Question # 1:

Part a) Difference between Riba-Al-Nasiah and Riba-Al-

Fadl

Riba al-nasi'ah
Riba al-nasi'ah is a type of riba (known as riba of postponement/ riba of delay) which arises from
an unjustified increment in borrowing or lending, whether in cash or kind, over and above the
principal amount (asl al-qardh). For example, a loan (qardh) of 1,000 currency unit (CU) may
involve repayment of the principal amount (10,000 CU) along with payment of 100 CU after one
calendar year. The 100 CU constitutes riba al-nasi'ah.

Riba al-fadl 
On the other hand, riba al-fadhl (known as riba of excess or riba of surplus) originates when
a ribawi item (ribawi commodity) is exchanged for the same item (commodity) in an unequal
amount (even in spot transactions) and/or a delay of the delivery of one of the items
(commodities). For example, the exchange of 20 grams of 21-karat gold for 25 grams of 19-karat
gold gives rise to riba al-fadhl represented by the 5 grams of the lower quality gold.

Both types of riba represent an additional unjustified gain (impermissible gain) that is paid or
surrendered by one party to another. Riba al-nasi'ah results from deferment of repayment in
lending or borrowing transactions, while riba al-fadhl arises from the exchange of unequal
amount of a ribawi item or spot-forward exchange of ribawi items.

Part b) Role of Market Practice in Riba

Riba
Riba is a concept in Islam that refers broadly to the concept of growth, increasing or exceeding,
which in turn forbids interest credited from loans or deposits. The term 'riba' has also been
roughly translated as the pursuit of illegal, exploitative gains made in business or trade under
Islamic law, akin to usury. It has also been referred to as usury, or the charging of unreasonably
high-interest rates. There is also another form of riba, according to most Islamic jurists, which
refers to the simultaneous exchange of goods of unequal quantities or qualities. Though, here, we
will be referring to the practice of charged interest.

Riba is prohibited under Shari'ah law for a couple of reasons. It is meant to ensure equity in
exchange. It is meant to ensure that people can protect their wealth by making unjust and
unequal exchanges illegal. Islam aims to promote charity and helping others through kindness.
To remove sentiments of selfishness and self-centeredness, which can create social antipathy,
distrust, and resentment. By making riba illegal, Shari'ah law creates opportunities and contexts
in which people are encouraged to act charitably—loaning money without interest.

It is forbidden under Shari'ah Law (Islamic religious law) because it is thought to be exploitative.

Though Muslims agree that riba is prohibited, there is much debate over what constitutes riba,
whether it is against Shari'ah law, or only discouraged, and whether or not it should be punished
by people or by Allah. Depending on the interpretation, riba may only refer to excessive interest;
however, to others, the whole concept of interest is riba and thus is unlawful. For example, even
though there is a wide spectrum of interpretation on the point at which interest becomes
exploitative, many modern scholars believe that interest should be allowed up to the value
of inflation, to compensate lenders for the time value of their money, without creating excessive
profit. Nevertheless, riba was largely taken as law and formed the basis of the Islamic banking
industry.

At present these malpractices are resorted to mainly for evading taxes. The businessmen’s point
of view is that they are forced to maintain different sets of accounts because of the wide-spread
corruption in the tax-collecting machinery. Moral values being what they are, introduction of the
profit/loss-sharing system in the financial dealings of banks and other financial institutions can
aggravate such malpractices. The likelihood of collusion between the staff of banks/ financial
institutions and the parties seeking finance cannot be ruled out. Malpractices of this type are
known to exist even under the present system. However, it is apprehended that in view of the
greater scope for ill-gotten gains through this malpractice under the profit/loss- sharing system
there may be a stronger temptation for such collusion.
Part c) During COVID-19, following economic relief
packages were delivered by different states.

United States issued $1200 checks to Americans:

In March 2020, the U.S. government presented a bill to send Americans stimulus
payments to provide relief for economic hardships caused by the coronavirus
pandemic. Among other provisions, the bill specified direct payments to families
of $1,200 per adult and $500 per child for households making up to $75,000. The
amount of the rebate is gradually reduced for incomes above $75,000 per year for
individuals, $112,500 for heads of households, and $150,000 for joint filers.

Riba is involved in this case, here is the reason why:

The IRS might send you an interest check in 2020. Depending on when you filed your taxes,
some more money could be coming your way.

Late tax filers might receive a second check from the IRS. Tax Day moved to July 15 due to
the tax agency moving the filing due date in response to theCOVID-19 pandemic. And that was
just one of several unconventional policy changes the federal government undertook to help
struggling Americans during the crisis. It also issued stimulus checks, which were sent
to qualified taxpayers back in April. (If you haven't received one yet, check out our guide on how
to track your stimulus check.) 

President Donald Trump signed four executive actions on Aug. 8 to give additional relief,
including one for a payroll tax holiday and another for an extra $400 per week of unemployment
benefits (a potential extension -- at a lower amount -- of the $600 provided in the CARES Act,
which expired July 31). Democrats and Republicans have been in negotiations over additional
relief included in the HEALS Act, introduced in late July, which would include a second round
of stimulus checks. 
Question # 2:
Part a) Differentiate between the fundamentals of Islamic
economic system and Capitalism.

The main economic systems that generally known today's are capitalism economics and
socialism economics. Both economic systems are also called conventional economics.
Conventional economics aims to build a social life structure but just focuses on material aspects. 

