Are all interest considered riba and haram or impermissible in Islam? If not, then what are the interests that have been forbidden in Islam and what are permissible?
A thorough understanding on the essence and character of permissible interest need to be explored and researched. The term interest has been generally considered as riba and generally considered unlawful by the general Muslim community. The former Grand Mufti of Egypt Sheikh Ali Jumu`ah said in his lecture, Al-Fawaid Al-Bankiyah Laysat Al-Riba Al-Muharramah Fi Al-Adyan,
“Firstly, riba is impermissible. It is a clear and unquestionable matter in the religion. In fact, riba is forbidden in all religions of the world, and not only in Islam. Riba is like zina (fornication), where a sane person would not accept zina from any religion.”
He further said, “Allah has made pig impermissible. If someone place before us a goat and we call it pig, does it make the goat impermissible? It is just a name that has been given to the goat. If the whole village have unanimously agreed that the goat is called a pig, it will never make the goat unlawful.”
He then states that the monies that are placed in banks are not loans.
There are differences between loans and investments. The monies placed in banks are used for investments. His statements call for an in-depth study on interest distributed by banks and to differentiate it between permissible and non-permissible interest. In this article, we are focusing on the interests which are distributed in the Singapore Government Savings Bonds (SGSS).
Relooking at riba
This matter of relooking into the actual essence and interpretation of interest, and its difference with riba that is forbidden in Islam has been originally brought forth by the Late Grand Sheikh of Al-Azhar Syed Muhammad Tantawi.
His idea and opinion on the reinterpretation of interest and explaining the differences between permissible and non-permissible interest have received wide criticism by many scholars. Nevertheless, his idea and opinion can be considered revolutionary since they have triggered many other scholars to restudy and to reclassify the various forms of interest and their religious rulings in Islam. His opinions have been given support by the former Grand Mufti of Egypt Sheikh Ali Jumu`ah.
The author of this article opines that the opinions forwarded by both scholars i.e. Sheikh Tantawi and Sheikh Ali Jumuah require serious scrutiny, have to be restudied and should be given its due worth and appreciation.
Sheikh Syed Muhammad Tantawi stated in his book, Mu`amalat Al-Bunuk Wa Ahkamuha Al-Shar`iyah,
“We do not see any arguments from a religious text or qiyas which could give comfort to us, which stop anyone from receiving profits in advance. As long as this determination (of profits) has been agreed upon through the process of choice and consent from both parties. And through this agreement, whoever wishes to transact with banks which have predetermined the profits in advance is free to do so, and there is no issue in relation to the Shariah. And the measure of impermissibility or permissibility is not in the predetermination or non-predetermination of profits, but the real measure is that the transaction must be devoid or clear of cheating, fraud, riba, injustice, exploitation and anything close to it which are vices which have been made impermissible in Islam by the Shariah.”
In his statement, Sheikh Tantawi has determined one of the characters of impermissible riba which is, “cheating, fraud, riba, injustice, exploitation and anything close to it.”
If the security issued by the government in the SGSS is free from all the characters that have been mentioned by Sheikh Tantawi, then we have freed ourselves from one of riba’s requirement.
There have been many discussions arising from the opinions of Sheikh Tantawi on his views to the profits created by conventional banks.
The author humbly disagrees with his opinions with huge due respect on the status of interest in normal or conventional banks. There is a huge and vast difference between operations found in conventional banks and the operations of Central Banks or government banks. The objectives of conventional banks are to maximise profits for its shareholders and are profit driven. It contains features that has been mentioned by Sheikh Tantawi on impermissible interest. On the other hand, Central Bank’s objectives are to serve the nation and its population. Thus, the opinions brought forth by the two scholars on the permissibility of interest should be directed towards Central Banks, government Banks or Monetary Authorities. Their opinions are absolutely congruent and suited towards Central Banks that pay out interest for the issuance of securities such as bonds and notes.
The features and the special relationship that were created between securities holders and Central Banks are unique as compared to the relationship between borrowers and lenders in conventional banks.
Not all interest is riba
This issue as any matters concerning interest and riba would be contentious and controversial. Before any issue is discussed and deliberated, the foremost matter that should be explained is the correct understanding of the subject matter. What are the differences between interest that are permissible and interest that are non-permissible?
As the maxim goes, Al-Hukm `Ala Shai’ Far` `An Tasawwurih (the ruling on a subject matter is a branch of its full picture). This maxim states that a ruling or a religious opinion can only be made after a full and accurate understanding of the subject matter has been made. Thus, a proper and solid understanding of the Singapore Government Savings Bond or SGSS needs to be presented before a proper ruling could be made and decided.
A thorough discussion should also be made on the actual relationship between the government and its citizen before a correct and fair judgement could be made on the status of coupons and interest issued by the government in the SGSS.
Much discussions can be found in classical text made by classical scholars on the legality and permissibility of interest issued between a son to his father and a master to his slaves. In contemporary time, this opinion has been used and equated to the status of interest between a subsidiary to its parent company.
A loan between a father and son, or between an owner and his slaves is considered by some scholars to be interest that is permissible. The reason behind it is that the money is originated from the same source and distributed back to the same source. The hand that gives, and the hand that receives come from the same hand. And the element of “cheating, fraud, riba, injustice, exploitation and anything close to it” would not be present. The question that arise is: Is the relationship between the government bank and the bond holders akin to the relationship between father and son, or master with his slave? Or the relationship between a parent company and its subsidiary. Are interests charged between a parent company and its subsidiary considered riba?
