About the Author(s)

Muritala K. Kareem Email
Department of Arabic and Islamic Studies, University Of Ibadan, Nigeria


Kareem, M.K., 2017, ‘On the meaning of Ribā [interest] and its effect on the Nigerian economy’, HTS Teologiese Studies/Theological Studies 73(3), a4573. https://doi.org/10.4102/hts.v73i3.4573

Original Research

On the meaning of Ribā [interest] and its effect on the Nigerian economy

Muritala K. Kareem

Received: 30 Mar. 2017; Accepted: 24 June 2017; Published: 28 Sept. 2017

Copyright: © 2017. The Author(s). Licensee: AOSIS.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


The role of financial intermediation in a modern capitalist system hinges mainly on the taking and charging interest. While some Islamic scholars consider interest to be lawful for Muslims to take or charge on their transactions, many Islamic scholars consider charging or taking interest to be non-shari’ah compliant. It is against this backdrop that the paper sets out to provide a correct articulation of the meaning of ribā [interest/usury], which is the foundation stone on which the conventional financial institutions are based and examines its effects on the Nigerian economy. Using information about the forms and structure of socio-economic transactions during al-Jahiliyyah (pre-Islamic) period in Makkah and during the Prophet’s time in Makkah and Madinah, we found that interest of all kinds is prohibited. The practice of interest payment in a modern capitalist economy is against the dictates of the Shari’ah. The article finds that debt servicing has badly affected the economic growth development of Nigeria. The article reveals a sharp increase in the amounts used to finance the country’s debt obligation. The debt servicing as a percentage of the capital expenditure has been increasing greatly since 2011 to till date. The percentage of debt servicing to capital expenditure in Nigeria from 1981 to 2015 has been very high for the country, with an average of over 59.0% under the 35 years considered in this study. In some years, this ratio was over 100.0% reaching its peak at 150.4% in 2003. In 2015, the ratio stood at 129.57%. This could account for low level of development in the country. The negative impact of debt servicing on the economy serves as a barrier to poverty alleviation, economic growth and development.


The world economy is dominated by the financial system which is supposed to eradicate poverty or at the least alleviate it and to foster economic growth and development of a nation. The latter is in crisis. Governments and central banks worldwide used both conventional and non-conventional measures to deal with the problem of poverty. However, the negative effects of the financial crisis still linger to date. Until very recently, the financial system has been dominated by the conventional financial institutions whose major tools are charging and taking interest on loans. That a large majority of the world population still lives in poverty calls for concern. Of the causes of the financial crisis such as corruption, warfare, climate change, the effects of terrorism and interest, the latter plays a major role. This is because many corporate bodies and individuals that took loans could not pay back the loans with their associated interest as and when due. It is true that some countries among under-developed states did achieve respectable economic growth rates. These count for nothing when evaluated in terms of the objectives of eliminating mass poverty. In fact, the inability of the conventional financial institutions to help solve substantially the problems of poverty in underdeveloped countries may be attributed to lack of access to finance as a result of people’s inability to provide collateral securities which are regarded as prerequisites to taking loans and to pay the interest due on the loans as and when due. While some Islamic scholars such as Omar believe interest is not prohibited, many erudite scholars of note consider charging or taking interest to be non-shariah compliant. Therefore, this paper sets out to provide a correct articulation of the meaning of ribā (interest/usury) which is the foundation on which the conventional financial institutions are based and examines its effect on the Nigerian economy.

Interest is one of the major differences between the way the economy is organised in the global economy and the Islamic economy. The inability of the low-income earners to demand interest-based loan as there is no assurance to pay back loans with their interests as and when due limits the incentive to invest. Because the level of income is low, the level of savings is also low. Therefore, very little supply of investible surplus and very little demand for such funds for investment would limit the economic growth and development of the poor countries. This is a vicious circle of poverty that the conventional financial institutions could not improve, let alone removing it. Income per head would be kept at a low level in such a situation. Therefore, there is a need to raise per capita income of the poor to a self-sustaining level by empowering them with interest-free loans. If financial system could not eliminate or reduce to the bare minimum level poverty, unemployment and inequality, it would not be appropriate to see any development in such a country. The plan of the article is as follows. After Introduction, the next section presents definitions of ribā. The problems associated with the definitions are enumerated in the section with a view to getting our working definition. In the ‘The economic life of Arabs before Islam’ section, the forms and structure of socio-economic transactions during al-Jahiliyyah period in Makkah and during the prophet’s time in Makkah and Madinah are given. This is very important for understanding the intended meaning of ribā. The ‘Money and interest compared’ section discusses interest in relation to money, profit and rent. The next section examines the prohibition of ribā during the classical period and other periods. The extent to which the prohibition of ribā is viewed in the world’s main religions such as Judaism, Christianity and Islam is presented in this section. The section entitled ‘The effects of interest (ribā) on the Nigerian economy’ presents the effects of interest on economy. Here, the Nigerian economy is cited as an example. The last section concludes the article.

Sources of data

The collection of data for this work is first based on textual and historical analyses of the relevant books such as the Qur’an and the Bible. Secondly, the 2015 Statistical Bulletin of the Central Bank of Nigeria, Section B is used. The dates used cover the period between 1981 and 2015, which means there are 35 observations for each variable. The data sets include the data on gross domestic product (GDP), total revenue, total expenditure, capital expenditure, export earnings and debts servicing with a view to seeing the proportion of each of the variable used to service debts. The data is analysed using percentages.

Definitions of Ribā

The concept of ribā is very difficult to define for it belongs to the category of terminologies, which are not amenable to a single definition. It is partly so because ribā in Arabic means different things for Arabic language is so rich that a word may carry more than two or three meanings. For instance, darsu (درس) ( may mean effacement, obliteration, study, lesson, a chapter in a textbook, class hour, etc. (Cowan 1960:278). Here, an attempt is made to define ribā literally and technically.

