Muhammad Arif
Muhammad Arif: Chairman Centre of Advisory Services for Islamic Banking and Finance (CAIF), Former Head of FSCD SBP, Former Head of Research ArifHabib Investments and Member IFSB Task Force for development of Islamic Money Market, Former Member of Access to Justice Fund Supreme Court of Pakistan.

Defining Riba is as simple as Islam is itself

The question is that why we have not been able to define riba the basic pillar of Islamic finance. The answer is that it is only due to business interest of a class who has made their presence necessary as a part of any Islamic institution and sectarian divide.

The basic objective of Islam is against anything that oppresses people and in this way interest (Riba) comes in its way that has many ways of exploiting others, namely the depositors and borrowers. Also, profitability is not seen as the soul target for performing business in Islam.

Rather Islamic banking is responsible for social objectives, such as equal distribution of wealth. Social goals are not to be ignored in any part of Islam and this should be the basis of Islamic banking.

As stated above Islam treat Riba as a tool of exploitation so its definition becomes important to design Islamic social system. For example, some time it is argued that current Islamic banking is based on a limited concept of Riba or interest that allows rent on assets providing a basis to Mudarbah contract, the very basis of current Islamic banking. According to these arguments rent tantamount to excess on principal in form of money or other assets. Since in Quranic verses, the excess is not permissible so as per these arguments, rent comes under the definition of interest and thus bringing in to structure of whole Islamic banking under question.

Riba has been discussed at 20 places in Quran. However there is a difference in approach in understanding Riba in its strict sense. These approaches have been elaborated in the Supreme Court of Pakistan (Shariat appellate Jurisdiction) judgment 2000.  According to this:

One school of thought says that the verses of Quran which prohibit Riba were revealed in the last days of Holy Prophet (PBU) and he could not have time to interpret them properly, hence no hard and fast definition can be found in Quran and Sunnah. According to this approach the prohibition of Riba should be restricted to the limited transactions expressly mentioned in the Hadith and the principle cannot be extended to the modern banking system which was not imaginable at that time.

Second approach says that Riba only refers to the Usurious (personal) loans on which excessive rate of interest is used to be charged by the creditors which tends towards exploitation. As for modern banking interest, it cannot be termed as Riba if the rate of interest is not excessive or exploitative.

Third approach says that differentiation should be made between consumption loans and commercial loans. Since consumptions loans (mostly consumed by the poor people) tend towards exploitation so they come under the definition of Riba but commercial loans used for commercial or productive purposes do not come under the definition of Riba.

Fourth approach says that Quran has prohibited Riba al jahlia. This was a particular transaction of loan where no additional amount over and above the principal was stipulated in the agreement of the loan. According to this theory if an increased amount is stipulated in the initial agreement of loan it does not constitute Riba-ul-Quran; however it does fall in the definition of Riba al Fadl prohibited by Sunnah.

However, after listening these arguments Shariat Appellate court of Pakistan gave its verdict as “any additional amount over the principal in a contract of loan or debt is the Riba prohibited by the Holy Quran”.

Further to this following transactions were also termed as Riba as per Sunnah.

(1) a transaction of money of the same denominations where the quantity of both sides is not equal either in a spot transaction or in a transaction based on deferred payment

(2) A barter transaction between two weighable or measurable commodities of the same kind where the quantity on both sides is not equal, or where the delivery from one side is deferred. (3) A barter transaction between two different weighable or measureable commodities where delivery from one side is deferred.

According to verse Al-Baqrah 2:278-79, any excess compensation over and above the principal (without due consideration) has been termed as Riba. However in the same verse it has been further said “Those who benefit from interest shall be raised like those who have been driven to madness by the touch of the devil: this is because they say; “trade is like interest” while God has permitted trade and forbidden interest”. So it is very much clear that if transactions are backed by trading activities than excess earned through this mean is not Riba.

