interest, is sometimes confused with rent, whereas the two are quite different
from each other.
Rent is a
payment made periodically for the use (not consumption) of an asset, for
example for the use of some land, building a machinery.
On the other
hand, two simultaneously present conditions are present in any transaction
which involves Ribā.
benefit (in cash, kind, service or spirit) over and above the value of the
commodity lent is made a condition by the lender for the loan he gives.
commodity borrowed, or its value, is to be ‘recreated’ by the borrower if he
uses up the commodity or part of it so that he may return it, or its value, to
To use the
terminology of accountancy, Ribā is charged on circulating capital whereas
rent is charged on fixed capital. It must be remembered that the nature of a
transaction, not the commodity involved, determines whether the capital is
circulating or fixed. For example, some equipment hired for producing other
goods will be categorised as fixed capital, whereas the same equipment
borrowed as stock-in-trade for sale by a trader who sells such equipment will
be circulating capital.
Mr B rents
his house to Mr A for one year at Rs. 500 per month. If in one of these months
Mr A does not have Rs. 500 to pay the rent, he will only have to vacate the
house. In other words, he will have to return the asset he was using. He will
not have to ‘re-create’ the building to return it to the lender. This
arrangement pertains to rent not Ribā.
But if Mr A
borrows some wheat from Mr B and has to pay Rs. 100 every month as interest,
this arrangement involve Ribā. The reason is that Mr A will first use up
(consume) the wheat and then will have to ‘re-create’ it (or its value) to
return it to
In the case
of rent, Mr A is never burdened beyond his ability to pay. If he is unable to
pay the rent in any given month, he will have to vacate the premises at most.
However, in the case of Ribā, if he is unable to pay his dues, the lender has
the right to demand not only the interest but also the ‘re-creation’ of the
value of the commodity borrowed by Mr A, who at this stage, obviously does not
even have the ability to pay the interest.
It is clear
that in the case of Ribā, the very nature of the arrangement is indicative of,
and indeed based on, a great deal of indifference, apathy and callousness
towards the borrower by the lending as the arrangement takes no account
whatsoever of the conditions of the borrower before holding him liable for the
total payment the it entails. Occasionally, a situation arises in which the
creditor sells the personal property of the borrower to get the interest and
the value of the commodity loaned.