The following text was posted to IBFNet during May 2002.

I hope we agree that it is riba to lend 90 units of money under a contract in which 100 is to be repaid in one year's time, and that such an arrangement remains riba irrespective of the use to which the loaned money is put. To issue a one year bill today of face value 100 at a discount of 10, is to effect an identical loan transaction except that now it has been achieved using a security. If the buyer of the bill sells it for 91 tomorrow, then the new holder has paid 91 in return for 100 to be received in due course from the issuer. In this secondary market contract, who gives what to whom is immaterial in identifying the fact of riba. A contract has been made to exchange some money now for more money later, so the discussions can end there.

If the idea being considered by brothers Tariqullah Khan and Umer Chapra comes to fruition [see their assessment of debt trading in Regulation and Supervision of Islamic Banks, IRTI, 2001], Islamic financial theory will be in the position of regarding bill transactions as haram if the bill is an "accommodation bill" (i.e. originated through a money lending transaction), but halal if the bill is a "real bill" (i.e. originated through the sale of real goods and services). This amounts to saying that a Muslim can legitimately agree under contract to exchange some money now for more money later under certain commercial circumstances (namely, the real bills circumstances). No one should underestimate the enormity of this statement, nor the kinds of doors that it would open in a world full of sophisticated arbitrageurs.

Some time before 1220 CE, the Christian scholar Hispanus proposed a form of loan that did not contain usury but which was not free of financial gain to the lender either. A payment was indeed made by the borrower to the lender, one that Hispanus described as "interesse". According to some commentators the origin of the word interesse is in the Latin for "that which is in between". The principle underlying interesse was that if a borrower of money was late in repaying a loan then the lender could be compensated for loosing the benefit of that money during the period in between the date on which repayment should have been made and the date on which repayment was actually made.

Over a period of some three hundred years there arose the innovation that a compensation for the loss of use of money could be charged from the outset of a loan, not simply where a borrower was late in making repayment. The word interesse gradually fell from usage, to be replaced by the now familiar term "interest". By the 1540's CE, King Henry 8th in England allowed the charging of interest up to a rate of 10%. Anything more than 10% was nasty evil usury, anything less was permissible interest. The threshold between interest and usury would occasionally be altered by the passage of parliamentary laws until the middle of 19th century, after which time even the threshold was abandoned. Today we still occasionally hear that people are being charged "usurious rates of interest", but the distinction is wholly fallacious because originally any rate of return on a loan was regarded as being usury, not just a high rate of return.

The concept of interesse was an early example of the use of semantics to overcome a prohibition. If it was haram to practice usury, then it was much simpler to redefine the meaning of the term "usury" than to overturn a religious law that had held for several centuries. This insincere methodology soon gave rise to the "Contractum Trinius", the Triple Contract. Here, a merchant wishing to undertake business would agree to receive money from an investor on a profit and loss sharing basis. The investor would then insure himself against loss with the merchant. Finally (in the third step of the Triple Contract) the investor would sell back to the merchant the right to any profits over and above an agreed percentage. Each of the three steps was permissible under the Christian Canon law, but together they effected a loan at interest (see John Noonan "The Scholastic Analysis of Usury" Harvard 1957) ¹.

Noonan's history of the way in which the Christian prohibition of usury came to be defeated by the commercial classes and their academic friends should fill our students with fear. Now some Muslims are repeating that history, following the Christians and the Jews step by step, practicing the Islamic triple contract with their perversion of murabahah. They follow the Western methodology, copying whatever the West has in the belief that there must be an Islamic equivalent. Today that involves Islamic bonds and Islamic credit cards. Tomorrow it will involve Islamic alcohol and Islamic fornication.

In this respect, two examples from the Khan and Chapra paper are worthy of note. Firstly, we find that the sale of a loan at a discount is discussed with the remark that: "... development of a general agreement on this important issue would help create a secondary market for such debt instruments and thereby lead to the accelerated development of an Islamic money market." The writers seem to have been convinced of the idea that there should be an Islamic money market, then they elevate this supposed benefit to the extent that it challenges a fundamental consensus against the trading of debts at a discount. Then come semantics of which Hispanus would be proud: "Therefore, when the bank sells such a debt instrument at a discount, what it is relinquishing, or what the buyer is getting, is not interest but rather a share in the profit."

Unrestricted by religion or by secular law, usury has produced global economic oppression of a kind that was unimaginable even a generation ago. If we do not fight it, who else will do so? We have grown used to the sight of Muslim communities being destroyed one by one, and made our excuses for inaction. But at the intellectual level, what excuse do we have? Here, the best of weapons are still at our disposal. We can deploy them with a fitting battle cry, or lock them in a quiet room and sing a tired old song of compromise.

Editorial, May 2002

¹ [ed. corrected from original post which gave the title as "The Scholarly Inquiry into Usury"]