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Masters in Education from Nottingham University, qualified teacher in the UK. Has studied Masters in Islamic Studies also Islamic Banking and Finance. Interests in Politics/History/Philosophy.
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In a Nutshell:
Taking of riba from non-Muslims (harbis) in the land of war (dar al-harb) is permitted by the Hanafi school of law and by many Hanbalis too. There is however a caveat - Hanafis permitted the taking of riba from harbis in dar al-harb but not the giving of it. This has been spelled out clearly by Ibn al-Humam in his book Fath al-Qadir. Scholars including Abu Yusuf, Malik, al-Shafi'i, al-Nawawi, ibn Muflih, al-Mardawi, al-Subki, Ibn Qudamah and others however categorically prohibited it in all circumstances.
Background

Islam is categoric when prohibiting riba (usury). The Qur'an directly declares "war" against the perpetrators of usury:

"O you, who have believed, fear Allah and give up what remains due to you of interest, if you are true believers. And if you do not, then be informed of a war against you from Allah and His Messenger…" (Qur'an 2:278–279)
The apparent meaning suggests this prohibition is absolute (mutlaq) in terms of time and place, yet there seems to be juristic disagreement regarding the permissibility of dealing in riba under special domicile circumstances.

The issue has become significant with the demise of the Caliphate and Islamic rule which distinguished territories according to the terms dar al-Islam and dar al-harb. Each had differing shari'a rules - some which the jurists agreed upon, and others where they differed. The issue of the giving of usury in dar al-harb was disputed by the jurists.

Evidences

The source of this disagreement can be attributed to a number of issues, one of which is the narration via the tab'iee (successor of the companions) Makhul claiming the Prophet (saw) said:

"There is no riba between a Muslim and a harbi in Dar al-Harb."

(Al-Shafi'i, Al-Umm, Vol. 8, p. 589; Zayla'i, Nasb al-Rāyah li-Ahādīth al-Hidāyah, Vol. 4, p. 44; Al-Sarakhsi, Usūl al-Sarakhsī, Vol. 14, p. 69; Al-Ayni, Al-Bināyah Sharḥ al-Hidāyah, Vol. 8, p. 299)
This evidence is supplemented with the Prophet (saw) at his farewell sermon (khutbah al-wida) saying:

"All pre-Islamic usury is now abolished. And the first usury I abolish is the usury of al-Abbas bin Abd al-Muttalib, for indeed it is completely abolished." (Sahih Muslim 2950, Sunan Abu Dawud 1905)
The hadith about Banu Qaynuqaa noted:

When the Prophet (blessings and peace of Allah be upon him) banished them, they said: We are owed debts that have not yet become due. He said: "Waive some of the debt in return for immediate payment." When he banished Banu al-Nadeer, they said: People owe us debts. He said: "Waive some of the debt in return for immediate payment." (Daraqutni, Haakim)
Abbas having embraced Islam at the battle of Badr, returned to live in Mecca (dar al-harb) and continued trading in usury which the Prophet (saw) finally abolished.

Juristic Opinions

Abu Hanifah and his student Muhammad bin Hasan al-Shaybani states that a Muslim granted safe passage into dar al-harb (or musta'man) is allowed to deal in interest with citizens of dar al-harb (harbis) regardless of faith according to Abu Hanifah (Al-Sarakhsi, Al-Mabsūt, Vol. 14, p. 69; Al-Shaybani, Sharh Kitāb al-Siyar al-Kabīr, Vol. 4, p. 233; Al-Kasani, Al-Badā'i', Vol. 7, p. 80; Al-Zayla'i, Tabyīn al-Haqā'iq, Vol. 4, p. 472; Zadah, Majma' al-Anhār fī Sharh Multaqā al-Abhar, Vol. 3, pp. 127–128; Ibn Abidin, Hāshiyah Ibn Abidīn 'ala Radd al-Muhtār, Vol. 7, pp. 422–423; Ibn Nujaym, Al-Bahr al-Rā'iq, Vol. 6, p. 226; Ibn al-Humam, Fath al-Qadīr, Vol. 7, p. 39; Al-Ayni, Al-Bināyah, Vol. 8, p. 299).