Literal meanings of Ribā

Lexically, ribā means excess. It is an Arabic word derived from the word, rabā (ربا) which means to grow or increase (Ibn Manzur 1968:304–307). In the Qur’an, the derivatives of the word ribā are used to mean to prosper (Q2:276), to nurture or to raise (Q7:74), to swell (Q13:17), to grow (Q22:5), to rise (Q23:50) and to increase in power (Q69:10), to mention but a few. The word ribā and its derivatives are used in the Qur’an 20 times. In the Hans Wehr Dictionary of Modern Written Arabic (Cowan 1960:324), ribā is translated to mean interest, usury, to grow, to exceed, to raise, to rear, to bring up, to practise usury, etc. Other Arabic dictionaries give one or more of the above-mentioned translations of ribā. According to Lisanul-Arab, the root of ribā is increase while al-Munjid gives the translation of ribā to mean growth. All these meanings have a common feature of stressing the point that ribā deals with increase.

Technical meanings of Ribā

Technically, ribā means an addition over and above the principal lent. Some renowned Qur’anic commentators define ribā in different ways. The original meaning of ribā is excess and in the terminology of the Sharī‘ah, it means increase on the principal without any contract of sale having taken place (Shaykh Safiur-Ralmam, and Group of Scholars 2000:70). Abubakr, in his work, Ahkamul-Qur’an defines ribā as the loan given for a specified period on condition that on the expiry of the period, the borrower will repay it with excesses (Abubakr al-Jassas 1347 A.H:451–465). Yusuf (1999) says:

Ribā means usury. It is an undue profit made, not in the way of legitimate trade, out of loans of gold and silver, and necessary articles of food, such as wheat, barley, dates and salt (according to the list mentioned by the Prophet himself). My definition would include profiteering of all kinds, but exclude economic credit, the creature of modern banking finance. (p. 128)

Ribā means an excess on the principal (Sayyid Qutb 1980:473). Ribā is an unjustified increment in borrowing or lending money, paid in kind or in money above the amount of a loan, as a condition imposed by the lender or voluntarily by the borrower (Ahmad Qudamah al-Miqdasi 1973:64–77). Ribā refers to a loan with the condition that the borrower will return to the lender more than the quantity borrowed (Shah Wali Allah Dihlawi 1953:474–475).

In general, ribā may, therefore, be defined as the payment of an unjustified increment on the amount borrowed, which is paid in kind or cash above that amount, and which the borrower will return to the lender at intervals until the principal is paid back.

The problem of translation of Ribā

The lack of cohesion evident in the way ribā is used justifies and, indeed, necessitates the stipulation of a definition. An attempt is made to capture as completely as possible the strands of meaning of ribā. Our ultimate goal in stipulating a definition is not to find the one that agrees with every sense in which the word has ever been used in the Qur’an but rather to discover one on the basis of which a sound analysis of the financial institutions can be erected. Such definition may give the connotation that is in line with the injunction of the Qur’an on the intended meaning of ribā.

Ribā is a term, as many others found in the Qur’an, that translators give different interpretations. The first set of translators of the Qur’an among whom we have Yusuf Ali, Muhammad Ali, and Mahmud Y.Z, etc., translated the word ribā to mean ‘usury’, that is, charging exorbitant interest rate on a loan given while excluding simple interest (Mahmud 1980:32–33). They believed that the only interest that is prohibited is the exorbitant one, which is advanced for consumption purposes while the ones given for the productive purposes are legal inasmuch as it is reasonable because the borrowers use the money to make some profits. Therefore, it is reasonable to share part of the profit with the finance providers. However, it must be quickly mentioned that this is not allowed because it does not involve any exchange. It is also an income to the finance provider without putting in any effort; it is a sure gain, which is alien and repugnant to the spirit of doing business. A profit from a business is uncertain, and it is once. However, the reverse is the case regarding interest.

However, the latter translators such as al-Mawdud (Abul A’la Maududi n.d.:397) translated the word ribā to mean interest. They believed that ribā in Islam covers both usury and interest without any distinction between the two translations as both of them are increases paid on a loan to the creditor by the debtor no matter what the degree of increase. According to Seligman (ed.) in the Encyclopaedia of Social Science, ‘ribā is translated as usury but the word, interest, replaced the use of usury in the late middle ages’ (Seligman 1932:134). In Islam, whatever a large quantity of a thing is prohibited, its small quantity becomes forbidden. Even in the step-by-step prohibitions of ribā in the Qur’an, all the forms of ribā, simple or compound, are prohibited.

The economic life of Arabs before Islam

The economic life of Arab was mainly trade in view of the barrenness of their land, which could hardly be useful for agricultural purposes largely. Therefore, they depended on sheep and cattle rearing besides trade. This is to say that the economic life of the Arabs was mainly the profession of merchants and traders. Most of the Arabs were not well to do, while a few of them were very rich because they were usurers. Makkah was a world trade centre in Arabia, where people from all walks of life came there to transact business. This was because Ka‘bah, the ancient House attracted a large group of people who wanted to perform pilgrimage and to pay homage to their gods in the Ka‘bah, the House that was turned to the house of idols after it had been used by Prophet Ibrāhīm and Ismā’īl for the worship of Allah. During the pilgrimage, there were many people who came from all walks of life to Makkah and this boosted business transactions in the town. Makkah being a business centre enjoyed the circulation of capital. The economic system of the Arabs was based on ribā where the rich lent their money on interest because they considered it as a commodity like a trade. The Makkans believed in the unlimited productivity of capital. It is worth mentioning the role played by the Jews particularly, the Banu Thaqif in Taif that considered money as the first article of trade instead of a medium of exchange. They took the advantage of the poor who needed funds for their business by advancing loan to them on interest, particularly Banu Mughirah. It was part of the contract to pay an additional sum if the period of the loan could be extended. Giving loan on interest was prohibited if it was between Jews but it was allowed to give loans to foreigners on interest. The issue of ribā was not confined to the Jews for the people of Makkah also practised this system particularly Abbas b. Abdul Mutallib, the Prophet’s uncle and Khalid b. Al-Walid, to mention but a few. They used to give loans on ribā to Banu Amr in Taif. Upon the expiration of the period of the loan, the creditors would ask the debtors whether they wanted to pay or get the period extended by paying more interest. In fact, without interest, the economic system of Arabs could not be operated successfully. The Makkans had a blind faith in the unlimited productivity of capital. The bulk of the population lived on credit. Their first article of trade was money; they advanced it on credit at an exorbitant rate of interest (Masudul Hasan 2002:43).

