Rethinking ‘Interest’ in Islamic Finance: A Critique of the Method of Fatwâ MUI and Its Legitimacy in Indonesia

1. INTRODUCTION

In Islam, a fatwâ refers to iftā', which is the act of providing information or clarification about Islamic law based on dalîl-u-shari' (legal evidence from Sharîa). However, adherence to a fatwâ is not obligatory. A mufti (the party instituting the fatwâ) does not have the authority to require the mustafti (the party requesting the fatwâ) to follow the law of the fatwâ.¹ Nevertheless, fatwâ remains an essential resource for the Muslim community, especially in the disclosure of new, complicated and unclear matters of law.²

In Indonesia, the fatwâ institution whose authority is recognized by the Muslim community, is the MUI (Indonesian Ulema Council)³, along with some sectoral specific institutions such as the Muhammadiyah organization and Nahdlatul Ulama (NU).⁴ Several MUI fatwâ have a strong binding force, particularly in regard to certain issues such as fatwâ on Sharîa finance issued by the National Sharîa Council (DSN), an organ within the MUI that specializes in handling Sharîa finance. The DSN oversees the Sharîa Supervisory Board (DPS) which is found in every Sharîa Financial Institution (LKS) throughout Indonesia.⁵ The 2004 MUI fatwa prohibiting interest is binding on Islamic financial institutions; however, its legitimacy remains a subject of public debate and there are differing opinions within society.

The fatwa asserts that the practice of charging interest in financial institutions fulfills the criteria of ribâ nasî'ah, thereby deeming it harâm under Islamic law. The equivalence of interest with ribâ nasî'ah is drawn from the conclusion that the core element of interest lies in the ‘addition’ (ziyâdah) to the principal loan. This addition is imposed irrespective of the outcomes derived from the loan's utilization and is determined beforehand using a percentage-based calculation, primarily tied to the extension of repayment time.⁶

Some scholars argue that the MUI fatwâ declaring interest as harâm is derived using the istinbâṭ or method of ijtihâd-il-qiyâsîy. The qiyâs method requires the complete fulfillment of its essential elements: al-aṣl (the original case with an established legal ruling), al-far' (the new case without a direct legal ruling to be analogized to al-aṣl), ḥukm-il-aṣl (the legal ruling of al-aṣl based on its evidence), and 'illat (the underlying rationale linking the legal ruling to al-aṣl). In this context, al-aṣl is identified as ribâ-il-nasî'ah, interest is the al-far', ḥukm-il-aṣl is the ruling of harâm, but the 'illat is not established. Since 'illat is the central element in qiyâs, its absence renders the analogy incomplete and subsequently invalid. Qiyâs cannot be legitimately applied without identifying the 'illat, as analogies must be rigorously grounded and not made merely arbitrarily.

Many fatwas prohibiting interest lack a thoroughness, an adequate analogy process. Still, they are solely based on an extensive interpretation of ribâ, which is considered to include bank interest.⁷

2. Literature Review

The literature in this article is divided into three distinct areas: epistemological, ontological and axiological. Epistemological studies focus on the methodology of ijtihâd and istinbat-ul-fatwâ. Among the studies included in this category are Muhammad Yasir Yusuf, “Dynamics of Bank Interest Fatwâ in Indonesia: A Study of Fatwâ MUI, Muhammaddiyah and Nahdhatul Ulama,” (2012), Khotibul Umam, “Deconstruction of Fatwâ Regarding Bank Interest Ban: Qiyâs Vs Istihsân,” (2023). Yusuf found the dynamics of fatwâ about interest from the three leading institutions of Muslims in Indonesia, namely Muhammadiyah, NU, and MUI. The dynamics of the fatwâ are evident in its evolving content, which initially exhibited a level of tolerance towards banking practices but gradually shifted towards a more definitive prohibition in response to changes within Indonesia's Islamic financial ecosystem.⁸ Umam criticized the use of the qiyâs method in almost all fatwâs about the prohibition of bank interest, including the MUI fatwâ. Umun argues the qiyâs method cannot provide satisfactory answers to actual societal problems and as a result, the istihsân method is more attuned to societal practices deeply ingrained concerning bank interest.⁹

