The Transformation of Interest Prohibition: A Comparative Study of Riba (Usury) in Contemporary Financial Systems

Muhammad Asri Aidid

doi:10.24252/mazahibuna.vi.44469

Authors

Muhammad Asri Aidid International Binoria University, Pakistan

DOI:

https://doi.org/10.24252/mazahibuna.vi.44469

Keywords:

Riba, Financial Principles, Fiat Money, Contemporary Financial Systems, Islamic Law

Abstract

This study aimed to explore the transformation of the concept of riba (usury) within contemporary financial systems, specifically how Islamic jurisprudence has adapted to modern economic practices. The analysis also aimed to understand the evolving interpretation of riba and its implications for Islamic and global financial markets. A comparative analysis was adopted, integrating qualitative methods such as document analysis and a case study of financial systems. This study examined historical and modern interpretations of riba, with a specific focus on the transition from traditional gold and silver standards to fiat money systems. The results showed that the adaptation of riba in modern financial systems required significant transformation, particularly in response to the transition from commodity-based to fiat money. The analysis identified key trends in how riba was reinterpreted within the context of contemporary financial systems as well as discussed the challenges and solutions proposed by Islamic scholars. Additionally, it contributed to the existing body of knowledge by providing a nuanced analysis of how the prohibition of riba was applied in contemporary financial systems, connecting historical perspectives with modern practices. The analysis provided new insights into the dynamic relationship between traditional Islamic financial principles and the evolving global financial landscape. It also showed the importance of continuous investigation of riba in the context of contemporary financial systems. This study suggested that ongoing discourse among Islamic financial practitioners and scholars was crucial for developing solutions to support both traditional principles and contemporary financial realities.

References

Abbasi, H., & Aziz, K. (2023). Critical Study of Commodity Murabahah Practice of Islamic Banks from Shariah Perspective. Hamdard Islamicus, 46(2), 47–63. https://doi.org/10.57144/hi.v46i2.706

Abdul Razak, L., & Saupi, M. N. (2017). The Concept and Application of Daman al-Milkiyyah (Ownership Risk). ISRA International Journal of Islamic Finance, 9(2), 148–163. https://doi.org/10.1108/IJIF-06-2017-0002

Abedifar, P. (2019). Lending, the Poor, and Islamic Scripture: Islamic Finance versus Welfare Islam. Journal of the American Academy of Religion, 87(2), 460–482. https://doi.org/10.1093/jaarel/lfz017

Abuselidze, G., Reznik, N., Slobodianyk, A., & Prokhorova, V. (2020). Global Financial Derivatives Market Development and Trading on the Example of Ukraine. SHS Web of Conferences, 74, 05001. https://doi.org/10.1051/shsconf/20207405001

Ahmed, E. R., Islam, M. A., Alabdullah, T. T. Y., & bin Amran, A. (2018). Proposed the Pricing Model as an Alternative Islamic Benchmark. Benchmarking: An International Journal, 25(8), 2892–2912. https://doi.org/10.1108/BIJ-04-2017-0077

Ahmed, J., Meera, A. K. M., Saleem, M. Y., & Collins, P. (2018). Analysis of Commodity Reserve Currency System from Siyasah Shariyyah Perspective. Journal of Islamic Accounting and Business Research, 9(2), 222–250. https://doi.org/10.1108/JIABR-05-2015-0018

Alwazna, R. Y. (2017). Culture and Law: The Cultural Impact on Islamic Legal Statements and Its Implications for Translation. International Journal of Legal Discourse, 2(2), 225–241. https://doi.org/10.1515/ijld-2017-0013

Anwer, Z., Khan, S., & Abu Bakar, M. (2020). Shariah-Compliant Central Banking Practices: Lessons from Muslim Countries’ Experience. ISRA International Journal of Islamic Finance, 12(1), 7–26. https://doi.org/10.1108/IJIF-01-2019-0007

Asutay, M., & Yilmaz, I. (2021). Constituting an Islamic Social Welfare Function: An Exploration Through Islamic Moral Economy. International Journal of Islamic and Middle Eastern Finance and Management, 14(3), 524–540. https://doi.org/10.1108/IMEFM-03-2019-0130

Asyari, Hoque, M. E., Hassan, M. K., Susanto, P., Jannat, T., & Mamun, A. A. (2022). Millennial Generation’s Islamic Banking Behavioral Intention. Journal of Risk and Financial Management, 15(12), 590. https://doi.org/10.3390/jrfm15120590

Attahiru, M. S. (2022). Riba (Usury) and Its Effect on the Global Economy. Quest Journal of Research in Business and Management, 10(1), 37–44.

Azoitei, D. C. (2020). Critical Analysis of the Contemporary Application of Riba in Islamic Banking. Manchester Journal of Transnational Islamic Law & Practice, 16(1), 76–94.

