Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
6Activity
0 of .
Results for:
No results containing your search query
P. 1
Riba Vs Profit

Riba Vs Profit

Ratings: (0)|Views: 1,729|Likes:

More info:

Published by: ✬ SHANZA MALIK ✬ on Nov 10, 2011
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as DOC, PDF, TXT or read online from Scribd
See more
See less

09/14/2013

pdf

text

original

 
QUESTIONS
“Unlike
riba
, profit is recognized in Islam because of its characteristic as a justified form of reward for capital and enterprise.”
(a)
Discuss the above statement
(b)
List in a table the differences between profit and
riba
 
INTRODUCTION
“Allah forbids riba and permit trades.”
Surah 2:275Although
riba
is forbidden in Islam, profit generated from trade is a justifiable source of income in Islam. This article discusses the differences between
riba
and profit and from therededuces the rationale of the above injunction.For some people, the religious commitment will be good enough to guide them to reject the practice of 
riba
and deem profit as the only justifiable source of income. However, for theother group, they deserve a more convincing explanation and clarification from economicaland social point of view. Since the author is not a Muslim herself, it will not be persuasive toadvocate that
riba
is unjustifiable on religious ground alone. Therefore, with fair amount of religious elements, this article examines
riba
and profit largely from economical aspect.
DEFINITIONSThe Prohibited
 Riba
In a gradual process, little by little Al-Quran prepares the ground and social environment for final prohibition.
Riba
in Islamic terminology is increase or excess over principal or more precisely,
 
it is called a stipulated/forced/obligatory surplus on a debt.
1
Or it can be defined asan increase or excess value
(fadf)
which in an exchange or sale of a commodity, accrues tothe owner (lender) without giving in return any equivalent counter value or 
iwad.
 1
In 1992,the Pakistan Federal Shariah Court ruled that: “Any excess which is pre-determined over the
 
 principal sum in a loan transaction will constitute
 Riba
in all circumstances.”
2
By and large,as a general principal,
riba
exist as long as the exchange/transaction involves
riba
wi itemsand gives rise to inequality of counter values (
al-fadl 
) and determent in time of exchange (
al-nasiah
).
3
Terminologically the equivalence of 
riba
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.
4 
Usury was also prohibited in ancient China.
5
Since it is not only Islam that prohibits
riba
, itis reasonable to infer that the practice of 
riba
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”.
6
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.
7
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
 Riba
vs Profit on Counter-value
According to
 Fiqh
scholars profit is a justified increase which is usually generated byexchange of two goods while
riba
occurs in unjust inequitable exchange of one commodityagainst another.1 
 Hanafi,
 
Shafii
and
Maliki
schools all agree on the term “unequal counter-value” when it comes to defining
riba
albeit the differences in the exact definitions.Therefore, this remaining of this section dedicates to explain graphically the differences of 
riba
and profit in term of counter-value.
 
 Figure 1(a) Equal Exchange1Figure 2 (b) Exchange involved
 Riba1
Figure 2 (a) shows the equal exchange between A and B for Y product, in which y
a
+ y
 b
= Y.MN is the opportunity space or the maximum available endowment of Y. At point E(intersection between MN and 45
o
straight line from the origin), A and B is in equal proportions - A is getting OY
aE
while B is getting OY
 bE
. The 45
o
straight line is the equalcounter value line, in which Y=X. Figure 1(a) shows that, it is a zero sum game activitywhere the gain of one party is directly the loss of the other one.1
Any point fall out of point Ewill not result in equal counter value. Additional value that accrues to either party in thiskind of transaction amounts to excess without counter value or prohibited
riba
in Islam.In the case of Figure 2(b), A has endowment of good OQ
Ae
and certain amount of moneyOM
Ae
and B has endowment of good OQ
Be
and money amount of OM
Be
. A requires to havemore money and sell some of his plenty of good. While B would like to purchase some of good Q from A in exchange for money, in which the exchange normally takes place at a prevailing market price. However, in this transaction, A sells (Q
Ae
-Q
AE
) of the good for (M
Be
 – M
B
 I 
) which B will pay by instalment. The extra price paid than that of the market value(M
Be
– M
B
 E 
) is a result of interest imposed on B. This additional amount money that accruesto A is absolutely the loss to individual B, where the stock of individual B decreases fromM
BE
to M
B
 I 
. Since ΔM
A
= ΔM
B
is in absolute terms, so in exchange rationale, this is one sideflow which has no any corresponding value in repayment, resulting in
riba
which is shaded inyellow in Figure 2(b). In Islam, an alternative to prevent
riba
in deferred payment mode is
Murabaha-Mu’ajjal 
.
 Y
b
 Y
a
MONE
 Y
aE
 Y
bE
45
o
QO
A
MO
B
e
 E
Q
AE
Q
Ae
M
Ae
M
AE
M
A
I
M
B
I
M
Be
M
BE
Q
Be
Q
BE

Activity (6)

You've already reviewed this. Edit your review.
1 thousand reads
1 hundred reads
Zaimie Abdullah liked this
Kerun Niesya liked this
Fahim Rq liked this

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->