Ontological studies focus on the implications and influence of MUI Fatwa No. 1/2004 on the performance of Islamic financial institutions. Muhammad Ghafur W (The Influence of MUI Fatwâ on the Prohibition of Interest/Interest on the Development of Sharîa Banking in Indonesia, 2008), Kamal Zubair (The Influence of Fatwâ Prohibition of Bank Interest on the Decision to Purchase Sharîa Bank Products, 2014), Lia Auliah Rachmah and Nisful Laila (Comparative Analysis of the Financial and Socio-Economic Performance of Sharîa Banks between Before and After the Establishment of the Fatwâ MUI on the harâm of Bank Interest, 2016). These three studies found no significant difference between before and after the issuance of fatwâ MUI No. 1/2004 related to the financial performance of Islamic banks and public interest.¹⁰

An axiological study is a study that focuses on the motives and objectives underlying the issuance of the fatwâ. Siti Nuraisyah Rahmawati (MUI Fatwâ on Bank Interest: A Review of the Sociology of Islamic Law, 2006), Ratna Endah Hidayati (MUI Fatwâ on the Prohibition of Bank Interest in the Views of Sharîa Students, 2005), Aidi Sugiarto (MUI Fatwâ on Bank Interest: A Study on the Views of the Mlangi Community, 2008), Sandi Saputra and Selviani (Fatwâ Indonesian Ulema Council Number 1 of 2004 concerning Bank Interest, 2021). These four studies highlight a motive to further boost public interest in utilizing Islamic banking while simultaneously reinforcing the presence of Islamic banks within the community.¹¹

The debate on the concept of ribâ includes various perspectives, such as that of Ali Rıza Gül, who opines that ribâ is harâm if it is practiced as it was during the time of Jahiliyah, particularly when certain elements ensnare the borrower.¹² Javad Fakhkhar Toosi, on the other hand, argued that using interest that was not required at the beginning could serve an alternative solution to the prohibition of ribâ.¹³ Studies related to the views of mass organizations on the prohibition of loan interest include the opinions of Muhammadiyah elites on bank interest and interest written by Abd Hadi and Muhammad Arfan Mu'ammar,¹⁴ together with the views of members of Islamic organizations (Muhammadiyah and NU) on Ribâ and conventional banks in Indonesia, promulgated by Burhanudin Harahap and Tastaftiyan Risfandy.¹⁵

Research Methods

This qualitative research adopts a normative juridical approach through the lens of Islamic legal theory. The primary data source is Fatwâ MUI No. 1/2004 on faidah or interest. The secondary sources include scholarly works that examine the fatwa. Supporting sources include scholarly discussion on the theory of legal istinbat, especially about qiyâs. Given that this research is literary, the data collection technique employed documentation. The data is gathered and selected from written materials, primarily from library sources. The data analysis employs a qualitative approach with triangulation. The ijtihad method employed in the MUI fatwâ is analyzed through several established ijtihad methods in Islamic law, including qiyâs, istihsân, and maslahah al-mursalah.

4. Discussion

Fatwâ MUI No. 1/2004 concerning Interest (Fa'idah) is structured into four parts: weighing, remembering, paying attention and deciding. The key consideration in this discussion is that Indonesian Muslims continue to question the legality of interest in loan transactions (qard), both in financial institutions and among individuals. Consequently, the MUI needs to issue a fatwâ on interest to provide clear guidance for Muslims. The ‘Remembering’ section contains verses and hadiths of the Prophet about the prohibition of ribâ and ijma' of scholars regarding the harâm nature of ribâ, which is considered a major sin. The ‘Paying attention’ section contains:

1. The opinion of fiqh scholars is that the interest charged on loan transactions (qard) has met the criteria of ribâ, which is prohibited in Islam;
2. The assertion is that loan interest is more severe than ribâ, which is prohibited in the Qur'ān. The Qur’ān permits additional charges only for debts that cannot be repaid by their due date, whereas interest is predetermined at the outset of the agreement
3. Many fatwa institutions and international scholars have determined that interest is harâm
4. Mass organizations and National Ulema Forums have also emphasized that interest is harâm.