Muhammad and many of the Hanbali jurists were of the view that usurious transactions were only permitted between Muslims and non-Muslims (Al-Mardawi, Al-Insāf, Vol. 5, pp. 52–53; Ibn Taymiyyah, Al-Muharrar, Vol. 1, p. 464; Ibn Muflih, Al-Mubdi, Vol. 4, pp. 153–154).

The Hanafis, take the opinions of Abu Hanifah and his disciple al-Shaybani as representative of their madhab, however the Hanbalis disagree on which opinion is representative of theirs.

Hanbalis such as al-Mardawi and Ibn Qudamah, avoid permitting riba, arguing their madhab prohibits usury between Muslims and non-Muslims regardless of territory (Al-Mardawi, Al-Insāf, Vol. 5, p. 52; Ibn Qudamah, Al-Mughnī, Vol. 4, p. 162).

Al-Mardawi states:

"This is the strongest opinion of the School and there is no dispute about it." (Al-Mardāwī, Al-Insāfop. cit., Vol. 5, p. 52)
Leading Hanbali jurist Ibn Taymiyyah's view in Al-Muharrar challenges this, transactions involving riba as permissible between a Muslim and a harbi provided neither entered the others' territory with amaan i.e., protection under permission to stay (Vol. 1, pp. 464–465). In fact, several books of Hanbali jurisprudence support Ibn Taymiyyah's view: Al-Mustaw'abAl-MunawwarTajrīd al-InayahIdrak al-Ghayah and the treatise of Ibn Abdus.


Juristic Analysis

Support for such transactions was based based on the hadith of Makhul which clearly states the law prohibiting riba does not apply between a Muslim and a harbi in Dar al-Harb.

The main attack focuses on the authenticity of the first hadith. However, Ibn Qudamah noted,

"We do not know of its authenticity due to it not being recorded in any of the authentic books of Traditions."
Others critiqued it based on their personal methodological approaches e.g., al-Subki claimed the hadith was mursal therefore weak, and could not be used as legal evidence (Al-Nawawi, Al-Majmu, Vol. 9, p. 376). This argument however is irrelevant for the Hanafis as mursal ahadith are acceptable so long the chain is authentic (Al-Ayni, Al-Binayah, Vol. 8, p. 299). Al-Sarakhsi in al-Mabsut further explained Makhul was a jurist and a trustworthy narrator of hadith (Vol. 14, p. 69).

Al-Subki presented a second argument, interpreting the particle laa
in the hadith as usury is forbidden (la ubahu) for a Muslim and a harbi in dar al-harb (Al-Nawawi, Al-Majmū', Vol. 9, p. 376).

Ibn Qudamah argued in a similar vein adding such use of the particle laa appeared in the Qur'an when Allah said:

"There is no sex (rafath), no bad acts and no fighting in Hajj." (Qur'an 2:197)
referring to the prohibition of these acts, not their negation (Ibn Qudamah, Al-Mughnī, Vol. 4, p. 163). Sarakhsi argued if riba were unequivocally forbidden, there would be no need for the Prophet (saw) to repeat a known rule in an obscure manner.

An unusual element to this discussion was criticism of the authenticity of this hadith by later Hanafi jurists.

  • In Fath al-Qadir the jurist Ibn al-Humam called this hadith "strange",
  • Al-Zayla'i concurred in Nasb al-Rayah (Vol 4, p. 44)
  • Al-Ayni noted "this hadith is strange and has no authentic basis (asl musnad)" in Al-Binayah (p. 299).
Despite this none disagreed with the Hanafi opinion, instead defending it against its critics, e.g., al-Ayni in al-Binayah (p.299) criticises al-Shafi'i's criticisms saying "we do not accept that it was 'not established' because the grandeur of our Imam (Abu Hanifah) implies that he would not make a view without clear evidence" and mursal ahadith are admissible for the Hanafis.

