RIBA & ITS TYPES
OUTLINE
• Definition of Riba
• Types of Riba
• Riba al Nasiyah
• Riba al Fadl
• Rulings of Riba al Fadl
• Current major Arguments on Riba
DEFINITION
Riba literally means ‘excess’ in Arabic.
There are two types of Riba:
(a) Riba-un-Nasiyah or Riba-al-Jahiliya
(b) Riba-al-Fadl or Riba-al-Bai
TYPES OF RIBA
A- Riba-un-Nasiyah or Riba-al-Jahiliya
“ that kind of loan where specified repayment period and an
amount in excess of capital is predetermined”.
(Imam Abu Bakr Jassas Razi)
Every Debt that pulls any kind of gain is Riba
Masnad ul Haris / Zawaid ul Haithmy Page 500 vol 3
TYPES OF RIBA
A- Riba-un-Nasiyah or Riba-al-Jahiliya
Real and primary form of riba. Premium paid to the lender in return for
his waiting/giving or taking of every excess amount in exchange of a loan
at an agreed rate irrespective of whether it is low or high.
RIBA-AL-FADL
B- Riba-al-Fadl
Excess taken in exchange of specific commodities which are
homogeneous.
Legal definition differs in each school of thoughts of fiqh.
RIBA-AL-FADL
Hadith prohibiting Riba-al-Fadl
Sell gold in exchange of equivalent gold
Sell silver in exchange of equivalent silver
Sell dates in exchange of equivalent dates
Sell wheat in exchange of equivalent wheat
Sell salt in exchange of equivalent salt
Sell barley in exchange of equivalent barley
RIBA-AL-FADL
Ruling No 1
These commodities when exchanged with same goods like dates
against dates or barley against barley, it is required that;
sale must be on spot, Credit sale is not allowed
Quantity must be same on both sides
Quality must be ignored
Example
“A” sells 100 kg dates (grade A) to “B” against 100 kg
dates (grade B) on spot. Transaction is valid.
RIBA-AL-FADL
Ruling No 2
These commodities when exchanged with another goods
which is also included in these six commodities like
dates against barley or barley against wheat, it is
required that;
sale must be on spot, Credit sale is not allowed. However;
Quantity of both commodity may be differ
Quality of both commodity may be considered while setting
transaction.
RIBA-AL-FADL
Example
“A” sells 100 kg dates (grade A) to “B” against 90 kg
wheat (grade A) on spot. Transaction is valid.
Basis OF RIBA-AL-FADL
Imam Abu Hanifa on Riba-al-Fadl
Ruling of RIBA-AL-FADL will be applied on All Commodities
have two common characteristics;
o Weight
o Volume
It Includes all commodities which are being sold through
weight or volume.
Basis OF RIBA-AL-FADL
Imam Shafi on Riba-al-Fadl
Ruling of RIBA-AL-FADL will be applied on All Commodities
have two common characteristics
be a medium of exchange
be edible
It includes all commodities that are edible or can be used as a
medium of exchange (currency).
Basis OF RIBA-AL-FADL
Imam Maalik on Riba-al-Fadl
Ruling of RIBA-AL-FADL will be applied on All Commodities
have two common characteristics
o can be preserved
o be edible
It includes all commodities that are edible and can be
preserved
Basis OF RIBA-AL-FADL
Imam Ahmad Bin Hanbal on Riba-al-Fadl
Ruling of RIBA-AL-FADL will be applied on All Commodities
have two common characteristics;
First citation conforms to the opinion of Imam Abu Hanifa
Second citation conforms to the opinion of Imam Shafi
This school of thought includes three characteristics at the same
time. i.e. edible, weight and volume
Ruling OF RIBA AL FADL
Solution to avoid Riba- Al-Fadl
A person may sell his commodity against cash at the market
value and buy someone else‟s commodity in exchange of cash
proceeds at the market value.
Ruling OF RIBA AL FADL
Exchange of a product with its raw material is
allowed under certain conditions.
If the characteristics of the product has been totally
changed by the industry, then it will be counted as
different commodity, So spot sale with different
quantity of both commodity can be executed.
Ruling OF RIBA AL FADL
If little difference has been made
either the exchange should be in equal weights
or one of the commodities should be sold in the
market and the cash proceeds used to buy the
then one.
TYPES OF RIBA
Tijarti Sood(Commercial interest)
Interest paid on loan taken for productive and profitable
purpose
Sarfi Sood (Usury)
Interest paid on loan taken for personal need and expenses
RIBA-PRESENT DAY ARGUMENTS
Regarding validity of Commercial Interest there are two schools of
thought on this issue.
