Trade versus riba in the Qurʾān with a critique of the role of bank-saving

Abstract

PurposeThis paper aims to explain the dynamics of the inner inter-variable functional relations of trade versus oppositely coterminous variables of interest rates as shadow rates of interest. Such an explanation of trade versus riba relations has not been covered in the literature on Islamic economics and finance. Furthermore, the consequences of understanding the trade vs riba rule in relation to the bank-saving function remains absent in the literature. This problem as an important one between trade-interest rate and bank-savings interrelationship is studied. An empirical explanation is given besides the analytical explanation. This paper therefore presents an original and substantive topic to study.Design/methodology/approachThe avoidance of usury and financial interest have equivalent injunction in the Qur’an by the riba rule. To attain and implement the riba-avoidance rule, it is necessary to understand this rule in terms of its adverse relationship; and contrarily by the positively complementary interrelationship between trade, money, finance and the real economy under the impact of the riba rule. In explaining such inter-causal relationships, certain analytical matters stand out as key points. These are studied in the light of the Islamic methodological basis of the ontological law of participatory oneness as monotheistic unity of knowledge and its impact on the understanding of the trade versus riba and bank-savings rule.FindingsFirst, bank-savings cause withdrawal of resource mobilization and thus rupture the positive complementarities between the purpose and objective of the Shari’ah (maqasid-as-shari’ah) variables. Second, to deeply understand the rule of establishing trade versus the practice of riba (financial interest) and the needed theory of complementary inter-variable relationships to enable the relationship of trade versus riba, it is fundamentally necessary to understand the Qur’anic epistemological premise of Tawhidi unity of knowledge as organic unity and its induction in the generality and details of the problems under study.Originality/valueSuch an explanation of trade versus riba relations with the instrument of bank-savings has not been covered in the literature on Islamic economics and finance. It is therefore an original and substantive issue to study.