Baur, D. G., Hong, K., & Lee, A. D. (2018). Bitcoin: Medium of Exchange or Speculative Assets? Journal of International Financial Markets, Institutions and Money, 54, 177–189. https://doi.org/10.1016/j.intfin.2017.12.004

Bayindir, S., & Ustaoglu, M. (2018). The Issue of Interest (Riba) in the Abrahamic Religions. International Journal of Ethics and Systems, 34(3), 282–303. https://doi.org/10.1108/IJOES-09-2017-0148

Benaicha, M. (2020). An Analysis of the Normative Parameters of Reward and Risk in Islamic Finance. ISRA International Journal of Islamic Finance, 12(3), 303–323. https://doi.org/10.1108/IJIF-07-2019-0100

Bhat, P. I. (2020). Qualitative Legal Research: A Methodological Discourse. In Idea and Methods of Legal Research (pp. 359–382). Oxford University Press. https://doi.org/10.1093/oso/9780199493098.003.0012

Buallay, A. (2019). Corporate Governance, Shariah Governance and Performance. International Journal of Islamic and Middle Eastern Finance and Management, 12(2), 216–235. https://doi.org/10.1108/IMEFM-07-2017-0172

Kobis, N. C., Soraperra, I., & Shalvi, S. (2020). The Consequences of Participating in the Sharing Economy. Journal of Management, 47(1), 317–343. https://doi.org/10.1177/0149206320967740

Chadwick, A. (2022). Rethinking the EU’s Monetary Constitution. European Law Open, 1(3), 468–509. https://doi.org/10.1017/elo.2022.36

Clarke, C. (2019). Platform Lending and the Politics of Financial Infrastructures. Review of International Political Economy, 26(5), 863–885. https://doi.org/10.1080/09692290.2019.1616598

El Islamy, H. (2016). Revisiting the Classification, Reporting and Treatment of Shariah Non-Compliant Events. ISRA International Journal of Islamic Finance, 8(2), 81–101.

Erdem, E. (2017). Analyzing the Gradual Revelation and Wording of Riba Verses in the Holy Quran. Turkish Journal of Islamic Economics, 4(2), 91–126. https://doi.org/10.26414/tujise.2017.4.2.91-126

Faizi, F. (2024). How Are Islamic Banking Products Developed? Cogent Economics & Finance, 12(1), 2378961. https://doi.org/10.1080/23322039.2024.2378961

Farooq, M. O. (2019). Banking Structure and Riba-Interest Equation. Journal of Islamic Finance Studies, 5(2), 90–108. https://doi.org/10.2139/ssrn.3086304

Farooq, M. O., & Selim, M. (2019). Conceptualization of the Real Economy and Islamic Finance. Thunderbird International Business Review, 61(5), 685–696. https://doi.org/10.1002/tie.22013

Fatmawati, D., Ariffin, N. M., Abidin, N. H. Z., & Osman, A. Z. (2022). Shariah Governance in Islamic Banks. Global Finance Journal, 51, 100555. https://doi.org/10.1016/j.gfj.2020.100555

Hanif, M., & Ayub, M. (2022). Islamic Financial Services Industry. Business Ethics, the Environment & Responsibility, 31(1), 257–271. https://doi.org/10.1111/beer.12406

Harahap, B., & Risfandy, T. (2022). Islamic Organization and the Perception of Riba. SAGE Open, 12(2). https://doi.org/10.1177/21582440221097931

Ishaaq El-Mubarak, A. M., Mustapha, Z., Bin, A. M. T., & Mohamed, G. I. (2020). Laws of Islamic Banking in Nigeria. International Journal of Academic Research in Business and Social Sciences, 10(3), 29–42. https://doi.org/10.6007/IJARBSS/v10-i3/7020

Ishak, M. S. I., Robbi, A. A. M., & Nasir, N. S. M. (2021). The Principle of Tadarruj in Islamic Finance. Journal of Islamic Finance, 10(1), 15–24. https://doi.org/10.31436/jif.v10i1.558

Kamali, M. H. (2017). Actualisation (Tafil) of the Higher Purposes (Maqasid) of Shariah. Islam and Civilisational Renewal Journal, 8(3), 295–321. https://doi.org/10.52282/icr.v8i3.177

Kamla, R., & Alsoufi, R. (2015). Critical Muslim Intellectuals’ Discourse and the Issue of Interest (Riba). Accounting Forum, 39(2), 140–154. https://doi.org/10.1016/j.accfor.2015.02.002

Krichene, N., & Ghassan, H. B. (2019). The Pre-Eminence of Gold and Silver as Shariah Money. Thunderbird International Business Review, 61(5), 821–835. https://doi.org/10.1002/tie.22040

Kuran, T. (2018). Islam and Economic Performance. Journal of Economic Literature, 56(4), 1292–1359. https://doi.org/10.1257/jel.20171243

Lai, J., Rethel, L., & Steiner, K. (2017). Conceptualizing Dynamic Challenges to Global Financial Diffusion. Review of International Political Economy, 24(6), 958–979. https://doi.org/10.1080/09692290.2017.1373689