The ‘Decide’ section contains interest and riba limits, interest laws and laws of agreement with conventional financial institutions. The verses it is based on are Q.S. al-Baqarah (2): 275-80 and Q.S. Ali 'Imrân (3): 130, and several hadiths;

1. The Prophet cursed the eater of ribâ, the giver, the writer and the witness.¹⁶
2. There will come a time when people are accustomed to eating ribâ so that even those who do not eat it will be exposed to its dust.¹⁷
3. Ribâ is 70 sins, and the lightest is to marry his mother.¹⁸
4. Ribâ has 73 gates.¹⁹
5. The hadith whose redaction is almost the same as that narrated by the Muslim above.²⁰

The ijmâ' as the basis for this fatwa, is referred to al-Majmû' Sharh al-Muhazzab by al-Nawâwî. It states that Muslims have ijmâ' for the prohibition of ribâ and that it is one of the great sins. It is also said that ribâ is forbidden by all religious teachings.²¹

The MUI fatwâ also incorporates the opinions of classical scholars like al-Nawâwî, Ibn al-'Arabi, al-'Ayni, al-Sarakhsi, and al-Asfahani, and modern scholars like al-Sabuni, Abu Zahrah, al-Qarâdawî, and al-Zuhayli. Al-Nawâwî states that ribâ mentioned in the Qur’ān refers to the type of ribâ which was commonly practiced in the Jahiliyah era. In this practice when a debtor could not repay their debt by the due date, they were given an extension, but with an increase in debt, thus making it a form of interest added to the principal loan.²² al-'Arabi, al-'Ayni, al-Sarakhsi, al-Asfahani, and al-Sabuni expound limits of ribâ. The ribâ limit is generally in addition to the principal of property that has no reward or not due to buying and selling, and it is collected based on the time of delay in payment.²³ Abu Zahrah stated that ribâ is that applied by banks today and is widely used by the community, and its law is undoubtedly harâm.²⁴ The opinion of al-Qarâdawî quoted in the addition of interest in banking is harâm.²⁵ Al-Zuhayli stated that bank interest is harâm because it includes ribâ nasî'ah, in small amounts or doubles.²⁶

Some modern scholars have made distinctions between interest and ribâ (usury), such as 'Abd al-'Aziz Shawish and Hafni Nasif (Egyptian scholars) and Muhammad Asad.²⁷ Shawish departs from the argument that the attribute of alif lam ma'rifah in the word ribâ in Qur’ān refers to a special agreement known among Arab society at that time with multiplied ribâ al-nasîah. Therefore, ribâ that is not multiplied like light debt interest is currently not included in the prohibition of ribâ in Qur'ān. He was only affected by the excesses of the prohibition of ribâ al-nasîah because of the rules of fiqh i'ta' al-qalil hukm al-kasir saddan li al-zari'ah (giving the law on something that is a little the same as the law on something many to close the way to the forbidden). According to Shawish, ribâ does not apply to low loan interest.²⁸

Hafni Nasif's view is almost the same as Shawish's. One of the three alternative arguments for allowing interest that he offers is to return to the meaning of jahiliyah riba that Arabs commonly practiced before the descent of the Qur’ān. Jahiliyah riba illustrates that when a person owes another party a certain amount of property and cannot pay it off at maturity, the debt will double for the following year. If at the time of maturity in the following year, the debtor cannot pay off as well, then the debt will be doubled again. Thus interest accumulates over time and grows exponentially. Therefore, the verse was revealed: "Do not eat riba by multiplying."²⁹ It is not the debt with low interest known to the Arab community as the reason for the decline of the prohibition of usury in the Qur’ān. The word riba in the verses of the Qur’ān is still mutual, which needs to be limited to its meaning (taqlid) as per the rules in the fiqh proposal. Suppose the Arab people of jahiliyah practice debt with low interest. In that case, there is no need for a prohibition on legal tricks (al-hiyal al-shar'iyyah), as mentioned by the jurists. Among those he mentioned was al-Khassaf, a scholar of the Hanafi School who is famous for his book, al-Hiyal.³⁰