Money and interest compared

As it was discussed in the last section, the economic life of Arabs before Islam was based on interest because they considered interest as the dividend accrued to their money. In fact, many people considered money to be the root of all evils and a source of peril instead of a source of blessings for it gives rise to inequality in the distribution of wealth, overcapitalisation and overproduction, instability in its value, greed, theft, exploitation, the decline in spiritualism, murder and a host of other evils. However, it should be mentioned that it is the way money is used, and one of the ways by which it can cause all havocs mentioned is to consider it as an article of trade that will attract interest. Therefore, money may not be the root of all evils but interest.

Money in the view of Western economists is a commodity that can be bought and sold. They also regard money as something that performs the following four functions: a standard of deferred payments, a store of value, a unit of account and a medium of exchange (Layi 1999:93–99). Money as a unit of account facilitates communication of economic information between people in the sense that both sellers and buyers would be able to decide on what they should specialise as sellers and buyers, and in what proportions they should combine different goods for sales and purchases, respectively. To put it differently, money as a unit of account is an agreed measure for stating the prices of goods and services. Money as a medium of exchange is any object generally accepted in exchange for goods and services. Many objects had been used as money for exchange before coins, papers, dollar, bills, debit/credit cards, etc., were introduced. For instance, for a long time, North American Indians, Fijians and American colonists used wampum (i.e. beads made from shells), whale’s teeth and tobacco as money, respectively. In Ethiopia and Tibet, cake of salt served as money. This is to say that the use of money has been around like fire for a long time (CFA Institute 2009:346–347). What all those objects mentioned have in common is that they have served as a means of payment. Money can take many forms inasmuch as it can serve the four functions. It has removed the inconveniences, inefficiency and clumsiness created by the barter system. Future payments are effected through the use of money, and it acts as a store of value at least by virtue of its use as the medium of exchange. Money used as a store of value means that it can be held and exchanged later for goods and services. It is, therefore, important for government and its monetary authority to make it stable because the more stable the value of a particular commodity or token is, the better it can act as a store of value and the more useful it is as money. The government and its monetary agents should control inflation and deflation to avoid the need for indexation. The inflation, most of the time, is artificially created. This should be avoided to make money more useful as a store of value.

On the other hand, interest, as discussed earlier, is regarded as the charge made for borrowing a sum of money. This in essence means that interest is the exchange for the money lent out instead of money being a medium of exchange. It is a commodity that can be bought and sold. For instance, if somebody gives out a commodity, he receives in return money as an exchange for the commodity. In the same vein, if money is lent out like a commodity sold, the exchange for that is interest, which means money is regarded as a commodity that brings in dividend, that is, interest. However, the interest paid is continuous as long as the capital remains unpaid but when a commodity is exchanged for money, it is once and for all. In Islam, money is regarded as medium of exchange and not an article of trade for it can be likened to a barren hen, which cannot beget itself (Aristotle n.d.).

Interest and profit: Any difference?

Interest in Islam and other major religions is forbidden. However, some people have been finding ways of legalising it. One of the ways by which they try to win acceptability for interest is that they emphasise the identity between profit and interest. They try to extend to the concept of interest any legitimacy that exists in other economic categories. Islam, like other religions, forbids interest. Allah forbids taking and paying interest, simple and compound. There are many Hadiths of the Prophet that condemn the taking and paying of interest. What the Qur’an emphasises is profit through trade when Allah says: ‘Trade is lawful while interest is forbidden’. What comes out of a trade is normally profit if it is organised in an Islamic way. Therefore, in Islam, it is legal to take profit. Profit is regarded as a payment for a person’s effort and risk. It is not only risk but effort must be taken into consideration before one is entitled to profit (Mannan 1992:220–238). According to Siddique (1991:21–34), it is against Islamic injunction to view profit as the only one reason for carrying out economic activities. Equity, justice and fair play must be taken into consideration. It is wrong to pursue profit at the expense of the welfare of people. Pursuing profit by exploiting and going beyond the limits laid down by the Quran and Hadith is unlawful in Islam.

In the case of interest, creditors do not care how the money is used after it has been lent. Their interest is the ability and capability of the loan user to pay as and when due the interest and the principal. As regards profit, a person who wants to share part of the profit is concerned about the use of the funds. Hence, investors are normally involved. They give suggestions and from time to time, they are interested in the going concern of the business. If one receives profit, this is because of one’s productive effort. The same thing may not be said of interest.

Furthermore, no risk is always involved in the case of interest. Creditors may collect collateral security from finance users and sell it to recoup their money in case the debtor is unable to pay the principal and the interest. The risk of defaulting, which is also attached to loan with interest, is also covered using collateral security. When an investor enters into a business arrangement, he does not request for collateral security. He is faced with the risk of losing his money during the course of the business. Armed robbers may attack him and take away all the capital. The capital may be burnt or get lost. All these are some of the risks an investor faces. He cannot claim his money if any of the above-mentioned things should occur. However, if it is a loan with interest, the principal and the accumulated interest must be paid irrespective of whatever happens. The creditors are less concerned. If it means the debtors have to sell all his personal belongings, they must look for money to pay the principal and the interest.