A detailed analysis of their arguments is discussed as follows:
RIBA-PRESENT DAY ARGUMENTS
Argument 1: “Riba as practiced during the days of the Prophet (SAW)
was only Usury”.
Islam when prohibiting something does not only prohibit the
prevalent form, but all forms that might erupt in future. The
changed state does not change the ruling.
E.g. Liquor, Pork, Corruption/Immorality: Today‟s modern and
sophisticated forms does not change their rulings.
The same applies to interest and gambling.
RIBA-PRESENT DAY ARGUMENTS
FIRST SCHOOL
Argument 2: “Commercial interest did not exist in the days of Prophet (SAW).”
This claim is wrong as both forms of interest existed in Islamic
and pre Islamic history. Some examples:
The tribe of Umr bin Aamir used to take interest from the tribe of Mughairah.
(Dar ul Mansoor by Ibn Jareeh)
The tribe of Thaqeef advanced cash as well as commodities on interest to the
natives of Taif, the tribe of Mughairah and the business community of Makkah.
(Encyclopedia of Islam)
H.Abbas and H. Khalid bin Waleed (RA) formed a company with joint capital
whose prime business was cash advancement on interest. (Jamai ul Bayan)
Hazrat Usman (RA) (pre-Islamic times) lent money on interest.
(Tareekh e Tabree)
RIBA-PRESENT DAY ARGUMENTS
SECOND SCHOOL :
Argument 1: The present day banking since no-one is exploited or
faces injustice, therefore it cannot be called Riba.”
Islam has not only prohibited that one party faces a loss and the
other gets profit but also prohibits one party getting confirmed profit
and the other party unconfirmed profit from the same investment.
RIBA-PRESENT DAY ARGUMENTS
Argument 2: There is a Qura‟nic verse “O believers do not devour
one another‟s possession wrongfully; rather than that,
let there be trading by mutual consent” (Al Nisa verse
29). “Wrongful devouring” only arise if the consent of
one of the parties is absent but in commercial interest
the mutual consent is present of both parties, so its
not Riba.
Mutual consent is not the criteria to render anything halal which is
haram.
RIBA-PRESENT DAY ARGUMENTS
Riba al Nasiah is also classified as:
Sood-e-Mufrad ( Simple Interest)
Interest calculated only on the initial investment
Sood-e-Murakkab (Compound Interest)
Reinvestment of each interest payment on money invested to earn
more interest
QURAN
During the pre-Islamic era, when a borrower used to fail to pay back
the principal and interest charged on him, then the lender used to
extend the loan on the condition that the interest will also become
part of the loan (essentially Compound Interest). The following
verses of Quran were revealed in order to stop the people from such
practices:
“O believers, take not doubled and redoubled interest, and fear God
so that you may prosper.” (Surah Al „Imran, verses 130-1)
Prohibition of Riba in the Qur’an
Al Baqarah 275
“Those who devour Riba shall rise up before Allah like men
whom Shaitan has demented by his touch; for they claim that
trading is like Riba. But Allah has permitted trading and
forbidden Riba. He that receives an admonition from his Rabb
and mends his ways may keep what he has already earned; his
faith is in the hand of Allah. But he that pays no heed shall be
among the people of fire and shall remain in it forever.”
Prohibition of Riba in the Qur’an
Al Baqarah 278 - 279
“O you who believe, Fear Allah and give up what
remains of your demand for Interest, if you are
indeed a believer. If you do not, then you are
warned of the declaration of war from Allah and
His Messenger; But if you turn back you shall have
your principal: Deal not unjustly and you shall not
be dealt with unjustly.”
HADITH
The following hadith also proves that both simple and compound
interest are forbidden:
“Listen! all Riba liable to you in the pre-Islamic days have been
completely eliminated. You have to pay back the principal amount
only. Neither hurt someone nor get hurt by someone. And the first
riba to be completely eliminated is Abbas bin Mutalib’s.
(Ibn e Khatir)
Prohibition of Riba in Ahadith
From Hazrat Jabir Ibn-e-Abdullah (RA):
The Prophet, peace be on him, cursed :
The receiver and the payer of interest,
The one who records it and
The witnesses to the transaction
And said: "They are all alike [in guilt]."
(Muslim, Tirmidhi and Musnad Ahmad)
THANK YOU