Abdullah Saeed criticized the view of most scholars (neo-revivalists) who equated interest with usury. According to him, this view has four main contents: the Qur’ān stipulates that only the principal debt is returned; any previously agreed addition to the principal debt will be considered riba. This view is based on a literal interpretation of Q.S. al-Baqarah (2): 279, which states that, “if you have repented of (collecting ribâ), then your rights are the principal capital that you lend.” Principal capital (ru'us amwal) is interpreted as a sum of money in fiat money, as commonly used today in banks. Saeed emphasized that the word ru'us amwal in verse should be understood in the socio-economic context of the Arab community when this verse was lowered, especially in the Hijaz region (Makkah and Medina). Based on the number of hadiths of the Prophet, especially the hadīths about the 'six commodities of ribawi', it is concluded that they used to transact in barter. Therefore, if there is a debt and receivables transaction, the meaning is that the debt of goods will be returned with the same goods in the future. This kind of understanding is significantly essential if it is associated with the condition of society facing an inflationary economy. Inflation causes the purchasing power of money to weaken, so it takes a significant amount to buy the desired commodities. Deflation causes the opposite, and it is not possible in an economy with a barter system.³¹

Thus, the current banking system with the type of fiat money they transact is different from the financial system practiced in the Hijaz Arab society when this verse is lowered. Giving absolute harâm law to “bank interest,” causes injustice to one party because the money transacted usually continues to experience inflation, especially in developing countries. The purchasing power of money is decreasing as time goes by. Customers who keep their money in banks are actually 'decreasing in value' because they continue to be eaten away by inflation.

Even the interest the bank provides is insufficient to cover the loss due to inflation. In fact, in the Qur’ān it is explained in every muamalat affirmed with a verse; “You must not oppress others nor can you be oppressed”.³²

The differences and dynamics of fatwas on bank interest rates have indeed developed and become a debate in several countries, as in the following fatwas:

1. Institute for Islamic Studies (Majma' al-Buhus al-Islamiyyah) in Cairo. At the 2^nd Congress in 1965, which scholars from 35 Islamic countries attended, this institution decided that interest in all types of loans is ribâ, which is prohibited, both consumptive and productive loans because the Qur’ān and the Sunnah have strictly banned both.³³
2. Islamic Fiqh Institute (Majma' al-Fiqh al-Islâmî) of the Organization of the Islamic Conference (OIC). In 1985, this institution held a hearing in Jeddah, and one of its rulings was that any additional (interest) on a debt that had matured where the debtor had difficulty paying it, which was calculated according to the time of the delay, was Ribâ, which was forbidden. Similarly, the additional (interest) on the loan calculated from the beginning of the agreement is ribâ which is also prohibited.³⁴
3. Islamic Fiqh Institute Rabitah al-'Alam al-Islami which organized the 9^th workshop in 1406 H/1986 in Makkah. The workshop determined, among other things, that loyal property derived from interest is harâm Every Muslim cannot use this property as private, but it must be spent for the general benefit of Muslims, such as schools and hospitals. However, this is not almsgiving, but solely to purify wealth from the unclean. In this case, they should not leave the interest in the bank to protect themselves from the impure. The reason is that usually, the wealth from the interest will be chanelled to non-Muslim foundations to buy weapons and then used to fight Muslims themselves.³⁵
4. The interest limit in the content of the MUI fatwâ decision is "an additional charge in money loan transactions (al-qardh) that is taken into account from the principal of the loan without considering the utilization/principal yield, based on the period, calculated definitively in advance, and generally based on percentages." While Ribâ is defined as ‘an additional (ziyadah) without reward (بلا عوض) that occurs due to a suspension in payment (زيادة الأجل) that was previously agreed upon (اشترط مقدما). And this is called ribâ nasi'ah’.

After affirming the limit of interest and ribâ, this fatwa then decides on the law of interest, which is outlined in two points:

1. The practice of interest money today has met the criteria of ribâ nasi'ah. Namely, ribâ was practiced and then prohibited in the time of the Prophet (Peace be upon him).
2. The practice of interest on money is carried out by financial institutions, such as banks, insurance, pawnshops, capital markets, cooperatives, and other financial institutions, as well as individuals whose laws are harâm.
3. At the end of the fatwa, it is emphasized that Muslims whose territory has been reached by Islamic financial institutions should no longer use interest-based financial institutions. Meanwhile, those whose areas have not been reached by Islamic financial institutions are still allowed to use conventional financial institutions on an emergency basis.

