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Riba Gharar Islamic Finance

Riba Gharar Islamic Finance

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Riba, Gharar and

Islamic finance
Islamic Cultural Centre of India New Delhi May 04 2008

AUSAF AHMAD

ISLAMIC NORMS OF BUSINESS TRANSACTIONS

Should not indulge in

Riba

Should not involve in

Gharar

 

Should not indulge in fraudulent behavior Should not coerce Should not deal in prohibited goods.

Should not take advantage of anybody‟s needs Should not withhold supplies to raise prices Should not withhold information to take advantage of ignorance.

multiplies manifold. seeking the goodwill of God. but that which you give in Charity. [ 30 : 39] .Prohibition of Riba in Qur’an FIRST REVEALATION: That which you give as Riba (interest) the people‟s wealth increases not with God.

[4: 161] . and their wrongful appropriation of other people‟s property.Prohibition of Riba in Qur’an [contd. We have prepared those among them who reject faith a greivous punishment.] SECOND REVEALATION: And for their taking interest even though it was forbidden for them.

]  THIRD REVEALATION: o believers. and obey God and the Prophet so that you may receive mercy [3: 130-2] . and fear God so that you prosper. take not doubled and redoubled interest.Prohibition of Riba in Qur’an [contd. Fear the fire which has been prepared for those who reject faith.

[2: 275]  .Prohibition of Riba in Qur’an [contd.] FOURTH REVELATION Those who benefit from interest shall be raised like those who have been driven to madness by the touch of the Devil. that is because they say: “Trade is like interest” while God has permitted trade and forbidden interest.

]  God deprives interest of all but blesses Charity. He loves not the ungrateful sinners (276) .Prohibition of Riba in Qur’an [contd.

Prohibition of Riba in Qur’an [contd.]  O believers ! Fear Allah and give up interest that remains outstanding. [2: 278] . if you are true believers.

]   If you do not. but if you forego out of charity. Neither you should commit injustice nor you be subjected to it.(280) . let him have respite until it is easier. But if you repent.Prohibition of Riba in Qur’an [contd. it is better for you if you realize. then be sure of being at war with God and His messenger. (279) If the debtor is in difficulty. you can have your principal.

the payer of interest. Tirmidhi and .Riba in Hadith  From Jabir: “ The Prophet (pbuh) cursed the receiver. the one who records it and the two witnesses of the transaction and said: They are all alike (in guilt) [Reported Ahmad] by Muslim.

] Jabir b. it is being cancelled compeletely. that accruing to „ Abbas b. [ Reported by Muslim and Ahmad : Last Sermon of the Prophet (Pbuh)] . The first riba that I anul is our riba.Riba in Hadith [contd. Abdallah said: The Prophet (pbuh) said. Abd al Muttalib. “All of the riba of Jahiliyah is annulled.

Meaning of Riba      Meaning: Derived from Riba yarbou Literal meaning: to grow Technical meaning: interest. usury Illah: two considerations: (1) Excess of Amount (2) delay in delivery Example: gold for gold: (i) equal amount (2) on the spot. Implies No Riba. .

Riba al Diyun is also known as Riba al jahiliah. . Riba al Fadl is prohibited by Hadith of the Prophet (pbuh).TYPES OF RIBA    RIBA OF DEBT (Riba al Diyun) RIBA OF TRADE (Riba al Fadl) Both types of Riba are prohibited in Islam. It is prohibited by the Quranic injunctions.

RIBA OF Debt [Riba al diyun]    Riba of the period of Jahiliyah: Prevailing in Arabia before the advent of Islam The debt is linked with time. . Any extension in time is granted only by raising the price of debt (interest). Prohibited on the strength of Quranic injunction.

Wheat for What. Silver for Silver. hand to hand. indulges in Riba. dates for dates. salt for salt .like for like. barley for barley.RIBA OF TRADE [ Riba al fadl]  The Prophet (pbuh) said: “ Gold for Gold.   Narrated by : Abu Saeed Khudri Reported by: bukhari . Whoever pays more or takes more. The taker and giver are alike (in guilt).

Some experts consider it to be a form of Bay‟ al fasid (illegal sale) Barter between different goods is allowed. .Meaning of Riba al Fadl    It is related with the exchange of one good with the same good.

RIBA.e. between low and high rates. No distinction between consumption and production loans No distinction between individual and institutional loans . INTEREST AND USURY    No distinction between interest and usury i.

 .AVOIDANCE OF GHARAR     Definition of Gharar Uncertainty / Ambiguity Ambiguity of Quantity [Gharar fil Miqdar] Ambiguity of Attributes [Gharar fis sifah] such as Ambiguity in time or place of delivery  Ambiguity in price etc.

TYPES OF ISLAMIC CONTRCTS Islamic Contracts Muwadat Musharakat Tabarruat Fixed Payment Ratio is determined Nothing is determined No Gharar Some Gharar Gharar is allowed .

No objection to Gharar in these type of contracts.TYPES OF ISLAMIC CONTRCTS [contd. Sadaqat and Hadaya are Tabarruat. Mudarabah and Musharakah are contracts of Musharakat. .]    Contracts of Sale / Lease are Muawadat. Some amount of gharar may be tolerated in such contracts. Gharar is not allowed in such contracts.

to debt finance is: – More just – More equitable – More efficient – More growth oriented. in comparison. PARTICIPATORY FINANCE  Participatory finance. .DEBT FINANCE Vs.

Riba based finance is unjust Riba based finance discourages growth. . Riba based finance leads to economic instability. Riba based finance leads to economic inequalities.DISADVANTAGES OF RIBA BASED FINANCE  Riba based finance is inefficient.

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