Creditors are sure of what to collect and when to collect because interest is certain and fixed. They can plan on the amounts they are to collect. The reverse is the case in case of profit. The investors can never be sure of the actual profit they are to make. They can only estimate their profits, which are unknown in advance. Therefore, they may not be able to plan the way an interest taker plans for a fixed string of income to come in the future. He who is ready to share the profit must be ready to bear the loss arisen from the investment. This is not the case with interest. A usurer takes his interest not minding whether the user makes profit or incurs loss.

Interest and rent: Any difference?

Interest is considered as the rent of money in the same way a landlord collects rent on his building from his tenants. In fact, Sir Williams Petty, a great economist and his likes consider usury to be the rent of money. To them, the rate of interest is determined by the rent of land. They hold the belief that in the case of risk-free loans, the rate of interest is equated with the rent of that much land, which that amount of money can purchase. If the loan is risky, the rate of interest will accordingly be higher to cater for the risky nature of defaulting (Bhatia 1999:38).

It is also wrong to view interest as rent in the sense that rent is collected on a property used by a non-owner because such a property provides utility and is subjected to wear and tear. The money used as a medium of exchange provides an opportunity for its use. The opportunity to take advantage of using the money should be to share the profit and loss arisen from the investment. However, it sounds immoral to collect interest on money in the name of rent. At times, money may not be used for business but for solving personal problems such as food, sickness, etc. It is a share wickedness to take interest on loans provided for such needs. However, if the money is invested, it is right to share the profit made if any, between the finance provider and the finance user. The former is entitled to profit for giving the opportunity of using his funds while the finance user is entitled to profit for spending his time, enduring hard labour, taxing his brains and using up all his mental and physical energies in the process of production of goods and services which are rented out.

The prohibition of Ribā during the classical period and other periods

During the classical period, interest was likened to usury and it was permitted to take interest while usury was forbidden by some and allowed by others based on religious and ethical reasons. The ancient Greek philosophers were not at all in support of the payment of interests on loans by the finance user. Aristotle opposed vehemently the payment of interest on loans. He likened money to a barren hen, which could not lay eggs when he enumerated the use and the nature of money thus: ‘The sole object of the use of money is to facilitate exchange, and the fuller satisfaction of human wants, and that is the natural purpose of money’. He also said: ‘A piece of money cannot beget another piece’ (Aristotle n.d.:1258). What Aristotle was saying is that unless money is used, it cannot increase on its own; it has to be used to buy commodities, which in turn may be sold at a profit, and thereby increases our income. For instance, if N100 were kept in a wardrobe for 10 years, the same N100 would be found in the wardrobe at the end of the tenth year. In fact, its value, that is, what it could have been used to buy 10 years ago would have been reduced to the extent that it might even be difficult to use the same N100 to buy 1/20 of what it could have been used to buy 10 years ago. However, if the N100 has been in use to transact business for 10 years, it would have grown considerably at the end of the tenth year. That is what the Qur’an says: ‘Allah permits trade but forbids interest’ (Q2:275). It is unnatural and unreasonable to charge money on money. The purpose of money was intended to be in exchange and not with increase at interest. With the greatest reason, Aristotle considered usury i.e. making gains out of money itself as the most hated sort of wealth. He said ‘… of all modes of getting wealth, this is the most unnatural’. Plato also frowned at usury as being unjust (Plato n.d.). In Rome, during the classical period, when the governments were strong, charging of interest was forbidden and abolished by law. Later, the rule was cancelled as a result of passage of times, gradual extension of empire and development of trade. A restriction was then placed on the rate of interest that could be charged on loans (12.0%) though Roman thinkers, such as Cicero, Seneco and others, vehemently opposed rate of interest charged on any form of loans (Qureshi 1991:6). Karl Marx considered interest as theft. All these show the attitude of the great thinkers towards interest during the classical period.

During the medieval period, the same attitude continued i.e. it was also condemned and outlawed. The medieval church through Pope Clement V in 1311 declared taking usury as an unlawful act, and even went to the extent of declaring any secular legislation that permitted usury as null and void. He also regarded the takers of usury as sinners. St. Thomas Aquinas, during this period, emulated Aristotle in saying that the payment of usury on money lent was unjust for he considered it to be selling a product that did not exist. Despite all these condemnations, the payment of usury was still in practice though people like Calvin believed that interest should not be demanded from the needy, that is, it was not allowed to take interest on loans on consumption, but it was to be collected if it was for productive purposes. They believed that interest could lead the society to crisis, ruination and perdition by putting incomes into the hands of those who were neither the owners of land nor the cultivator (Vaish 2000:341–343).

It was during reformation period that interest started to be considered as a necessary evil. High interest (usury) was seen to be dangerous, while low interest was accommodated during this period. Despite the permissibility of low interest rates, many writers of this period frowned at the payment of interest. Mention must be made of Keynes whose work on interest is well known. He says in his book ‘interest checks development of industries’. John Lock says it brings decays to trade while Thomas Culpepper was of the opinion that it makes people lazy (Conard 1959:28).

St. Thomas Aquinas (1918) is reported to have said:

Money to the philosopher was invented chiefly for the purpose of exchange; and consequently the proper and principal use of money is its consumption and alienation whereby it is sunk in exchange. Hence, it is by its very nature unlawful to make payment for the use of money lent.

Lenders may have more than their needs and may not have ideas of where and how to use the money. In that wise, they cannot say they are denied of using their money. Therefore, the interest he is taking is not justified.

The common ideas and feelings in all these periods are that interest is an unjust payment and that it must be eliminated if we want to see economy grow. In fact, the yield that would be realised from our economy if interest were abolished would make everybody self-sufficient. Virtually, the entire world’s leading religions: Christianity, Judaism, Islam, etc., outlawed ribā explicitly or impliedly.

Christianity and interest

It should be mentioned that Christianity is seen in the Old Testament as opposing the institution of interest, even though the word used for it was usury. This conveyed the same meaning in the middle Ages as interest does today. Christianity as one of the major religions in the world prohibits interest. The prohibition operated for about 1400 years. In the first instance, all forms of interest were forbidden. Nevertheless, only exorbitant interest was later regarded as usurious.

