What is the true scope of the transactions to which the bar of Ribā is applicable? Can the term Ribā be also applied to the commercial or productive loans advanced by the banking and financial institutions and to the interest charged thereon?

As already explained in the answer to the previous question (Explanation 3), the basis for determining the meaning of the word Ribā is usage. There is nothing in the meaning of the word or in the context in which the Qur’ān has prohibited Ribā that specifies that Ribā on loans extended for commercial or productive loans does not fall within the scope of the meaning of this word. In fact, the following verse of the Qur’ān clearly shows that in Qur’ānic times people used to give loans for these purposes, and that the Qur’ān has condemned the practice of charging Ribā on such loans:

And the Ribā bearing loan1 that you give that it may increase in the wealth of others does not increase with Allah; and the Zakāh that you give to earn Allah’s pleasure, these are the people who shall get manifold [in the Hereafter]. (30:39)

Javed Ahmad Ghamidi says of this verse:2

The expression ‘... that it may increase in the wealth of others’ is not only inappropriate for application to Ribā based loans given to the poor for their personal use, but is also clearly indicative of the fact that Ribā based loans for commercial purposes were given generally, and in this way ‘increased in the wealth of other people’.

Nevertheless, some scholars hold on the basis of 3:130 that the Ribā the Qur’ān prohibited referred only to exploitative interest. For further details on why this viewpoint simply does not fit in with the Qur’ān, see Appendix 3.

1. The word Ribā has been used herein a manner which, in Arabic linguistics, may be referred to as تسمية الشئ بمائيول اليه, that is ‘naming a thing on the basis of its origin’. In other words, the loan which results on the basis of a Ribā based transaction is referred to as Ribā here. This is a literary style and is used here without prejudice to the denotation of the word Ribā. For example, figuratively, one night say إنى اَعْصِرَ خمرًا (verily, I squeezed / pressed wine), whereas the person actually squeezed or pressed grapes not wine. For more information on this style, see Amīn Ahsan Islāhī, Tadabur-i-Qur’ān, 5th ed., vol. 6 (Lahore: Farān Foundation, 1989) p. 99.

2. Javed Ahmad Ghamidi, ‘Devouring Wealth through Evil Means’ [Translated by Shehzad Saleem] Renaissance, IX (March 1999), 14.