RIBA AND ITS TYPES

RIBA AND ITS TYPES

The word Riba means excess, increase or addition, which correctly interpreted according to
the Shariah terminology, implies any excess compensation without due consideration
(consideration does not include time value of money)

Different Interpretations
Muslim writers give various definitions to the term riba. Basically, it is used to denote a
specific kind of excess.

 Ibn Hajar al Asqalani held that the essence of riba is excess whether it is in the
commodity itself or in money
 Abu Bakr Ibn al ‘Arabi held that every excess in return of which no reward is paid is
riba
 Abu al A’la al Mawdudi defined riba as “a predetermined excess or surplus over and
above the loan received by the creditor conditionally in relation to a specified period”.
This definition entails that riba contains the following three elements:
(a) excess or surplus over and above the loan capital;
(b) determination of this surplus in relation to time;
(c) stipulation of this surplus in the loan agreement
 Ataul Haque defined riba as "an increase or excess which, in an exchange or sale of a
commodity, accrues to the owner (lender) without giving in return any equivalent
counter or recompense to the other party.”

RIBA IN THE QURAN

The prohibition of riba appears in the Quran in four separate revelations. These revelations
constitute the four stages of the prohibition which are as follows:

First Stage
We read in Surah al Rum: 39 to the effect:

“That which you lay out for increase through the property of (other) people, will have no
increase with Allah; but that which you lay out for charity seeking the countenance of Allah
(will increase); it is these who will get a recompense multiplied”.
This ayah draws a comparison between those who give money to get an increase (riba) there
from, and those who gives alms seeking for Allah’s pleasure; whereby, the former is deprived

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the wealth of Allah's blessings whilst the latter gets it manifold. This ayah, being a Meccan
ayah (makkiyyah), worked as a motive for people at the earlier stage of Islam to abolish loans
with a view of interest (riba). In the alternative, it encouraged the giving of alms and charity.

Sami Hassan Hamoud said that the aim behind the ayah is the "Awakening of the live souls”,
addressing the people who have not been aware so far that such gain from usury is to be
interdicted. He observed that the word used in the ayah is ‘give’ which equalizes eloquently
the two cases of usury and zakah, but the former is said to be not worth of any credit from
Allah, whilst the latter is bound to grow and multiply.

However, there were several interpretations of the word riba used in the ayah. Some
interpreters said that what is meant is not the banned usury, but the grant which is not
intended for Allah’s sake, such as where a man gives a present to another anticipating to
obtain in return a better present, or the grant made by a man to one of his relations, not for
Allah’s sake, but for profit.

Others view that the word refers to the banned usury. Al Alusi, for instance, said that the
apparent meaning of usury in the ayah is “the increase known in dealings which are banned
by the Shariah”. Contemporary Muslim thinkers tend to agree with the latter interpretation,
particularly as it does not contradict the absoluteness of the ayah on the assumption that it
covers “all means by which its users wish in any form to multiply their property (monies)
upon usury”

Second Stage
“For the iniquity of the Jews We made unlawful for them certain (foods) good and
wholesome which had been lawful for them in that the hindered man from Allah's way that
they took usury, though they were forbidden; and that they devoured men's subtonic
wrongfully; We have prepared. For those who reject faith a grievous punishment. “

These ayat were revealed in the early Madinah period. They condemned the practice of rib a
in stronger terms by attributing it to the practice of the people of the book (jews) which is
considered as a form of iniquity. Also, in ayah 161 placed those taking riba in juxtaposition
with severe punishment from Allah.

In this ayah a stronger expression was used, i.e., 'take' instead of 'give' which was used in the
preceding ayah in Surah al Rum. This is to connote the graduation in prohibition.

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In interpreting this ayah, At Tabari said, "the order of heaven is one and the same; that the
usury which was banned to the jews is the same usury which is banned to the people of
Islam". He also said that the usury which was banned to the jews is proximate to the pre-
Islamic usury in that both concerned the taking of the surplus to the sum of the capital in
consideration for extension of the term after maturity

Third Stage
Ali ‘Imran: 130 reads to the effect:

“O you who believe! Devour not usury doubled and multiplied; but fear Allah; that you may
(really) prosper.”

This ayah as revealed around the second or third year after Hijrah, enjoining Muslims to keep
away from riba if they desired their own welfare. It may be noted that there is a graduation in
the strength of the word used, i.e., 'devour'; any person who apprehends the impression
created by this word on the Arabs, who were disgusted if one was described us a glutton, will
comprehend fully the strength of the ban intended in the message.