The MUI Fatwa No. 1/2004 has fulfilled the fatwa elements as explained in the abovementioned theory, including Mustafa questions, showing the postulates in sequence from the Qur’ān, hadith, ijmâ', and the opinions of previous scholars. The content of the fatwa is also stated firmly and clearly so that it does not cause ambiguity for mustafti. However, from a technical perspective, several errors are quite noticeable, including:

1. In the dictum, it is remembered that the first word of Allah, the second hadith of the Prophet (saw), and the third ijmâ'; but in the item of the word of Allah, it turns out that there is also a hadith.
2. The writing of verses and several hadiths is inappropriate because they are interchanged. It can cause misunderstandings in readers, especially laymen.
3. In the dictum, pay attention to item (i), which contains a quote from Wahbah al-Zuhayli's statement in al-Fiqh al-Islami.³⁶ Although the content is almost the same, this is unusual considering that the quote is a direct quote in an Arabic text that should be quoted exactly, even down to the punctuation.

There are several critical notes regarding the use of sharia evidence and the views of scholars as the basis for fatwâ. First, it does not focus on the issue of interest. It should be noted that generally, scholars or figures who view the Halal (permissibility) of interests have a paradigm that distinguishes between ribâ and interest. They also agree with the prohibition on ribâ, but do not agree with the ban on bank interest because the two are different. Using verses and hadiths about ribâ as the basis for the prohibition of interests without being accompanied by an explanation of their relevance to interests will give the impression that the fatwa giver does not understand the issue being debated. The verses and hadiths shown are all certainly related to ribâ, because the sharia about interests is impossible. However, these verses and hadiths should be complemented by tafsir or sarah from scholars that lead to the prohibition of interest.

Likewise, ijmâ', as the basis of fatwâ, does not focus on interest. The ijmâ' presented is ijmâ' against the harâm of ribâ. Even those who allow interest admit this. Therefore, this basis of ijmâ' is not compelling enough for them to accept the view that interest is harâm. There is an ijmâ' claim against the prohibition of interests by Yusuf al-Qaradawi. He accords there has been an ijmâ' among world Islamic institutions against banning interest. The institutions he mentioned are the Cairo Institute for Islamic Studies, the Islamic Fiqh Institute under the OIC, and those under Rabitah al-'Alam al-Islami, as discussed above.³⁷ However, this fatwa does not quote him. It may be because the MUI itself did not recognize the claim. Theoretically, it is not easy, even almost impossible, that an ijtihad result is unanimously agreed upon by scholars worldwide today.³⁸ Especially in the issue of bank interest, whose debate has not ended.

Secondly, the use of hadith as a basis for banning interests is less selective. Of the six hadiths used above, only two are valid, namely Muslim hadīth³⁹ and Ibn Majah hadīth, whose redaction is similar to that of the Muslim hadīth.⁴⁰ The other four are weak hadīths (da'îf), namely one hadith of al-Nasâ'i⁴¹ and three hadīths of Ibn Majah.⁴² Even though many valid hadīths can be used. It gives the impression that to punish the harâm of ribâ it is still necessary to be helped by da'if hadiths. In fact, according to the majority of hadith scholars, da'if cannot be used as a basis for establishing Halal and harâm laws. The hadith of da'if can only be used for the basis of fadâ'il al-a'mâl and al-targhîb wa al-tarhîb.⁴³ Scholars have agreed upon the haram of ribâ itself, which has even been declared ijmâ'.⁴⁴

Thirdly, in the section on paying attention, the opinion of fiqh scholars who believe that interest in loan transactions meets the criteria of ribâ, which is prohibited, is discussed. The first fiqh scholar mentioned is al-Nawâwî who states in al-Majmû' Sharh al-Muhazzab that the ribâ referred to in the Qur’ān is ribâ, that was practiced in the age of Jahiliyah, namely ribâ nasa' and additional requests for property (mal) due to the addition of the debt repayment period. When the debtor is due to pay off the debt, the creditor will multiply the debt (ad'âfan) as compensation for doubling the repayment period.⁴⁵ Al-Nawâwî's statement is not appropriate if it is directly applied to the case of bank interest because the concept of property (mâl) in the statement differs from money. Mâl at that time meant everything owned, especially animals, gold and silver.⁴⁶ In the context of debt, the meaning is a debt of goods back to goods, the debt of camels back to camels, and so on. As illustrated in the hadiths about the six ribâwi commodities, the barter system dominated the buying and selling transactions because money was not widely circulated and owned by the Arab people. Thus, if the debt is a sack of wheat, for example, it must also be paid with a grain sack. However, it is different if the debt is money in the bank. The value of funds may continue to change depending on whether or not there is inflation or deflation. Therefore, this verse cannot be applied to the case of bank interest.⁴⁷

