QUESTION: What is Riba and how have Muslims circumvented the Qurans instructions against making loans with interest?
ANSWER: There's oodles of stuff on the internet explaining Riba and interest. After a certain level it gets complicated. But three loopholes came to light in my research:
(1) some folks simply define "Riba" to mean /excessive/ interest, such as 20% -- interest that will put a serious burden on the endebted person, or take advantage of his need for a loan induced by some emergency.
(2) there are two kinds of "Riba" and some folks may take the prohibition to refer to one kind (which involves a change in the type or quantity of goods being bartered), but not to the other (which directly involves charging interest on money). Or vice versa.
(3) the charging of interest may be delegated to a third party. The idea here is something like this: Bill loans Bob $100, to be collected in 30 days. Then Bob moves away and becomes unable to return. After 30 days, Bill goes to Bob to collect his money. Bob gives Bill the money, and gives Bill some money to cover the expenses of traveling to Bob. Technically this is not interest. Moving from that line of reasoning, suppose Bill /and/ Bob become immobile, or perhaps Bill simply does not want to make that long trip. Bill has a friend -- Bubba -- go to Bob to get Bill's $100. But Bubba not only has $5.00's worth of expenses to cover, he also wants to make a profit of $15.00 -- he's not making the trip for nothing. So Bill hires Bubba to go to Bob, and Bob pays Bubba $5 to cover the expense of the journey and the $15.00 that Bubba is charging Bill. (After all, why should Bill be penalized? -- as long as this is agreed to beforehand.) Then Bubba returns to Bill with the $100, and Bubba gives Bill the $100 and keeps the rest. Bob was loaned $100 and ends up paying, say, $120. But the difference is to cover the business-expenses and to pay Bubba; it's not interest.
Now it gets complicated: suppose that Bill and Bubba are partners in a bank. Bob got $100 from Bill, and pays $120 to Bubba. Then Bubba takes $100 and gives it to Bill, leaving $5 to cover Bubba's travel-expenses and $15 to pay him for his services. As long as Bubba does not actually give that $15 to Bill, it is not interest. But Bill and Bubba can have an understanding, as partners in a bank, that they will use their funds separately but co-operatively. So, while separately, neither Bill nor Bubba is charging interest, the bottom line has the same effect as if they were: i.e., Bill-and-Bubba loaned $100, and Bill-and-Bubba ended up with $115, even though Bill ended up with the same amount he started with (so, no interest there) and Bubba never made the loan in the first place (so there's not even the possibility of interest there).
Yours in Christ,
Waterrock
ANSWER: There's oodles of stuff on the internet explaining Riba and interest. After a certain level it gets complicated. But three loopholes came to light in my research:
(1) some folks simply define "Riba" to mean /excessive/ interest, such as 20% -- interest that will put a serious burden on the endebted person, or take advantage of his need for a loan induced by some emergency.
(2) there are two kinds of "Riba" and some folks may take the prohibition to refer to one kind (which involves a change in the type or quantity of goods being bartered), but not to the other (which directly involves charging interest on money). Or vice versa.
(3) the charging of interest may be delegated to a third party. The idea here is something like this: Bill loans Bob $100, to be collected in 30 days. Then Bob moves away and becomes unable to return. After 30 days, Bill goes to Bob to collect his money. Bob gives Bill the money, and gives Bill some money to cover the expenses of traveling to Bob. Technically this is not interest. Moving from that line of reasoning, suppose Bill /and/ Bob become immobile, or perhaps Bill simply does not want to make that long trip. Bill has a friend -- Bubba -- go to Bob to get Bill's $100. But Bubba not only has $5.00's worth of expenses to cover, he also wants to make a profit of $15.00 -- he's not making the trip for nothing. So Bill hires Bubba to go to Bob, and Bob pays Bubba $5 to cover the expense of the journey and the $15.00 that Bubba is charging Bill. (After all, why should Bill be penalized? -- as long as this is agreed to beforehand.) Then Bubba returns to Bill with the $100, and Bubba gives Bill the $100 and keeps the rest. Bob was loaned $100 and ends up paying, say, $120. But the difference is to cover the business-expenses and to pay Bubba; it's not interest.
Now it gets complicated: suppose that Bill and Bubba are partners in a bank. Bob got $100 from Bill, and pays $120 to Bubba. Then Bubba takes $100 and gives it to Bill, leaving $5 to cover Bubba's travel-expenses and $15 to pay him for his services. As long as Bubba does not actually give that $15 to Bill, it is not interest. But Bill and Bubba can have an understanding, as partners in a bank, that they will use their funds separately but co-operatively. So, while separately, neither Bill nor Bubba is charging interest, the bottom line has the same effect as if they were: i.e., Bill-and-Bubba loaned $100, and Bill-and-Bubba ended up with $115, even though Bill ended up with the same amount he started with (so, no interest there) and Bubba never made the loan in the first place (so there's not even the possibility of interest there).
Yours in Christ,
Waterrock
