed to understand the real meaning of this narrative. It refers to people who are the agents of professional lenders and in this capacity hunt for potential customers for their masters. As such, they are guilty of co-operating with them in this sin. In other words, this narrative does not relate to people who borrow on interest matter of fact in 1991 and the decision was upheld in 1999 as well after hearing of appeals. Federal Shari’at Court in April 2022 had once again upheld that decision after a very long delay. Mufti Muhammad Taqi Usmani has given a detailed account of the case and verdict in his book ‘Historic Judgement on Interest’. The case was reopened and delayed partly because of misconceptions created to confine prohibition of Riba on one or the other pretext which gives room to the government to either take those fringe views or else engage in delaying tactics to repel the issue altogether.
Islamic banking in Pakistan has been operational since 2002. Its branch network has crossed 4,666 in number and its market share has steadily risen to 26.1% of total net financing in short time (SBP Islamic Banking Bulletin, 2024). Thus, in the scenario where interest based banking is considered unlawful and when there is also wide access to Islamic banking products and services, it is not advisable to give unqualified freedom to interest based borrowing.
Fourthly, the author opines that the borrower in interest based loan cannot even be regarded as guilty of “Tawwun ‘Al-Al-Ism”, i.e. facilitator in a wrong act (Al-Maida: 2). The author states that a person who is robbed or given adulterated goods cannot be blamed for such adverse events. However, it is a misplaced analogy. In such cases, there is no contract to receive adulterated goods. There is just plain deceit and fraud. Likewise, a person suffering from robbery is not entering in a contract to be robbed.
Better analogy is that if consumption of liquor is prohibited, can one sell it if not consuming himself? Can we buy pirated goods? Knowing that a good is smuggled and is considered illegal for trade, should a person still buy it? How contemporary law treats it? If a person buys a non-custom duty-paid car, the law puts burden on buyer and his car can be confiscated.
Ironically, the author abhors selling liquor, but in becoming borrower and becoming a party to the prohibited transaction, he does not even consider it “Tawwun ‘Al-Al-Ism”. In interest based financing, both parties contract. The contract cannot be executed without wilful independent consent. Any element of coercion or force will invalidate the contract in the first place.
Lastly, it is difficult to conceive that in tribal Arab, there would have been big and organized financial institutions hiring scores of people to pursue interest based lending operations as is the case today. All examples of facilitators of interest-based financing the scholar gave in support of his views pertain to modern era. Therefore, it seems that the Hadith may well have been referring to the borrowers who pay interest and we know that by and large, these borrowers were taking mostly commercial loans since equity based modes of financing like Mudarabah and Musharakah were also prevalent as alternate options for them.
In the contemporary world, pawnshops and single-branch financial lenders in developed world almost operate with no human resource. But, commercial contract of interest-based lending would always include lender and borrower from the primitive to the most contemporary times of fintech rich peer-to-peer financial landscape.
Mufti Shafi Usmani in his book ‘Problem of Interest’ mentions that in Arab, tribes used to take loans from other tribes for business purposes. Such trading and financial relationships were reciprocal.
In some transactions, one tribe would be the lender and at another time, the same tribe might be a borrower.
Finally, consider the implication of this view that only taking of interest by the lender is prohibited, but paying interest is not. In interbank market, every bank is simultaneously a borrower to some other banks and lender to some other banks. Even in corporate finance, firms invest their liquid cash in short term investments while they have taken long term debt to finance fixed assets. Thus, the presumption that the borrower is always a borrower only and is in a dire situation and is forced into paying interest is not correct.
Riba prohibition implies that interest-based loans are to be avoided. If a loan involves Riba and the borrower is not facing life-threatening or dire circumstances and has access to other modes of financing which are free from Riba, then, it is not advisable to give blanket allowance for the borrower to enter a prohibited transaction.