Fourth, still paying attention to the opinion of al-Nawâwî, is the view of the classical scholars, namely Ibn al-'Arabi, al-'Ayni, al-Sarakhsi and al-Asfahani. The view quoted from them is only in the form of a definition of ribâ, which, if understood contextually, is undoubtedly a commodity, not fiat money, as used in banking today. There is no explanation of the relevance of the definition to the case of bank interest. The construction of this kind of argument has a less intense and convincing message, especially for those who have believed that interest is different from ribâ so that the law does not have to be harâm. Even the modern scholar quoted by al-Sabuni is still about the definition of ribâ, not the specific one that directly refers to interest. In his book of tafsir he also stated that ribâ al-nasi'ah is currently practiced in banks that charge 5%-10% (loan interest).⁴⁸ In this part of paying attention, the opinions of modern scholars who explicitly mention interests are Abu Zahrah, al-Qaradawi, and al-Zuhayli.

Table 1. The Numbers of Islamic banking institution Pre and Pasca Fatwa MUI 2004

Source: Data processed from various sources, Bank Indonesia, scientific journals, and mass media

The data above shows that there was a significant increase in the number of Islamic commercial banks after the MUI fatwa, especially in the 2010-2020 period, when many Islamic banking Units were spin-off from their conventional bank parents to become Islamic commercial banks from and the establishment of new Islamic commercial banks so that it was 13 to 3 in the 2005-2010 period.

However, according to Afdi Nizar's research,  the increase is not the impact of the MUI Fatwa, but the policy of Bank Indonesia, which massively encourages the growth of Islamic banks in Indonesia.⁴⁹

4.3. Criticism of the Argument of Fatwâ MUI No. 1/2004

The fundamental criticism of the MUI fatwa lies in its law-making method, which was seen as less methodological and less attentive to the social, economic, and political situation at that time. As mentioned above, the content of the fatwâ begins with a definitive explanation of the two concepts, interest and ribâ. Based on these two definitions, the fatwa concludes that the current practice of money interest had met the criteria of ribâ nasi'ah in the time of the Prophet (Peace be upon him), and therefore, it is declared harâm. The method of determining law by equating two concepts based on the exact definition is unknown in the theory of Islamic law determination. Among the disadvantages of establishing a law based on a precise definition is that it can be composed based on a particular subjective perspective. One or more properties of a defined object may not be brought up if it is considered inconsistent with the desired direction of the definition.

The MUI fatwâ on the prohibition of interest has developed into a paradigm in developing Islamic bank products in Indonesia. ⁵⁰ However, this condition is also problematic for Islamic banks to be expansive and competitive with conventional banks. The proof is that although the number of Islamic banks continues to grow (see Table 1), the market share is not more than 6%, below Bank Indonesia's target of 10 percent. ⁵¹

Hart, Professor of Economics from Columbia University, stated that interest rates can be described as the price of economic services shown by savers. As a price, interest is taken to balance the current savings offer with the demand to save for financial investment.⁵² Meanwhile, according to the Indonesian Financial Services Authority (OJK) interest is ‘a repayment for services provided by banks to customers who buy or sell their products.’ Deposit interest is a reward from the bank to the customer for the service of the customer saving his money in the bank. Meanwhile, the loan interest is repayment of services the bank sets to the borrower for the loan received.⁵³ In OJK's view, interest is the selling or buying price of banking products. Its main banking products are savings and loans (credit). The selling price is manifested in loan (credit) interest, while the purchase price is manifested in savings interest. The definition of interest by the MUI in its fatwa certainly does not include the benefit aspect contained in this OJK definition.