Beside the two mainstreams of conventional economics, there is an economic system that aims to
build society life and able to accommodate human needs in the world and the hereafter (Falah),
named Islamic economics. Both conventional and Islamic economics have a different paradigm
and almost difficult to reach an agreement, so it bears several differences that should we know.

Capitalism is an economic system based on the private ownership of the means of production
and their operation for profit. Central characteristics of capitalism include capital accumulation,
competitive markets, a price system, private property and the recognition of property rights,
voluntary exchange and wage labor.

Conventional economics is an economic system that gives full freedom to everyone to carry out
economic activities (Lidyana 2016), it does not have an absolute standard and can change
according to a condition in a society. Meanwhile, the Islamic economic system is an economic
system that is extracted from the values contained in the Qur'an and Sunnah, that focuses on
brotherhood and strength (Machmud 2017). 

From the definitions, we know that conventional economic system have no guidance in carrying
out economic activities so it has its own rules that can be used as a guide, while Islamic
economic system has Al-Qur'an and As-Sunnah (the authentic traditions of Muhammad, the
Prophet of Islam) as a guide.In addition to the differences contained in their respective
guidelines, conventional economics and Islamic economics have some other differences. The
main difference is on the economic fundamental issues. 

According to the conventional economic system, the real economic problem is the lack of
existing resources. Lack of the resources is often called 'scarcity.' This is because every human
being has diverse and unlimited needs while the resources (goods and services) used to fulfill
human needs are limited (Sukirno 2002). 

On the other hand, Islamic economics mention the limited is in human needs, while its resources
are not limited or already measured in accordance with what has been given by Allah SWT.
Scarcity in Islamic economics is actually only a relative scarcity, it is a scarcity of resources
occurring in short stalls or in certain areas only.

Relative scarcity occurs due to insufficient distribution of resources, human limitations, and
conflicts between objectives (P3EI 2015). Thus, conventional economics has unlimited human
wants and the desire for opulence, while Islamic economics preaches the need for humans to
suppressing their wants, avoiding luxury life, and sharing (a moral activity that brings its own
rewards and happiness).

Other difference between conventional and Islamic economics lies in the methodology issues.
Conventional economics emphasize positive methodology, which means all the economics
problem or activities are based on reality. 

In conventional economics, a positive approach is much stressed because it studies the

phenomenon of the existing economic and postpones the measurement value in any economic
decisions (Maulidizen 2017). Meanwhile, Islamic economics uses two kinds of methodology,
normative and positive methodologies. Normative methodology refers to what should be done in
economic activities according to Islamic rules. Both economics systems use a positive
methodology, but Islamic economics also use the positive method that aims to find a way to
change economics practice in the Islamic way.

Further, there is one difference that most distinguishes conventional and Islamic economics, it is
the imposition of interest in a bank. In conventional bank, interest charged in almost all banking
transactions, while in Islamic economics interest is prohibited. Interest in Islamic economics is
called Al-riba. Al-riba technically refers to the "premium" that must be paid by the borrower to
the lender along with the principal amount as a condition of the loan or for an extension in the
duration of loan (Askari, Zamir, Abbas 2015). The imposition interest at the conventional bank is
reasonable, because their orientation is maximum profit, in contrast to Islamic (sharia) bank the
law of imposition interest is haram (anything that is prohibited by the faith).
From the explanations above, we can take the conclusions that between conventional and Islamic
economics used several differences which can affect every economic activity. Any economic
system used is dependent according to the view of the life of the state. This essay does not intend
any negative aspect, it is only intended to explain in brief the current economic systems used in
the world. At least, this essay can be a repertoire of knowledge that opens the insight of our
knowledge about conventional and Islamic economics.

Part b) What different kinds of boundaries

(prohibitions/limitations) Islam imposes on
economic/financial transactions? Name the boundaries and
explain them with examples.

Answer: Islamic finance is a type of financing activities that must comply with Sharia (Islamic
Law). The concept can also refer to the investments that are permissible under Sharia.

The main difference between conventional finance and Islamic finance is that some of the
practices and principles that are used in conventional finance are strictly prohibited under Sharia
laws.

Prohibitions in Islamic Finance

Islamic finance strictly complies with Sharia law. Contemporary Islamic finance is based on a
number of prohibitions that are not always illegal in the countries where Islamic financial
institutions are operating:

1. Paying or charging an interest

Islam considers lending with interest payments as an exploitative practice that favors the lender
at the expense of the borrower. According to Sharia law, interest is usury (riba), which is strictly
prohibited.

2. Investing in businesses involved in prohibited activities

Some activities, such as producing and selling alcohol or pork, are prohibited in Islam. The
activities are considered haram or forbidden. Therefore, investing in such activities is likewise
forbidden.

3. Speculation (maisir)

Sharia strictly prohibits any form of speculation or gambling, which is called maisir. Thus,
Islamic financial institutions cannot be involved in contracts where the ownership of goods
depends on an uncertain event in the future.

4. Uncertainty and risk (gharar)

The rules of Islamic finance ban participation in contracts with excessive risk and/or uncertainty.
The term gharar  measures the legitimacy of risk or uncertainty in investments. Gharar is
observed with derivative contracts and short-selling, which are forbidden in Islamic finance.

In addition to the above prohibitions, Islamic finance is based on two other crucial principles:

Material finality of the transaction: Each transaction must be related to a real underlying

economic transaction.

Profit/loss sharing: Parties entering into the contracts in Islamic finance share profit/loss and
risks associated with the transaction. No one can benefit from the transaction more than the other
party.