Avoiding The Riba Trap

(image courtesy of http://www.infomerchant.net)

Media organizations such as CNN, NPR, and Fox have all recently covered the escalating problem of credit card debt in America. What has rekindled the interest in an old problem? In March of 2007, the reports and special features were prompted by a United States Senate hearing on the practices of the credit card industry, and separate warnings to the financial industry of possible legislation if reform does not occur.

Complaints about the industry include deceptive disclosure on credit card contracts that can result in high balances, and steep fees such as late fees, over-the-limit fees, and annual fees. Credit card companies can also change the terms and conditions of their contracts at any time. This includes their right to raise your interest rate if you pay late, even if it’s a late payment to another credit card company!

Advocates for consumers claim that the practices of credit card companies have resulted in alarming debt problems for the unsuspecting public. Many Americans, including Muslims, are experiencing difficulty paying their credit card bills. Advocates lay the blame for the problem squarely on the shoulders of the credit card industry, claiming that it takes advantage of people, and comparing the industry to loan sharks.

Here we are; it is nearly one year later and nothing has changed in the credit card industry. No reform or legislation has occurred. (Perhaps because our legislature is busy wasting time on the steroid scandals in professional sports?) To add to the problem, America is now buried in the sub-prime mortgage mess!

Credit cards can entice Muslims with their convenience and instant access, but they come with a potential risk. For example, factors such as health problems, job loss, divorce, and other unexpected expenses can all necessitate the need for money. New Muslims often come to Islam carrying large balances on interest-bearing credit cards and loans. Muslim children in America may tend to be just like their non-Muslim peers, constantly asking their parents to buy them things that other children have, or things that they see on the television. Some Muslim parents, who have difficulty saying “no” to their children, may overuse their credit cards in order to make their children happy. Other Muslims merely have a bad habit of overspending. All of these situations can result in what is known in Islam as riba.

A working definition of riba breaks it down into type types: (1) Riba Al-Fadl, which is the added charge to the money loaned because of delayed payment, which is definitely prohibited, and (2) Riba Al-Nasi’aa, which is a function of the term of financing (number of years to repay the loan). This form of Riba is used as a foundation for Murabaha contracts but with the provision that the added value after a certain number of years does not change if the person cannot pay back due to a legitimate excuse (LaRiba website). Some scholars claim that the whole business of signing contracts with interest clauses is prohibited due to the possibility that the Muslim may activate the interest clause if he finds himself in a position where he is unable to pay on time. While scholars may differ in their interpretations of riba, they all agree that paying interest is prohibited.

Allah Almighty has made clear His position on riba: “Those who eat Riba (usury) will not stand (on the Day of Resurrection) except like the standing of a person beaten by Shaitan (Satan) leading him to insanity. That is because they say: ‘Trading is only like Riba (usury),’ whereas Allah has permitted trading and forbidden Riba (usury). So whosoever receives an admonition from his Lord and stops eating Riba (usury) shall not be punished for the past; his case is for Allah (to judge); but whoever returns [to Riba (usury)], such are the dwellers of the Fire - they will abide therein.” (2:275)

Riba is a huge business in America. But, can Muslims really live without using credit cards? Can they use them responsibility and insulate themselves against the danger of riba? While the rest of the country is waiting for the credit card industry to reform itself, Muslims would benefit from finding solutions within an Islamic framework to resolve financial difficulties and maintain financial health.

- Be mindful of Allah Almighty’s exhortation to avoid riba.
- Be steadfast in your deen and make du’a for Allah to change your financial situation. Remember that what you want and what you need are two different things.
- If you are not currently overburdened with credit card debt, follow the practice of the Prophet, sallallahu alayhe wa sallam, and invoke Allah saving, “O Allah, I seek refuge with you from all sins, and from being in debt.” (Bukhari)
- Live within your means; remember that the wasting of money is prohibited in Islam.

Some advice for managing money and utilizing credit wisely includes:

- Budgeting. Make a budget, and stick to it as closely as possible.
- Use Layaway. Look for stores that offer layaway programs for your large items. Many businesses offer layaway at no extra charge. Some stores offer no-interest payment plans to qualified buyers.
- Family. Sometimes family can help with unexpected expenses.
- Pay in Full. If you do use a credit card, charge only what you can afford to pay for in full when the bill comes.
- Avoid Cash Advances. Do not use cash advance; riba accumulates on the advance from day one.
- Borrow From Yourself. Save an amount of money equivalent to a credit card limit. Spend from that fund, and then repay yourself!
- Teach Children Financial Responsibility. Help your kids to develop sound money management. Give them an allowance if possible. Assign them chores appropriate for their age group so that they can earn money to buy what they want. Encourage them to save. Buy them a little bank to keep on their dressers, or engage them in a fun project of making a little savings bank. (Don’t forget to teach your children about charity!)

If you are currently experiencing financial problems:

- Do Not Despair. Make a sincere intention to Allah (swt) to repay your credit card debt and ask Him for help. Narrated Abu Huraira, “The Prophet, sallallahu alayhe wa sallam, said, ‘Whoever takes the money of the people with the intention of repaying it, Allah will repay it on his behalf, and whoever takes it in order to spoil it, then Allah will spoil him.’” (Bukhari)
- Seek Credit Counseling. Do your research well in order to avoid hidden costs. Some of these companies have been known to get your interest rates eliminated.
- Refinance With Islamic Banks. Access to Islamic banks and financial service companies is growing in America. Talk to them about refinancing your current debt. New Muslims can also refinance riba-bearing mortgages with these institutions. It is incumbent upon Islamic banks and financial service companies to work with you within an Islamic framework should you experience legitimate difficulty repaying your loan.

Muslims can obtain financial health and avoid the potential traps that can result from irresponsible use of credit cards. Answers exist within an Islamic context to help guide the Muslim toward success.