WHY TANTAWI SAID “INTEREST” IS NOT “RIBA”?
Ahmad Jailani Abdul Ghani
POINTS OF ARGUMENTS BY SHEIKH MUHAMMAD SAYYED TANTAWI
1. Riba is only related to loan of easily damaged commodities such as foods, drinks etc.
حصر الربا في القروض الاستهلاكية
2. Banker-customer relationship at modern conventional bank is an agent-principal relationship (wakalah), it is not creditor-debtor relationship (as like had been decided in the case of Foley V Hills)
3. Although there is no contract of agency between banker and depositor, Syeikh Tantawi has an opinion that it is not necessary. The intention is enough (kifayatunniyyah)
4. banker-depositor (customer) relationship falls under the rules of mudarabah which is allowed by syari’ah.
5. modern conventional banks would not be in loss because they would only pre-determine their interest or profit rate after a very careful study and analysis on practical markets, financial issues and economic situations.
6. The prohibition of pre-determined profit rate in Mudharabah transactions is solely ijtihad of Muslim jurists, nothing to do with The Quran and The Sunnah. Therefore it can be changed.
REFUTING THE ARGUMENTS OF SHEIKH MUHAMMAD SAYYED TANTAWI.
1. SHEIKH TANTAWI CONTENDED : Riba is only related to loan of easily damaged commodities such as foods, drinks etc. (al-qurudh al-istihlakiyyah)
WE REBUT : Sheikh Tantawi’s contention is definitely wrong. As far as prohibition of riba is concerned, when the Quranic verse on the prohibition of riba revealed to the Prophet SAW, it was related to riba of his uncle namely Al-Abbas. The transaction involved “riba istithmariyyan” and not “istihlakiyyah” as claimed by Sheikh Tantawi. Because, Al-Abbas like other traders collected all istithmar commodities to be brought to Sham (Syria, now). At that time, the journey from Mecca to Sham (Syria) was a long distance and took approximately two or three months. The trading did not involve foods and drinks.
2. SHEIKH TANTAWI CONTENDED: Banker-customer relationship at modern conventional bank is an agent-principal relationship (wakalah). Bank invested the depositor’s money as a proxy / agent to the depositor.
WE REBUT: Shari`ah clarifies the conditions of proxy / wakalah and all its rulings. Meaning, everything about proxy / wakalah is stated in the Shari`ah texts. The rulings of proxy as agreed upon among jurists are:
- The wage fee of the authorized proxy or business manager must be stated in the proxy contract, whether it is a specific sum of money or a percentage of the invested money.
- All the profits of the invested money should be given to the authorizer (i.e., the owner of the money) and losses are his, as he is the owner of the money, not the proxy.
- The authorized proxy must document the accounts of the investment operations in files, so that he can record the gains as well as the expenses of projects. Then he is to give the net profits to the owner of the money after deducing the payment of the proxy himself. So the proxy that is claimed in the fatwa does not accord with reality. It is nonsense, as it does not fulfill the legal conditions for proxy and authorization and does not meet the rulings that are stated in Shari`ah.
3. SHEIKH TANTAWI CONTENDED: even if there is no contract of agency between banker and depositor, he has an opinion that it is not necessary. The intention is enough (kifayatunniyyah)
WE REBUT: It is not only there is no contract of agency between banker and depositor, but the crucial point here is that, the contract that is entered into between banker and depositor is the contract of loan (qard). When the bank received money from the depositor, the bank actually borrow monies from the depositor with bank’s undertaking to repay the depositor on demand. As such the rule of loan applies. The best reference is the case of Joachimson v Swiss Bank Corporation (1921) 3 KB 110 at 127 where Atkin LJ decided as follows:-
“ the bank undertake to receive money and to collect bills for its customer’s account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertake to repay them…… I think it is necessarily a term of such a contract that the bank is not liable to pay the customer the full amount of his balance until he demands payment from the bank at the branch at which the current account is kept.”
