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The Difference between Rent and Interest

The foregoing discussion has sufficiently established the fact that Islâm considers “profit” and “wages” to be lawful and “interest” to be unlawful. Now we are left with the fourth item - namely “rent”. Islâm considers this too as lawful. But there arises a question in the minds of some men on this point- when taking or giving interest on capital is unlawful because of there being a fixed rate, why should rent on land (which includes machinery, according to our terminology) be lawful, rent also being something fixed?

In order to answer this question, one should first understand that important distinction. The material resources employed in economic operations are of two kinds. On the one hand are those goods which, in order to be utilized and exploited, do not have to be wholly consumed but may retain their form as such while being utilized - e.g., land, machines, furniture, carriages, etc., which can be utilized without impairing their identity. Since such commodities are exploitable in themselves, and the modes of utilizing them are such that the person who takes them on rent does not have to exert himself in the least, while their constant use depreciates them in value, so taking or giving “wages” for the utility yield is quite just and reasonable. It is to these “wages for the utilities provided” that Islâm gives the name of “rent”.

On the other hand, money is a commodity which has to be wholly consumed in order to be utilized. One cannot derive any benefit from it until one has bought something for this money. So, money is not utilizable in itself. Hence, on the one hand, no matter what the benefit which the debtor wishes to derive from it, he has to spend the money and then to put in his own labor in order to derive that benefit; on the other hand, the value of money does not suffer on account of being used by him. That is why it would be unreasonable to impose a fixed rate of interest on this money. The owner of the money has the free choice either not to lend his money at all or to enter into a “partnership” ( ) or “cooperation” ( ) with the person who needs the money. But if he lends the money in the form of a debt, Islâm cannot allow him to charge an interest on it according to a fixed rate.

It is on this basis that we have defined our terms like this - the things which are not utilizable in themselves without being wholly consumed would be called “capital”; when they enter into a commercial enterprise as a factor of production, they would be entitled to profit; the things which are utilizable even without being wholly consumed would be called “land”, and on account of having participated in the process of production they would receive some part of the wealth in the form of rent.