The Medieval Christian Church was very popular in this regard. The period between Western Roman Empire in 476 CE and the beginning of the Italian Renaissance is tagged the medieval Christian church. This period is considered spectacular because it was during this period that the church combined both the secular and the religious duties together. Therefore, it was possible for it to control all Christian countries. During this period, Christianity was regarded as a total way of life of people for it took care of the faithful’s secular and spiritual affairs. The church was the only most powerful institution that controlled the people’s affairs in view of its greatest land holdings. The implication of this is that through them, it controlled production and consumption of goods and services. There was an absence of a developed money economy and capital market. Church was both the largest production unit and the only recipient of large sum of money (Roll 1953). Another reason why it was in that position was its claiming of doctrinal unity and authorities over the totality of human relations. The Gospels, the teachings of Jesus, canon law (derived from ecumenical councils and church court) and schoolmen & theologians formed the doctrines of Christianity. The last one, the theologians (e.g. Plato n.d.) laid the foundation of Christianity on ethical principles. What is interest now was considered usurious to the medieval Christians. They also regarded it as a condemnable sin.

As regards usury and interest, their origins are not the same though they are both Latin words. Interest is taken from the Medieval Latin word interesse while the origin of usury is from the Latin word usura (Mervyn & Latifa 2001:186). The first is considered simple interest, while the second is regarded as high or exorbitant interest. It was the difference in their origin that made theologians treat them differently by permitting the first and forbidding the second (usury) (Nelson 1949:17). According to Patinkin (1968), interest is the difference between the amount paid by the borrower and the principal lent by the lender. The excess is the return accrued to the lender for allowing a borrower to enjoy the using of the money under canonical law. In that law, though it was forbidden to pay interest on a loan, the money collected over and above the principal was to compensate the lender for the damage caused to him and the gains forgone on his principal. The delay in the payment of capital that might have caused him to incur loss was another reason put forward for taking more than the money lent. These reasons are some of the arguments put forward in support of charging and taking of interest in the post medieval societies.

The New Testament, which is the book of the Christians, refers to usury in three places. They lend support to the giving of usury in one hand and indirectly go against it on the other hand. The two references are Matthew 25:14–30 and Luke 19:12–27. This implies that the New Testament is not explicit enough on the issue of the prohibition of ribā. However, there was a saying of Jesus quoted by Pope Urban III (1185–1187) that prohibits taking usury. Jesus is reported to have said in Luke 6:35. ‘But love ye your enemies, do good and lend, hoping for nothing again and your reward shall be great and you shall be the children of the highest’. Perhaps, this formed the basis why usury was forbidden by the councils of Arles (314), Nicaea (325), Carthage (348) and Aix (789) (Noonan 1957).

In fact, all Christians were not allowed to take or give usury during the patristic age. Any Christian who took usury or gave interest was punished. Such punishments included considering his will to be invalid, unacceptability of his sacrifices/offerings, rejection of his sacrifices, refusal to bury him when he died, refusal to admit him into the Holy Communion to mention but a few (Lopez 1979:7–20). The church during the medieval period was against interest for variety of reasons. It frowned at it because Jesus himself had preached against it (Lk 6:35). Aristotle, one of the schoolmen who laid the foundations of Christianity on ethical principles, viewed money as a barren parent, which can never give birth. He also considered taking interest on money lent as an unnatural way of making money. He said:

The most hated sort of (wealth) and with the greatest reasons, is usury, which makes gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, and not to increase at interest… Of all modes of getting wealth, this is the most unnatural. (Aristotle 1885:19)

He even considered those taking interest as people of mental deficiency. Another schoolman, St. Thomas regarded taking interest as an unjust way of making money. This is because taking usury is seen as earning an income without doing any work. Work is the legitimate way of earning income as clearly said in Genesis 3:19 ‘in the sweat of thy face shall thou eat bread, till thou return unto the ground’. Instead of a creditor to eat out of his work, he gets his income through the sweat of his debtor. His money works for him even during the public holidays because his interest is calculated based on time whether it is used or not.

Those who loan on interest were selling time, which was not their property. They were regarded as armed robbers of time. The prohibition continued until 19th century. But with the rise of capitalism, the tempo on the prohibition of interest went down. At first, they regarded interest collected on production lawful and the one on consumption illegal. Calvin was of the view that interest should not be collected on a loan advanced to the poor or the needy. But wealthy debtors should pay interest in his own view. As time went on, moderate charges of interest were legalised particularly in England, France, etc. The implication of all these steps was that money was viewed differently from the way it was during the Middle Ages.

The view of Judaism on Usury

Judaism is the religion of Jews. The Jewish laws prohibit charging interest on a loan given to Jews but allow such charges against non-Jews called gentiles. Neschek is the biblical Hebrew term used for interest and it means to ‘bite’. The implication of this is that it bites the debtor. The debtor is bearing the pain of interest he paid while the creditor enjoys the increase of his money in form of interest paid to him. The other term used in the Bible concerning the issue of interest is marbit or tarbit (or ribbit), meaning accrued interest (Cohn 1971:17–33). This also denotes gain enjoyed by the creditor as contained in Leviticus 25:36–37. Various interpretations of the two forms are given but the researcher has chosen the above-mentioned interpretations because they give the effect of interest on both the creditor and the debtor. It is pertinent to note here that three references to usury are from Pentauch, the Law of Moses and the Psalms. (Ex 22:25; Lv 25:35–37, Dt 23:19–20 and Ps 15:1, 5.):

If thou lend money to any of my people that is poor by thee,

Thou shall not be to him as a usurer, neither shall thou lay

Upon him usury (Ex 22:25).

And if thy brother be waxen poor, and fallen in decay with thee

Then thou shall relieve him; yea, though he is a stranger, or a sojourner; that he may live with thee.

Take thou no usury of him, or increase; but fear thy God;

That thy brother may live with thee.

Thou shall not give him thy money upon Usury, nor lend him

Thy victuals for increase (Lv 25:35–37).