The Maliki jurist Abu Walid Ibn Rushd (the grandfather of Ibn Rushd) adds to the above argument with the Abbass narrations who continued trading in usury in Mecca which was dar al-harb despite usury having been forbidden earlier:

"This proves the permissibility of riba with a harbi in Dar al-Harb according to the opinion of Abu Hanifah for the simple fact that Mecca at that time was Dar al-Harb and Abbas lived there as a Muslim. The Prophet did not prohibit Abbas from riba after becoming a Muslim until Mecca became Dar al-Islam after the "conquest of Mecca". Thereafter the Prophet prohibited Abbas's usurious dealings. This therefore proves the permissibility of riba in Dar al-Harb." (Abu Walid Ibn Rushd, Al-Muqaddimāt al-Mumahidāt Li-Bayān Mā Iqtadathū Rusūm al-Mudawwanah, 2002, pp. 344-345)
Sarakhsi explained the hadith of Banu Qaynuqa:

"It is well-known that such transactions – the riba referred to in the words "Waive some of the debt in return for immediate payment" are not permissible among the Muslims. If the one who is owed a debt to be paid later waives some of it on condition that the debtor pay some of it immediately, that is not permissible. Umar, Zayd ibn Thaabit and Ibn Umar (ra) disapproved of it, but the Messenger of Allah (saw) regarded it as permissible in these two cases, because these two tribes were "ahl al-harb" [in a state of war against Muslims] at that time, and that is why he banished them. Thus we know that a particular transaction may be permissible between a harbi and a Muslim that is not permissible between Muslims."
Scholars including Abu Yusuf, Malik, al-Shafi'i, al-Subki,  al-Nawawi, ibn Muflih, al-Mardawi, Ibn Qudamah and others however categorically prohibited it in all circumstances. In al-Awza'i's refutation of the permissibility of usury in dar al-harb, he writes:

How is it lawful for a Muslim to devour usury in a nation where Allah has made unlawful for him their blood and wealth? Muslims during the Prophetic time transacted with non-Muslims and they did not consider it lawful [to take riba]. (Al-Shafi'i, Al-Umm, Vol. 8, p. 589)

Conclusion

Taking of riba from non-Muslims is permitted by the Hanafi school of law. There is however a caveat - Hanafis permitted the taking of riba from harbis in dar al-harb but not giving of it. This has been spelled out by Ibn al-Humam in his book Fath al-Qadir. Despite claims the Hanafis permitted giving if one benefits overall, I have not found any source for this.

Scholars including Abu Yusuf, Malik, al-Shafi'i, al-Subki, al-Nawawi, ibn Muflih, al-Mardawi, Ibn Qudamah and others however categorically prohibited it in all circumstances.

References

Al-Ayni, Al-Binayah, Vol. 8

Zayla'i, Nasb al-Rayah li-Ahadith al-Hidayah

Al-Mardawi, Al-Insaf, Vol. 5

Al-Sarakhsi, Usul al-Sarakhsi

Al-Sarakhsi, Al-Mabsut, Vol. 14

Al-Shafi'i, Al-Umm

Al-Shaybani, Sharh Kitab al-Siyar al-Kabir

Al-Kasani, Al-Bada'i, Vol. 7

Al-Zayla'i, Tabyin al-Haqa'iq Sharh Kanz al-Daqa'iq

Ibn Abidin, Hashiyah Ibn Abidin

Ibn Nujaym, Al-Bahr al-Ra'iq Sharh Kanz al-Daqa'iq

Ibn al-Humam, Fath al-Qadīr, Vol. 7

Ibn Muflih, Al-Mubdi, Vol. 4

Ibn Taymiyyah, Al-Muharrar fi al-Fiqh ala Madhhab al-Imam Ahmad bin Hanbal, Vol. 1

Zadah, Majma al-Anhar fi Sharh Multaqa al-Abhar

Shahrul Hussain, Riba-Based Mortgages in Dar al-Harb: An Issue of Modernist Application of Fiqh al-Aqalliyat for Muslim Minorities, 2016

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