The same principles applied earlier prior to Joachimson’s case, whereby , Lord Cottenhan decided in the case of Foley v Hill (1848) 2 HL Cas 28, as follows:-
“ money in the custody of a banker is to all intents and purposes the money of the banker, to do with it as he pleases, he is guilty of no breach of trust in employing it, he is not answerable to the customer if he puts it under jeopardy, if he engages in a hazardous speculation, he is not bound to keep it or deal with it as the property of his customer, but he is of course answerable for the amount because he has contracted having received the money, to repay to the customer, when demanded, a sum equivalent to that paid into his hands.”
It is ridiculous to say that a depositor and a banker entered into contract of loan (status of deposit account according to conventional banking system) but both of them say; “our intention is entering the contract of agency”. It is unbelievable for a great scholar like Syeikh Tantawi to say this !!!!!
4. SHEIKH TANTAWI CONTENDED : modern conventional banks would not be in loss because they would only pre-determine their interest or profit rate after a very careful study and analysis on practical markets, financial issues and economic situations. He said “It is well known that banks’ pre-estimation of a certain percentage of interest on dealers’ deposits is based on well established study of the stock market and its conditions, and of the economic conditions of the society. Fixing interest thus differs according to the circumstances, the nature of each deal, and the average of gains.”
WE REBUT : This justification is not a point of controversy in itself, because what matters is not the way of fixing the interest. Rather, controversy is on the ruling of interest given to depositors, disregarding its amount and the way of fixing.
Bank deposits are considered loans by law and by the consensus of jurists, and “any increment in a loan is riba,” as the Prophet (peace and blessings be upon him) states in his hadith. In reality, banks deal freely in people’s deposits; they unilaterally dispose of them by using them in lending to other people for interest. At the same time, banks are committed to pay that money back with interest. These are the characteristics of loans as stated in law, with no regard to how such interest is estimated, what its percentage is, or what the name given to it is. It is no matter whether such extra money given on the capital is called benefit, gain, earning, interest, reward, gift or whatsoever. What matters is the actual results effected by the contract between the bank and the dealers, because contacts are governed by the results they entail. Rulings are generally given to real matters not to hypotheses. Moreover, the claim that banks are just investors by proxy that invest money deposited therein in legal projects has already been refuted by law, Shari`ah, and by experience.
5. SHEIKH TANTAWI CONTENDED : “prior fixing of the percentage of interest for money deposited in banks or any other investment proxy is lawful and there is nothing wrong in it at all. This is because such deals fall within the category of public interests and do not fall within the acts of worship or articles of `aqidah (Islamic belief), which are not subject to change or replacement.”
WE REBUT : Firstly, when a Shari`ah ruling is supported by evidence and its scope is well defined, then it can never be changed or altered. This applies to `aqidah issues, acts of worship, as well as dealings and transactions. However, in regard to transactions, the scholars may interpret any textual evidence in order to define the scope of application, considering the interest and wisdom it aims to achieve. As regards acts of worship scholars may apply their personal reasoning within the limits of the textual evidence, without going so far in interpreting it. This is the opinion of Imam As-Shatibi and others. However, in all cases once scholars reach a legal ruling through this methodology by working out their personal reasoning, then this ruling can’t be changed.
Hereby we notice that this is totally different from the wording of the fatwa. Saying that rulings of Shari`ah can be changed or altered bears the serious connotation that they are not obligatory or binding. This saying was attributed to At-Tufi Al-Hanbali, though he is innocent thereof. In fact, none of the Muslim scholars has adopted this opinion in the history of Islamic personal reasoning (ijtihad). (See: Dr. Hussain Hamed, Nazariyyat al-Maslahah (The Interest Theory), p. 533).
From the above academic discussion, I hope that all of us especially for those who involve in the banking and finance industries will get the clear picture of the issue. Thanks.
Ahmad Jailani Abdul Ghani