Thou shall not lend upon Usury to thy brother;

Usury of money, Usury of victuals, Usury of any thing that is lent upon Usury;

Unto a stranger thou-mayest lend upon usury;

But unto thy brother thou shall not lend upon Usury;

That the Lord thy God may bless thee in all that thou sellest thine hand to in the land withers thou goes to possess it. (Dt 23:19–20)

Talmud (which is the fundamental code of Jewish law comprising written law) and Mishnah forbade any Jew to participate in any usurious transactions or to act as an agent of surety or witness in such transaction between Jew and Jew. It must be mentioned that interest was forbidden for both Jews and non-Jews in the Bible. However, it was a famous religion reformer in Jews called Maimonides that changed the words of the holy Book in Deutronomy 23:20 to read ‘unto a stranger thou must lend money on interest’. This assertion is based on the account of Cohn (1971:23) in the Encyclopedia Judaica. Ribā is, therefore, clearly and strictly prohibited in Judaism. Jews twisted and distorted the words of their book.

A number of features could be inferred from the above-mentioned Biblical verses. In the first instance, it is forbidden to charge interest on a loan given to a poor person (Roll 1953). This is to assist him for if interest is charged on the loan, it may aggravate his problems. The wealthy people should help the indigent, if not by gifts, then at least by free loans. Second, all forms of loan with interest are forbidden whether it is a loan of goods for goods (barter system) or the monetary loans. Third, it is looked upon with disapproval to give loan on interest to a Jew. However, it is considered appropriate to give loan on interest to foreigners, a non-Jew (non-Israelites). This is a double standard morality. The Jews considered a loan given to a non-Jew to be risky for the borrower may not be able to pay as and when due. The interest is, therefore, to compensate the loan giver for the loss he might have incurred. During the period, it was believed that non-Jews did not have any law concerning the prohibition of interest. Therefore, the gentiles charged interest on loans. It is, therefore, equitable and just that Jews should take interest from a people who took interest from them. This saved Jews from being poor because the interest that was paid by some Jews were taken or recovered by other Jews. The taking of interest on loan is likened to committing adultery, robbery and idolatry, as contained in the books of Ezekiel and Jeremiah respectively thus:

Hath given forth upon usury, and hath taken increase;

Shall he then live? He shall not live;

He has done all these abominations;

He shall surely die; his blood shall be upon him,

He that hath not given forth upon usury, neither hath taken

any increase, that hath withdrawn his hand from iniquity,

Hath executed true judgment between man and man,

Hath walked in my statutes, and hath kept my judgments

To deal truly; he is just, he shall surely live, saith the Lord God. (Ezk 18:13)

Woe is me, my mother, that thou hast borne me a man of strife

And a man of contention to the whole earth I have neither

Lent on neither Usury, nor men have lent to me on Usury; yet every one of them doth curse me. (Jr 15:10)

It is inferred from the verses that granting free loans and refraining from taking interest would lead to God’s rewards and blessings. According to Divine (1967:498–500), Jones (1989) and Le Goff (1979:25–52), usury is considered the gravest of crime. This is mentioned in the context of larceny, adultery, homicide and other such abominations which are worthy of death (Ezk 18:11–13). This is because it involves self-enrichment on the creditor’s side. He that augments his substance by interest and increases it is listed among the ‘evil men’ (Pr 28:8) while he that does not put his money on interest is among the upright and righteous. It is regarded as usury if something more is given back than was lent, no matter the nature. Therefore, the prohibition extends to other things apart from money particularly all benefits which might look like interest. Hence, if one gives a gift to a person for the loan he receives from the person or he is to receive from him, such a gift amounts to prohibited interest. If one gives a piece of information or a piece of advice to a person which one would not have given if not because of the loan received from the person, such a piece of advice or information is usury. Any payment which compensates a person for money loaned for any length of time in the hands of the other person is prohibited interest.

Contracts of partnership where loss is borne by the managing partner alone while the profits are shared between the financier and the finance user are prohibited. The arrangement is prohibited interest. Both should share loss and profit. These were the general rules in Jewish religion until 1179 when the prohibition of taking of interest by the Bible was prohibited by the scripture as well as by the laws of nature. However, it appears the Jews resorted to taking of interest in view of the fact that there was no other ways by which they could earn their livings in most countries of Europe. They were economically forced to take to money dealings. As regards Jewish law, it was mentioned that interest could be charged to non-Jews but interest could not be collected on a loan advanced to fellow Jews. The prohibition of interest was upheld by the Hebrews as contained in the Mosaic laws. Taking interest from the poor by any trick was forbidden. The Jews were enjoined to assist them with interest-free loan. However, by the passage of time, the prohibition was confined to Israelites even if they were wealthy; no interest was collected on the loan advanced to them. When the market economy expanded and trade and commerce developed, it was difficult for Jews to maintain the prohibition. Therefore, taking interest became common to the extent that interest was taken from Jewish brethren (Nelson 1949). For Jews to sustain themselves, they ventured into money dealings and thus became a typically Jewish business. Therefore, taking interest knew no bounds, as it is taken from both Jews and non-Jews alike.

Islam’s view of interest

Right from the beginning, there is no difference between usury and interest in Islam. Both are termed ribā. We should also make it clear that Islam does not forbid lending as such, but what is clearly prohibited is the taking and paying of interest by the creditor and the debtor respectively. The prohibition of interest is based on the unparalleled authority of the Holy Qur’an and the Hadith of the Prophet which forbid taking and paying of interest, simple or compound. The prohibition of ribā is mentioned in four places in the Qur’an. The ban on interest could not be compared with the ban of alcohol. The latter passed through three stages before a total ban was put on it. In the first instance, the evil of intoxicant is mentioned as greater than the benefit (Q2:219–220). ‘They ask you (Oh Muhammad PBOH) concerning alcoholic drink and gambling. Say: In them is a great sin and (some) benefit for men, but the sin of them is greater than their benefit’. The next stage of gradual prohibition is that one should not approach salāh when one is drunk (Q4:43). ‘O you who believe! Approach not prayer when you are in a drunken state until you know (the meaning) of what you utter’. The total ban is described in Q5:90–91 thus:

O you who believe, intoxicants and games of chance and idolatrous practices, and the divining of the fortune are all abomination of shaytan’s handiwork, shun it in order that you may be successful. Shaytan wants only to show enmity and hatred between you with intoxicants (alcoholic drinks) and gambling, and hinder you from the remembrance of Allah and from prayer. So, will you not then desist?

