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History Of Usury During Prophet’S (PBUH) Era

Before the dawn of Islam, the Makka, the Holy city of Arabian Peninsula, was the centre of world trade and regarded as a safe heaven for investors and business people. Trader’s caravans used to make two trips-north and south- to and from Makka during the summer and winter. Amid this relative security and local prosperity in trade and business, it was obvious that primitive system deposits and the utilization of money shall appear in pre-Islamic Makka society.

Mostly goods are exchanged on bartered basis while payments also made in Dinar and Dirham coins. Dinar coins were in gold while Dirham coins were in silver. The parity between Dinar and Dirham was 1.12.

The business of money changing was common. Similarly, lending money on interest (Riba) was also common in Arabian Peninsula. The Jews of Medina, Banu Nadir, monopolized local business. They lend money to local people and charge high rate of interest. It was their main source of income.

They were in majority and wealthy community as compared to other communities while the Quresh tribe of Makka was the men of trade and commerce. They pooled financial resources for carrying out large business ventures and share profit according to proportion of their contribution.(Warde-2006).

However, when Holy prophet (MPBUH) along with his companions migrated to Medina the concentration of business activities were also shifted from Mecca to Medina. The Holy Prophet and his companions were experienced and honest traders and the residents of Medina took full advantage of their presence.

Medina was an agrarian city and most of its residents were engaged in agriculture activities. But after the arrival of the Holy Prophet the entity of that city was changed and it was emerged as one of the main business cities of Arab region. (K.Ali, Study of Islamic History, p.59).

The tiny Muslim state was emerged from the city of Medina and was transformed into the big empire of the world due to introduction of pro-poor, equitable and welfare-oriented financial system. The next four to six centuries saw a continuous expansion of Muslim empire and high living standard of its citizens.

The Muslim’s love for trade is expressed by Goitein (1967: 55) in these words: “Merchants, craftsmen, and scholars alike would be combine journeys undertaken in their personal interests with pilgrimages to holy places. The Muslim pilgrimage, of course, far outstripped in importance those of the other two religious.

In the first place, pilgrimage was one of the main religious duties of a Muslim, whereas in Christianity and Judaism it was only a meritorious deed. Secondly, from its very inception, the pilgrimage to Mecca was connected with the great transcontinental trade and remained so throughout the Middle Ages. The standing wish for a Muslim pilgrim was: “May your Hajj be accepted, your sin be forgiven and your merchandise not remain unsold.”

Usury in conventional Banking:
Early conventional banking had its origins in Italy. The profession grew out of the trade boom of the socalled commercial revolution of the High Middle Ages (1000–1350). By the early modern period, however, banking spread throughout Europe and became complex and increasingly involved in credit transactions.

By the late thirteenth and fourteenth centuries there were three types of banks:
1. International merchant banks;
2. Local deposit banks, and
3. Pawn broking establishments.

These categories were not exclusive: the same businessmen sometimes engaged in two or all three types simultaneously. Although the Florentine banking system fell into crisis in the sixteenth century, yet Italians remained active in international banking into the seventeenth century.
In the meantime, banking on the Italian model grew in southern Germany and other parts of Europe. The most notable of the firms was the great Fugger Banking Companies of Augsburg named after Hans Fugger, a renowned trader of fourteen century weaver. These banks were engaged in a range of activities, including speculation in the money market and trade in commodities.
The conventional banking system that was originated in Italy moved to Spain and then to Holland, until it settled in England. The commercial activity in England was motivated by a group of Lombardian traders emigrated from Italy in the 14th century A.D.
The new comers settled in that part of London which is known today as the famous Limbard Street. With their arrival in London, the most important part of banking operations, the documentary credit and lending operation of usury were commenced. Most of these emigrants were Jews.

Legalization Of Interest
In 1545 the British King Henry III through his order allowed the Jews to charge maximum 43 percent interest on loans per annum. The fixation of interest rate ceiling was aimed at cooling down the sentiment of the public, on one hand, and permitting the Jews to charge 43 percent interest rates on loans, on the other hand.

The enactment of this law, in fact, was an attempt to legalize the charging of interest, which was prohibited by the Church since long. The law was passed under the influence of the Jews who were the major beneficiary because 43 percent interest rate was too much.

To get approved this law the Jews bribed the English parliamentarians because it paved the way for institutionalization of interest and was a first step towards formal introduction of interest-based banking system.

The formal permission interest charging created favorable environment and prompted other communities to rush into this money-making field. The English jewelers took advantages of new business opportunity and started money lending on interest. They offered low rate of interest as compared to Jews and Lombardians.

After legalization of interest, the Jews founded commercial banks on the pattern of joint stock companies and hided themselves behind the veil of banks by institutionalizing interest that saved them from the wrath of people who always revolted against them for charging high rate of interest in about all European countries.

By: Arslan Ziad

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