In the theory of determining Islamic law, determining the law for a new event with no underlying law is mainly by qiyâs, istislah, istihsan, and istishab. In the case of prohibition, the commonly used method is qiyâs like in prohibition of liquor and drugs refer to khamr prohibition in Qur’ān.⁵⁴ In the tradition of Islamic legal thought, the stage of prohibition of ribâ is usually identified with the stage of prohibition of khamr.⁵⁵ The other three methods are commonly used in the case of accommodation of something new. As mentioned above, when qiyâs is used, it turns out that there is an ambiguity of 'illat. Most fiqh books only explain 'ill at ribâ in buying and selling, namely ribâ, which is based on the hadith of the Prophet (Peace be upon him).⁵⁶ Even in the ijmâ' list, the agreed 'illat ribââ is only related to the six ribâwi commodities, namely food, beverages, means of exchange (gold and silver), measured commodities, and weighed commodities.⁵⁷ 'Illat of ribâ in debts and receivables, neither ribâ of Jahiliyyah nor ribâ al-qard, it does not appear in the ijmâ' list of ijmâ' of the books of ijmâ jurisprudence. The two types of ribâ in debt and receivables are often used as a model (al-asl) in the allusion of interest to ribâ.

If the “interest” in bank is considered 'illat, then it will give rise to many problems. Firstly, the basis of rationality is difficult to understand. Secondly, it collides with the Prophet's practice. However, it is undeniable that the Prophet's practice of providing additions to repay such debts shows that not every addition is terrible and forbidden. Thirdly, is the problem of not meeting the qualifications of 'illat. Among the conditions for a trait to be 'illat is that it is definitive (accurate and precise) and guided by the wisdom of the law.⁵⁸

In addition, there are also several irregularities in the fatwâ. Among them is the reduction of the meaning of ribâ in regard to the principal debt without compensation. This reduction of meaning makes ribâ not appear bad, which should be forbidden and condemned. In addition, it is illogical and realistic because not all additions free of reward are forbidden in Islam, and some are even praised by the Prophet (Peace be upon him).⁵⁹

Also, there is a lack of clarity on the method of equating bank interest as harâm. The interest rate set by the central bank must pay attention to the community's economic condition. The theory is that if the interest rate is too high, entrepreneurs are reluctant to borrow from banks, and people prefer to keep their money in banks rather than invest because they earn considerable interest. The impact of this behavior in the broader economy will be disrupted because entrepreneurs cannot develop their businesses due to capital difficulties. On the other hand, if the interest rate is too low, people are reluctant to keep their money in the bank, so there will be a lot of money in circulation, and the impact is inflation, characterized by an increase in the price of goods.

There is also the Financial Services Authority (OJK), which will reprimand banks that set interest rates outside the central bank's provisions and will close banks that are uncooperative and violate banking regulations. The condition differs from the “interest” for arbitrary personal loan services or loan sharks and, in the case of online loans (pinjol), which multiplies when determining interest due to fines. Thus, the keyword “interest” becomes prohibited when there is exploitation and taking of amounts or penalties due to multiple delays and does not cause misery to the debtor.

Thus, the legitimacy of the MUI fatwa does not consider strong legal and jurisprudence interests, especially regarding qiyâs theory. Legal equity, which is based solely on the similarity of definitions between the two concepts of rib and interest, is unknown in Islamic legal theory. Also, the definition of interest is made subjectively by emphasizing only the aspects that can be considered the same as riba. Even factors considered the same as rib do not always have to be destructive, detrimental, or harmful to the other party. The nature of interest as 'additional without compensation’, 'agreed at the beginning of the agreement’, and 'related to the payment period,' does not always have to be detrimental to the customer's best interests. Many bank debtor customers can develop their businesses because of this interest-based loan. If the interest charged by each bank, especially those charged by the legal banks mentioned above, is damaging and harmful to customers, it is unlikely that it will continue to be maintained by almost all countries worldwide. Suppose there is no definite danger, even if it is harâm. In that case, it is contrary to the principle of prohibition in the field of muamalat, which is always based on specific danger.