Lawal, I. M. (2016). Riba (Usury): A Tool That Should Be Carved Out of Financial Transactions. Turkish Journal of Islamic Economics, 3(2), 13–24. https://doi.org/10.15238/tujise.2016.3.2.13-24

Maali, B. M., Hassan, M. K., & Rashid, M. (2024). Creating a Religious Identity and Impression Management by Islamic Banks. International Journal of Islamic and Middle Eastern Finance and Management, 17(4), 693–710. https://doi.org/10.1108/IMEFM-05-2024-0240

Marszk, A., & Lechman, E. (2021). Reshaping Financial Systems. Technological Forecasting and Social Change, 167, 120683. https://doi.org/10.1016/j.techfore.2021.120683

Mohsen, B. K. A., & Mohi, M. A. (2024). Measurement Problems in Interest-Free Financial Instruments. Pakistan Journal of Life and Social Sciences, 22(1), 1667–1678. https://doi.org/10.57239/PJLSS-2024-22.1.00116

Mustafa, D. A., Abdulsalam, H. A., & Yusuf, J. B. (2016). Islamic Economics and the Relevance of Al-Qawaid Al-Fiqhiyyah. SAGE Open, 6(4). https://doi.org/10.1177/2158244016671374

Noordin, N. H., & Kassim, S. (2019). Does Shariah Committee Composition Influence Shariah Governance Disclosure? Journal of Islamic Accounting and Business Research, 10(2), 158–184. https://doi.org/10.1108/JIABR-04-2016-0047

Pajak, K., Kaminska, B., & Kvilinskyi, O. (2016). Contemporary Trends in Financial Sector Development. Financial and Credit Activity Problems of Theory and Practice, 2(21), 204–217. https://doi.org/10.18371/fcaptp.v2i21.91052

Parris, D. L., Dapko, J. L., Arnold, R. W., & Arnold, D. (2016). Exploring Transparency. Management Decision, 54(1), 222–247. https://doi.org/10.1108/MD-07-2015-0279

Piketty, T. (2015). Putting Distribution Back at the Center of Economics. Journal of Economic Perspectives, 29(1), 67–88. https://doi.org/10.1257/jep.29.1.67

Seho, M., Bacha, O. I., & Smolo, E. (2020). The Effects of Interest Rate on Islamic Bank Financing Instruments. Pacific-Basin Finance Journal, 62, 101292. https://doi.org/10.1016/j.pacfin.2020.101292

Sharma, C., & Setia, R. (2015). Macroeconomic Fundamentals and Dynamics of the Indian Rupee-Dollar Exchange Rate. Journal of Financial Economic Policy, 7(4), 301–326. https://doi.org/10.1108/JFEP-11-2014-0069

Siddique, M. Z. (2022). Modern Money and Islamic Banking in the Light of Islamic Law of Riba. International Journal of Finance & Economics, 27(1), 993–1008. https://doi.org/10.1002/ijfe.2196

Sifat, I. M., & Mohamad, A. (2018). Revisiting Fiat Regime’s Attainability of Shariah Objectives. Journal of Muslim Minority Affairs, 38(1), 1–23. https://doi.org/10.1080/13602004.2018.1435057

Suharto, U. (2018). Riba and Interest in Islamic Finance. International Journal of Islamic and Middle Eastern Finance and Management, 11(1), 131–138. https://doi.org/10.1108/IMEFM-08-2016-0109

Syed, E. A., & Omar, M. (2017). Hiyal in Islamic Finance. Qualitative Research in Financial Markets, 9(4), 382–390. https://doi.org/10.1108/QRFM-05-2017-0041

Tajmir Riyahi, H., Yarmohammadi, R., & Rahmati, M. (2020). Identify and Rank Accounting Performance Indicators in the Banking Industry. Journal of Accounting and Social Interests, 10(4), 111–140. https://doi.org/10.22051/jaasci.2021.28896.1558

Ullah, S., Harwood, I. A., & Jamali, D. (2018). Fatwa Repositioning. Journal of Business Ethics, 149(4), 895–917. https://doi.org/10.1007/s10551-016-3090-1

Umair Riaz, B. B., & Monk, L. (2017). Perceptions on the Accessibility of Islamic Banking in the UK. Accounting Forum, 41(4), 353–374. https://doi.org/10.1016/j.accfor.2017.10.002

Wan Ismail, W. M., Mahat, I. R., & Mazlan, N. A. (2020). Awareness on Prohibited Elements in Muamalat. Journal of Contemporary Islamic Studies, 6(1), 95–109. https://doi.org/10.24191/jcis.v6i1.6

Zoli, C., Bassiouni, M. C., & Khan, H. (2017). Justice in Post-Conflict Settings. Utrecht Journal of International and European Law, 33(85), 38–61. https://doi.org/10.5334/ujiel.382