Apparently, it emphasizes the prohibition of usury and excessive interest, not non-excessive
or normal interest. This apparent meaning was refuted by Mahmud Shaltut by saying: “This
is null and void because when Allah said “, He was in fact reproaching them for their actions
and exposing and denouncing their evil deeds”. The same approach is followed when the
Quran dealt with the problem of prostitution: "But force not your maids to prostitution when
they desire chastity, in order that you may make a gain in the goods of this life". The purpose
here is not to prohibit the act of forcing maids to become prostitutes when they desire to
remain chaste, and permit this act when they desire not to stay chaste, but Allah is repudiating
and denouncing their actions, which is exactly the same approach taken in the case of al riba.

Interpreters generally agreed that the expression 'multiples' is not to restrict the ban but to
express the usury: they were accustomed to practice. To quote Sayyid Qutb, the phrase
'multiple of multiples' is "no more than a description of a state of affairs and not a condition
relevant to the imposition". He also said in this connection that: "It is inconceivable for a
man who believes in Allah and the Day of Judgment to hide himself- behind this text and say
that the prohibition is related only to the 'multiples of multiples', while the four percent, the
five percent, the seven, or nine percent is not 'multiples of multiples' and hence is not
prohibited. "

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It is clear that both ayat in this Surah call for the prohibition of all forms of riba. In any case,
this is not the formal revelation which may be said to lay down the strict law regarding riba.
The strict law regarding riba is laid down decisively in the fourth stage of prohibition.

Fourth Stage
We read in al Baqarah: 275-281 to the effect:

"Those who devour usury will not stand except as stands one whom the evil one b-v his touch
has driven to madness. That is because they say: 'Trade is like usury, but Allah has permitted
trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall
be pardoned for the past," their case is for Allah (to judge); but those who repeat (the
offence) are companions" of the fire: they will abide therein (forever). Allah will deprive
usury of all blessings, but will give increase for deeds of charity: for He loves not creatures
ungrateful and wicked. Those who believe, and do establish regular prayers and regular
charity, will have their reward with their Lord: on them shall be no fear, nor shall they
grieve. O you who believe! Fear Allah and give lip what remains of your demand for usury if
you are indeed believers', If you do if not, take notice of war from Allah and His Messenger:
but if you turn back, you shall have your capital sums: deal not unjustly, and you shall not be
dealt with unjustly. If the debtor is in a difficulty, grant him time till it is easy for him to
repay. But if you remit it by way of charity, that is' best for you if you only knew. And fear the
Day when you shall be brought back to Allah. Then shall be every soul be paid what it
earned, and none shall be dealt with unjustly."

The revelation occurred near the completion of the Prophet's mission. It severely censured
those taking riba. It established a clear distinction between trade and riba. It required Muslims
to annul all outstanding riba, instructing them to take only the principal amount, and forego
even this in case of the borrowers' hardship

It is obvious that the ayat confirm the ban of usury already imposed in the preceding ayah in
Surah Al ‘Imran, and cite the consequences of disobedience which will be met in this world
and the next.

The text of the ayah in Surah al Baqarah also defines the prohibited riba, i.e., as any
increment added to the principal. This means that any extraneous addition, however small the
amount, is considered to be riba, and the lender should receive only the principal. The
Quranic text prohibits completely and without any doubts all rates and causes of riba. Thus,

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any accrued amount added to the principal is unlawful whatever the reasons were for the
incurrence of the debt.

RIBA IN THE AHADITH

On the topic of riba, there is a big number of ahadith. Here a selection of commonly quoted
ahadith is reproduced that is divided, for pedagogical purposes, under the following four
titles:

Ahadith that reinforce the concept of Quranic riba

 The Prophet said: "There is no riba except in loaning." (Nasaee 4504)
 The Prophet said: "Verily riba is in loaning." (Muslim 2991)
 The Prophet said: "There is no riba in hand to hand (spot) transactions." (Muslim)
 At the last Pilgrimage, the Prophet said: "All of the riba of Jahilliya is annulled. In
this respect, the first riba I annul is the riba that the borrowers owe to my uncle
Abbas; it is cancelled completely. (Muslim)
 After the prohibition of riba, all Muslims were clear not to indulge in it anymore.
However, a dispute arose between two Muslim tribes about the settlement of
outstanding interest on previously loaned capital. The dispute was put up to the
Prophet who forbade demand and payment of that interest too. (See Shafi 1996 p.28-
9)

