principal sum in a loan transaction will constitute
in all circumstances.”
By and large,as a general principal,
exist as long as the exchange/transaction involves
wi itemsand gives rise to inequality of counter values (
) and determent in time of exchange (
Terminologically the equivalence of
in economic tradition is usury, somethingthat was prohibited in Jewish and Christianity also. But modern banking gets around the prohibition of usury little by little and eventually replaces the word usury with interest.
Usury was also prohibited in ancient China.
Since it is not only Islam that prohibits
, itis reasonable to infer that the practice of
is somewhat harmful to the society.
The Permitted Profit
Profit is the return on trade, which is the result of difference between revenue and cost,encompassing the effort and risk undertaken by the entrepreneur. Existence of risks either before-sale or after-sale inadvertently results in uncertainty in profit (or loss). This is basedon the legal maxim (Qawaid Fiqiah) that states
al-ghunm bil al-ghurm
which can betranslated as “gain is the result of risk-taking”.
Thus Muhammad Ayub (2007) described profit as ex-post, which is only known after the business venture. He also insists that profitgenerated from trade should be associated with real asset.
Islam places a great importancein trade and encourages it because it is the major vehicle of increasing real income. Muslims believe that God wants his people to be prosperous and to avail themselves of the bounties of his creation.
RIBA VS PROFIT
vs Profit on Counter-value
scholars profit is a justified increase which is usually generated byexchange of two goods while
occurs in unjust inequitable exchange of one commodityagainst another.1
schools all agree on the term “unequal counter-value” when it comes to defining
albeit the differences in the exact definitions.Therefore, this remaining of this section dedicates to explain graphically the differences of
and profit in term of counter-value.