To get to the bottom of this matter, we need to understand the sources of monies received by the government and the monies contributed by the bond holders. Are they derived from the same source? What then is the relationship between the citizens and the government?
The citizens are the ones who formed the government to run their daily lives and to ensure the smooth running of the country. The citizens could be considered as owners and the parent company of the government. The government was formed through democratic selection process of the citizens. And the citizens are the ones who pay for the running of the government through their taxes. They are effectively the owners of the government.
When the government requires monies to build projects and infrastructures, it would call out on the citizens to invest and put in their monies via issuance of securities such as bonds, treasury bills and notes. A fixed amount of returns is distributed to the investors via issuance of coupons or interest.
Does this mean that the money that gives the fund and the hand that receives the interest is the same hand?
What is a government?
Government has been defined as,
“A group of people that governs a community or units. It sets and administers public policy and exercises executive, political and sovereign powers through customs, institutions, and laws within a state. A government can be classified into many types—democracy, republic, monarchy, aristocracy, and dictatorship are just a few.” (Business Dictionary, www.businessdictionary.com )
Government are bodies that look after the interest of its population and would spend monies and resources to improve the lives and qualities of the community. When government requires fund or monies for projects or the building of infrastructures, it would take loans through the issuance of Bonds, Certificates and Notes to the public. The bonds, Certificates or Notes holders would receive coupons or fixed interest. Are the interests from these issuances considered as impermissible riba?
This author would not think so due to the arguments that have been forwarded. The government in reality is owned by the people and its community. The citizens are the ones that create the government to govern over themselves and they would also be the ones that bring down the government if they are not competent in their work and do not perform according to their required responsibilities.
The Government gets its resources and budget through charging various forms of taxes. When they are in deficit or if there is a possibility of defaults from the loans taken from the public, they could charge higher taxes.
The public and citizens are in essence the ones who gave the loans to the government. And when the government distribute the interest from the loans received, they are in essence giving themselves the interest payments. It would be seen coming from one source of fund. The giving hand and the receiving hand is the same. Thus, this are interest which are permissible in Islam.
As stated in, “The Singapore government’s total revenue is estimated at S$69 billion as of the third quarter of 2017. As with most governments, Singapore earns the bulk of its revenue from taxes- income, property, excise and customs duties, as well as GST.” (www.guidemesingapore.com)
Are SGSS loans or investments?
Do we look at the form or the substance of riba? Is Islamic finance, much has been discussed between form and substance. But when it reaches its final decision, many experts state that the substance would be the decider and not the form.
A matter could have the same name or exterior but if the essence and substance is different, it should have different rulings.
There is a huge difference between loan and investments.
Sheikh Ali Jumuah furthers states in his lecture, “The maxim which states: All loans that generate benefit is riba, is a maxim which is generally accepted and it should not be questioned. But the monies that are placed in banks are not loans but considered as investments. Same as what we have said before between a goat and a pig. A goat being called a pig does not make the goat unlawful.”
In this matter, we need to differentiate and determine the purpose and the usage of the monies collected in SGSS. Is it used for investments?
Loans which do not generate profits and returns but rented to lender are the main reason Islam forbids the lender from benefiting and receiving additional payments. This interest which is detrimental to the borrowers is known as riba and are unlawful in Islam.
Investments on the other hand generate profits and returns and thus fair for the investors to receive payments beyond the monies that have been invested. These profits generated should be fairly distributed between the investors and managers.
Are the monies received through SGSS used for projects and investments that would be beneficial to the population, as well as giving economic value to the country? The answer would be yes.
In www.gov.sg, the Singapore Government explains its policy on debt,
“In Singapore’s case, our outstanding debt comprises Singapore Government Securities, Special Singapore Government Securities and Singapore Savings Bonds, which we do not issue to spend. We instead invest all the borrowing proceeds. These borrowings are thus backed by assets. What we earn in investment income from our assets is more than sufficient to cover the debt servicing costs. The Singapore Government in fact has a strong balance sheet with assets well in excess of our liabilities.”
It further states,
“The three types of domestic debts securities are for reasons unrelated to the Government fiscal needs:
1.Singapore Government Securities (SGS) are issued to develop the domestic debt market. SGS are marketable debt instruments issued for purposes of developing Singapore’s debt markets. They provide a risk-free benchmark against which other risky market instruments are priced off.
2. Special Singapore Government Securities (SSGS) are non-tradable bonds issued specifically to meet the investment needs of the Central Provident Fund (CPF). Singaporean’s CPF monies are invested in these special securities which are fully guaranteed by the Government. The securities earn for the CPF Board a coupon rate that is pegged to CPF interest rates that members receive.
3. Singapore Savings Bonds (SSB) are non-tradable bonds issued to provide individual investors with a long-term saving option.
Under the Government Securities Act, the Singapore Government cannot spend the monies raised from these three existing domestic debt securities. All borrowing proceeds from the issuance of SGS, SSGS and SSB are invested. These investment returns are more than sufficient to cover the debt servicing cost.”
The reasonings presented above have shown that the relationship between the citizens of a country and its Central Banks is unique. And due to the innovation of Central Banks in the 1600s, its true essence and functions have not been thoroughly studied.
The origination of funds, usage of funds and purpose of funds go to the same parties which are the citizens of the country. It comes and goes to the same hands. Regardless of whether it is riba or otherwise, it could be regarded as permissible riba which is halal in Islam since it is devoid of its impermissible nature such as cheating, fraud, riba, injustice, exploitation and anything close to it.
Lastly, the usage of the funds is for investment purposes which benefit the whole general population and the interest distributed in the form of coupons should be considered as profits.