Is An Islamic Economic System Possible Without the Prohibition of Interest (Riba):

A Critical Appraisal of A Shari’ah Compliant Economic System as Envisioned by Sjafruddin Prawiranegara (1911-1989) in Indonesia

Jamal Abdul Aziz

Tulus Suryanto

 

Abstract: One of the fundamental principles that the Islamic economic system is based on is the prohibition of interest (riba). However, Sjafruddin Prawiranegara (1911-1989), one of the thinkers and pioneers of Islamic economics in Indonesia, had a different view on riba, namely allowing it. According to Prawiranegara, riba is construed too narrowly, limiting it to the profit gained from exploitative and fraudulent transactions. Therefore, according to Prawiranegara’s interpretation, riba could be incurred in both cash and credit transactions. This is opposed to the orthodox understanding of riba, which describes riba as an excess charged by a lender in a credit transaction. Analysing the work of Prawiranegara and commentaries on his work, this article reconstructs Prawiranegara’s Islamic economic thought that denies the prohibition of interest in the way construed by orthodox thinking. The article then analyses the implications of Prawiranegara’s construction of riba in the development of the contemporary Islamic economic system. The analysis of Prawiranegara’s interpretation of riba reveals that his views are based on the overall understanding of the Islamic economic system as an economic activity guided and directed by Islamic norms. Equality and honesty, among others, are fundamental Islamic norms which guided Prawiranegara’s interpretation of riba. Although Prawiranegara’s understanding of riba is opposed to orthodox views, it can play a significant role in the development of Islamic economics, especially in the context of Islamic finance.