Here, intoxicants are totally condemned and prohibited. They are described as evil and one is instructed to keep away from them. The injurious effect of intoxicating liquor is on the person who drinks while the detrimental effects of usury cause havoc and crisis to the whole society. This was why the Prophet said, when referring to the damage of usury that: ‘He who does not eat it will be hit by its dust’ (Chapra 1985:237).

However, the banning of usury was different. It did not pass various stages before it was eventually banned. Rather, the banning was absolute and final. The first place where interest is banned is in Suratur-Ruum: verse 39. In this verse, Allah emphasises that interest deprives wealth of God’s blessings. In the same verse, giving alms to assist the less privileged people in the society is praiseworthy. Zakah is mentioned as one of the ways to seek Allah’s pleasure. Allah’s promise in the verse to increase the wealth of a Zakah giver manifold is also mentioned in the verse. The second place where ribā is mentioned is in Q4:161. In this verse, Allah condemns ribā and considers it a wrongful appropriation of property to others. The third place where interest is banned in the Quran is Q3:130–132. In this verse, believers are asked to stay clear of interest for the sake of their own welfare in this world and the life after. Obedience to God, guiding one’s faith and mercy of Allah are the benefits that will be gained by those who do not take interest.

A clear distinction is made between trade and interest in the last place where interest is mentioned. Allah enjoins people to shun interest and take back the principal sum lent. If they can, they can forego even the principal. If it is not possible, they can give the borrower more time to pay without adding interest, simple or compound. If they insist on collecting interest, Allah asks them to prepare for war, which he is going to wage against the usurer. Who is that person that can dare Allah? Therefore, he instructs people in the Qur’an to give up totally interest when He says … and give up what remains from ribā, if you are really believers … (Q2:275–279).

Some Islamic scholars like Muhammad Abduh (1849–1905), Muhammad Rashid Rida (1865–1935), Sir Syed Ahmad Khan (1817–1898), Abdu Razzaq Sanhuri (d. 1971), Fazlur-Rahman (1911–1988), Maulana Sayyid Ahmad Ali Said (grand Mufti of Darul-ulum), Shaykh Muhammad Shaltut (grand Imam of Al-Azhar University) (1993–1963), Shaykh Muhammad Sayyid Tantawi, Abdul Wahab Khallaf (1888–1956) and Dr Mohammad Omar Faroq are among those who believe that ribā that is forbidden is usurious interest i.e. compound interest; and that simple interest is allowed in Islam (Omar Farooq 2006; Rida 2006). The latter allows a fair return on loanable funds They even argue that interest charged on the loan by the banks is not prohibited as against the prevailing orthodox position that all forms of interest high or low, simple or compound are forbidden. The Qur’an is quoted to support their stand particularly Q3:130 which says ‘O you who believe! Do not consume ribā doubled and multiplied, but fear Allah that you may be successful’. Ad’āfan mudā’afah (doubled and multiplied) stated in the verse means a continual increment which could lead to the doubling of the original loan. The increase continues until the original loan is doubled and at times, three or more times the original loan as a result of the accumulated interest. However, the position of the majority of the Islamic scholars is that ribā relates to all that exceeds the principal amount without qualification. There was no distinction between compound and simple interest during the pre-Islamic and Islamic period as we have it today. It must be mentioned that the usury that was forbidden for the Jews and the Christians was the same with the usury of the pre-Islamic period that was banned for Muslims. It is also noted that Q2:275–279 prohibit all forms of ribā, simple or compound, at the beginning of the contract or at the due date. Allah says in the Qur’an: ‘Those who eat ribā will not stand (on the Day of Resurrection) except like the standing of a person beaten by Shaytan leading him to insanity. That is because they say, Trading is only like ribā, whereas Allah has permitted trading and forbidden ribā … O you who believe! Have taqwā of Allah and give up what remains from ribā, if you are really believers (Q2:278) But if you repent, you shall have your capital sums. Deal not unjustly (Q2:279). Islam does not attach value with time. Therefore, the prohibition of interest covers all rates and forms.

The effects of interest (ribā) on the Nigerian economy

Nigerian economy is heavily dependent on oil earnings since the discovery of crude oil in commercial quantities in Oloibiri in Ogbia LGA of Bayelsa State, Nigeria. It was discovered on Sunday, 15 January 1956 by Shell Darcy (Wikipedia). This brought about a sizeable reduction in the level of the agricultural sector share of output. The major reasons for the decline in the level of production of agricultural products were inability of the farmers to obtain working capital, state of art equipment and a host of other factors. An attempt to finance agricultural sector and improve infrastructural facilities led the country to seek assistance from both foreign and domestic financiers. The extent of the indebtedness has grown to the level that it is posing a threat to the Nigerian economy.

One of the problems is the level of unemployment in the country. The standards of living of many people in the country are very low. The well-being of people is measured by their standard of living in an economy. When people save, they get capital to invest. This, in turn, increases their income, and consequentially their standards of living would improve. If this happens, we say the economy is buoyant and growing. However, people can only save if they have sources of income. The latter can only be created through investment; and investments can only be undertaken through savings.