Four imams viz: Imam A’zam Abu-Hanifa, Imam Maalik, Imam Shaafi and Imam Ahmed-bin-Hambal are very close in defining Riba, however they technically vary. The Hanafi says that Riba is the extra or the increment of wealth without any return in the exchange of wealth according to Sharia legal measurement. The Hamblis says that Riba is a contract which is the extra or the increment of something which is defined according to legal Sharia and legal measurement. The Shaafi and Malaki say that Riba is a contract which is without equal return or something defined according to sharia legal measurement during the contract or with lapse of time in exchange.

As explained above, Riba in Pakistan has been defined strictly as any excess which is predetermined over the principal sum in a loan transaction.

 But now we have to move forward by making it a simple process for any layman. To make it more complex apparently does not make any sense. By incorporating all views as above Riba can easily be defined in favor of true Islam and its people.

Education in Islamic Banking and Finance still not giving any results

According to an estimate, the Islamic finance industry currently employees over 25,000 professionals and in the next five year around 3,000 to 4,000 professionals would be needed. Further to this demand, the need of qualified and skilled Islamic finance experts in the industry including professional accountants and auditors can be estimated at 500 per annum after the development of All Share Islamic Index at PSX and income tax rebate announcement by FBR for Shariah compliant listed companies.

According to industry expert, one of the factors that can limit growth of Islamic finance industry is lack of awareness of Islamic finance among young business graduates and limited availability of trained and qualified human resource. Furthermore, it is also crucial to enhance the skill set of existing finance and banking professionals and provide them much needed reorientation to the skills related to Islamic banking, product development, risk management, Islamic accounting and auditing standards and Islamic capital markets to keep them relevant to the modern and emerging financial practices.

If we review the current landscape for Islamic finance education in Pakistan, significant gaps exist at the level of education providers. Leading universities and business schools need to increase their effort to catch up the ground. In the last few years, Islamic finance related course are being introduced as part of elective in top universities like IBA, LUMS, NUST, Comsats, KSBL, IoBM.

Some universities in Pakistan have also taken lead to incorporate Islamic finance as part of the core requirement for their business degrees. Universities like IMS Peshawar, IIU Islamabad, UMT Lahore, Comsats have also started offering Master level specialized programs. In 2017, IBA Karachi also started its first MS Islamic Finance Program, a very comprehensive and in-depth program covering theoretical and practical aspect of Islamic finance. LUMS has also started offering PhD in Islamic Finance.

In the area of professional education NIBAF, IBP, IBA Centre for Excellence in Islamic Finance (CEIF) and Center for Islamic Economics are playing active role by offering different level of certification programs, professional development program, post graduate diplomas and short courses for existing finance professionals, bankers and academics.

Establishment of three centers for excellence in Islamic finance

In 2015, with a targeted approach to develop Islamic finance talent, State Bank of Pakistan has supported the establishment three Centers for Excellence in Islamic Finance (CEIF) at Institute of Business Administration (Karachi), IMS Sciences (Peshawar) and Lahore University of Management Sciences in 2015. .

But in 2019 we find that staff working in Islamic financial institutions is still not aware of basics of Islamic Banking and Finance. Secondly its contribution in creating awareness among people has not brought any formidable results. So this is what these educational institutions with their bib names have given us in the last ten years.

Conferences and prize distributions are going on merely for advertisement and to mint money. When intention is like this than obviously its result would also be like what is happening in the market right now. Islamic Banking is still far away from any countries macro objectives. No doubt big names and degrees play some role but there is no alternate to experience and desire to learn from ongoing mistakes to move forward. Still in Pakistan Islamic Banking is just 15% of total Banking industry. If with this speed we move forward than we cannot achieve 100% results even in the next century.

Whole educational structure for Islamic finance with changes in curriculum on day to day basis and to involve all students in research activities for solutions can be the best answer.


  1. Your article made me suddenly realize that I am writing a thesis on After reading your article, I have a different way of thinking, thank you. However, I still have some doubts, can you help me? Thanks.


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