Similarly, the paradigm and legal basis of qard as a tabarru' contract, which has the consequence of additional prohibitions in its payment if agreed at the beginning of the contract, is a weak basis. A hadith allows for addition, although, by the majority of scholars, it is then reduced only in cases where the addition is an initiative of the debtor and was not agreed upon at the beginning of the agreement. This kind of mindset is not in line with the theory of ta'arud al-adillah.

MUI Fatwa No. 1/2004 on flowers has not thoroughly followed the precise rules of istinbat or ijtihad. The process of taking fatwâ (ifta') is almost the same as ijtihad, so the reason and method should also be the same as the reason and method of ijtihad. A legal conclusion produced without going through a straightforward ijtihad process will certainly doubt its validity. If the object is a new event that has not yet been written in verses and hadiths, the method can be qiyas, istihsan, istislah, or other ijtihâd waqi'i methods. The most appropriate method in this fatwa on flowers is qiyâs because the direction wants to equate it with ribâ in the Qur’ān. If this is the case, it is necessary to clarify the elements of qiyâs, especially the ' Allah, so that qiyâs can be done correctly. Just showing the similarities between interest and ribâ cannot necessarily be considered the same, especially if it cannot show the similarity of Allah.

In Malaysia there is a centralized fatwa system where the National Fatwa Council issues binding fatwas on Islamic financial matters. Malaysia also prohibits interest in Islamic financial transactions, adhering to Sharia principles. The country has developed a robust regulatory framework to ensure compliance with these principles. Pakistan's fatwâ administration is more traditional and less centralized compared to Indonesia and Malaysia. Individual scholars or madrasas often issue fatwas. Apart from the conventional approach, Pakistan also prohibits interest in Islamic financial transactions, which is consistent with the general prohibition of Islamic ribs. Sudan has a centralized system similar to Indonesia and Malaysia, where national bodies issue fatwas. Sudan strictly prohibits interest in financial transactions, in line with Sharia principles.⁶⁰

5. Conclusion

MUI Fatwa No. 1/2004 has not fully addressed the concerns of certain circles about the rationality of the banking interest. The lack of clarity of this rational argument ultimately leads to the observance of ta'abbudiyyah (unintelligible) on the basis of ihtiyat (prudence). In fact, according to the rules of fiqh, halal and haram in the realm of mu'amalat are ma'qulah al-ma'na (intelligible). Placing the law of loan interest in the realm of unintelligible (ghayr ma'qulah al-ma'na) is not by the general theory in Islamic law.

The construction of fatwas on bank interest that lack adequate explanation of the ijtihad process is not limited to MUI fatwa alone. Many fatwas issued by international fatwa institutions also do not show the ijtihad process. For example, the fatwas from Majma' al-Buhus al-Islamiyyah (Institute for Islamic Studies) al-Azhar Cairo, al-Majma' al-Fiqhi (Institute of Fiqh) Rabitah al-'Alam al-Islami Makkah, and Majma' al-Fiqh al-Islami (Islamic Fiqh Institute) of the Organization of the Islamic Conference (OIC) Jeddah. If you look closely, the fatwa texts of these institutions are not as complete as the MUI fatwa in presenting the postulates from the Qur’ān and Hadīth. These fatwas sentenced bank interest as an illegal activity without a clear argument. Therefore, further research can also be carried out on fatwas regarding bank interest issued by such institutions. The irrationality of the prohibition of flowers has become an unwritten paradigm in the fatwas of the bank interest in modern times.

The recommendation for the MUI is that the fatwas issued should also contain the istinbât or ijtihâd method as theorized in the books of jurisprudence. If a new process is used, the footing of the technique from the theory in the fiqh proposal will still be shown. It is insufficient to merely present the postulates related to the issues discussed and then jump to legal conclusions. In addition, this fatwâ on interest also needs to engage in dialogue with various views developed among Muslim scholars and scholars so that the legal conclusions address the multiple arguments they present regarding the law on loan interest. Ignoring differing views would only diminish the authority and strength of the MUI fatwa itself.

Conflict of Interest

The manuscript author has absolutely no financial or non-financial conflict of interest regarding the subject matter or material discussed in this manuscript.

Data Availability Statement

The data associated with this study will be provided by the corresponding author upon request.

Funding Details

The author did not receive funding from any source or agency.