Of the determinant of savings, interest is paramount. If it is high the level of savings will increase because the depositors will have more returns on their funds. The assumption is that when the level of savings is high, the level of investments also will be high. This is because the accumulation of funds will be made available for investments. However, an increase in the rate of interest which brings about increase in savings will increase the cost of investment (capital). The implication is that the total investment will also be reduced. As interest is directly proportional to savings, investment is inversely proportional to the cost of investment (interest-ribā). That is, if the cost of investment is high the level of investment will be low because the cost of acquiring funds is expensive. In the absence of interest, cost of investment will be zero and the rate of investment will be high. The relationship between the financier and finance user can be based on profit and loss sharing arrangements. That is sharing profit or loss between them on an agreed ratio using Islamic financial products such as mudārabah, mushārakah and ijārah.

The need for individuals or governments borrowing arises from the fact that it is not always possible that individual income or revenue side of a budget equates the expenditure side. When funds are borrowed, there is a burden on the economy. The burden comes in the form of interest payment. Interest has been viewed by economists from different perspectives. It is defined as the payment made for the use of money. It is also seen as one of the forms of income from property. Keynes defined it as the percentage of excess of a sum of units of time over the spots or of the sum thus contracted for forward delivery. Money is borrowed for various reasons such as infrastructural development, capital projects, war and general depression. The interest on the borrowed funds is at times paid upfront or at the end. If interest is paid together with the principal in installments, it is debt servicing. The effect of interest is then seen on the economy. The following facts taken from the Statistical Bulletin of the Central Bank of Nigeria, 2015 (Appendix) as contained in the figures one to six depict the level of effects of debt servicing on the Nigerian economy.

Debt servicing

The burden of debt servicing on the Nigerian economy is enormous (Figure 1). The burden of principal and interest payments drains the nation’s resources and curtails the possible expenditure on capital projects and other productive ventures. It also affects export earnings and GDPs of the country which are indications of the nation’s long-run economic prospects.

FIGURE 1: Public debt servicing.

Debt servicing and the nation’s gross domestic product

Debt servicing measures the extent to which domestic output is deployed to cater for servicing the country’s debt. The higher the ratio, the more difficult will it be for a country to move on the path of prosperity. In Nigeria, it has been between 1% and about 4% of the GDP (Figure 2).

FIGURE 2: Debt servicing as a percentage of gross domestic product.

Debt servicing and total revenue

The economy of a country’s soundness is determined by its income or revenue. When a large percentage of the revenue is used to service debt, the economy of such a country is weak. In Nigeria, the percentage of the revenue used to service her debts has been on an increase. In fact, in 2005, it was over 15.0% of the total revenue (Figure 3).

FIGURE 3: Debt servicing as a percentage of total revenue.

Debt servicing and total expenditure

As can be seen from Figure 4, more than 20.0% of the country’s total expenditure is used to service debt. This reveals the proportion of resources available to service the rest of the economy.

FIGURE 4: Debt servicing as a percentage of total expenditure.

Debt servicing and capital expenditure

The role of capital expenditure in the development of a nation is too obvious to be mentioned. Without it, the issue is like living from hand to mouth. Capital expenditure is the amount expended on the acquisition or upgrading of fixed productive assets such as land, buildings, roads, machines and equipment. All these would have positive effect on the economy. The negative impact of debt servicing in relation to capital expenditure is glaring in the sense that the nation’s health and education are in a state of declining. Many roads are not roadworthy. Power sector is not functioning well. One would expect that debt servicing payments should be very low while capital expenditure is very high. But the reverse is the case. The consequences of the situation are seen in the country. The indirect effects of the situation are the high rates of illiteracy, poverty and unemployment in the country. This indicates that a large number of Nigerians is not benefitting from the expenditure of her government. The expenditure is benefiting individuals and corporate creditors. The debt with its servicing slows the nation’s economic growth and development.

The result as shown in Figure 5 depicts the percentage of debt servicing to capital expenditure in Nigeria from 1981 to 2015. The ratio has been very high for the country with an average of over 59.0% under the 35 years considered in this study. In some years, this ratio was over 100.0% reaching its peak at 150.4% in 2003. In 2015, the ratio stood at 129.57%. The implication of this is that for Nigerian economy, the total amount spent on debt servicing (i.e. the cash that is needed for a particular time period to cover the repayment of interest and principal on a debt) is greater than the amount spent on capital expenditure.

FIGURE 5: Debt servicing as a percentage of capital expenditure.

Debt servicing and export earnings

The effect of debt servicing is seen on the Nigerian export earnings. The burden of debt servicing is on increase from 9.32% (1981) to 29.6% (1988). It dropped slightly in the following 4 years before rising again. In 1993, the percentage of debt servicing on export earnings was 37.06%. The implication of this is reduction in the country’s foreign exchange earnings reserve. From 2005 to 2011, it was relatively stable and slow. However, it rose gradually from 4.49% to about 12.0% (Figure 6).

FIGURE 6: Debt servicing as a percentage of export earnings.


If the concept of interest, as discussed, is shared by financial institutions, governments and individuals, the operation of interest free financial institutions will lead to the state of financial growth and economic development. The interpretation of interest by the minority should not deter a country from pursuing the path to more vibrant economy in which interest – free financial system can flourish. What we have done in this article is that we have found a way of understanding ribā which will remove obstacles or minimise the negative impacts of interest. It is in the best interest of all to shun sentiment and pursue the views of the majority regarding the prohibition of interest so as to prevent hardship, parsimony, corruption and a host of negative effects of interest.

Of all the variables considered except GDP, debt servicing was between 10% and 130% in 2015. The negative impact of debt servicing on the economy serves as a barrier to poverty alleviation, economic growth and development. Because of the negative effects of interest, the government may consider supporting a non-interest financial institution that has just been established in Nigeria. It may be given political power to back up their desires by making it the only bank that would operate as an Islamic bank for some years so as to recoup their initial expenses.


Competing interests

The author declares that he or she has no financial or personal relationships which may have inappropriately influenced him or her in writing this article.


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TABLE 1–A: Summary of Federal Government of Nigeria Finances (Statistical Bulletin of the Central Bank of Nigeria, 2015 Section B).

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