Ahadith that refer to riba in barter trade

 Abu Saeed Khudri said that once companion Bilal brought to the Prophet some good
quality dates. The Prophet inquired as to where he got those dates. Bilal replied that
he had some low-quality dates. which he had exchanged in 2:1 ratio for high quality
ones in order to present the latter to the Prophet. Upon hearing this, the Prophet
said: "Oh no! Oh no! That is riba. That is exactly riba. Do not do it again. If you
want to do such an exchange, first sell your dates (for money or another commodity)
and then buy other ones." (Bukhari 2145)
 The Prophet said: "While exchanging gold for gold, silver for silver, wheat for wheat,
barley for barley, dates for dates and salt for salt, exchange like for like (in equal
measure) and exchange at spot. Whosoever paid more than what he received or
demanded more than what he gave, verily he dealt in riba. Both the payee and the
receiver are equal in violating the Law of God." (Muslim 2971)

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 The Prophet said: "While exchanging gold for gold, silver for silver, wheat for wheat,
barley for barley, dates for dates and salt for salt, exchange like for like (in equal
measure). Whosoever gave more or took more, verily he made a riba deal. However,
you are permitted to exchange gold for silver, wheat for dates, or barley for dates as
you wish (in equal or unequal measures) provided that, such an exchange is at spot."
(Tirmizi 1161)
 The Prophet said: "Do not exchange gold for gold except it is like for like (in equal
measure) and do not increase one over the other; do not exchange silver for silver
except when it is like for like (in equal measure) and do not increase one over the
other. Furthermore, do not exchange a commodity in hand with the one not in
hand."(Muslim and Bukhari)
 Two traders asked the Prophet about their mutual barter trade. He said: "If it is at
spot, it is all right. But if it involves loaning then it is not permissible." (See Shafi
1996 p.90)
 The Prophet said to companion Jabir b. Abdullah: "In a credit transaction, it is not
permissible to take two animals for one. However, if it is a hand to hand (spot)
transaction, such an exchange is acceptable." (Tirmizi)
 The Prophet prohibited trading of animals for animals on credit. (Tirmizi 1158)
 Ibne Umar used to sell camels for dinars (gold coins) but used to receive payments in
dirhams (silver coins). He asked the Prophet about the legitimacy of his act. The
Prophet said that it was all-right to take dirhams (instead of dinars) provided that, the
count of dirhams had been according to the then prevailing exchange rate and you had
settled the accounts before leaving the market. (Nasaee 4506)
 Abdullah Ibne Amr states that the Prophet directed him to arrange a good number of
camels for an expeditionary force. Abdullah did but could not get the desired number
(with the cash at hand). Then the Prophet directed him to acquire more camels in
exchange of those young she-camels they were expecting to receive later in alms
(zakat proceeds). So, Abdullah acquired additional camels at the rate of one camel at
hand for two camels to be paid later. (Abu Daud 2913)
 Ahadith that refer to implicit riba
The Prophet said: "When one of you grants a loan and the borrower offers him a dish,
he should not accept it; and if the borrower offers him a ride on an animal, he should

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not ride, unless the two of them have been previously accustomed to exchanging such
favors mutually." (Ibne Majah 2423)
 The Prophet said: "If one of you extends loan to another fellow, the former should not
accept any gift from the latter." (Mishkat)
 The Prophet said: "A loan from which some benefits accrue to the creditor is one of
the many different forms of riba." (Al-Bayhaqi)

Ahadith that talk about the general concept of riba

 The Prophet cursed all those who take riba, who give riba, who write a riba contract
and the two witnesses to a riba contract. He further said: "They are all alike (in
guilt)." (Muslim 2995)
 The Prophet said: "On the night of my ascendance to the Heavens, I came upon
people whose tummies were as big as houses that were filled with snakes visible from
outside. He asked Angle Gabriel as to who they were. Gabriel replied that they were
the people who received riba (in their lives)." (Ibne Majah)
 The Prophet said: "Riba has 70 segments, the least serious being equivalent to the sin
of a man who commits adultery with his own mother." (Ibne Majah 2265)
 The Prophet said: "As soon as a society deeply indulges in riba and adultery, wrath of
God becomes due for it." (See Shafi 1996 p.79)
 The Prophet said: "In any society, when riba becomes common, it causes hunger and
poverty in it. And in any society, when bribery becomes common, it makes it
depressed (as compared to other nations)." (See Shafi 1996 p.79)
 The prophet counted the most heinous seven sins and riba was one of them. (Shafi !
996 p.71)
 The Prophet said: "Even when interest is much, it is bound to end up into paltriness."
(Ibne Majah)
 The Prophet said: "Deceiving of an uninformed entrant into a city market is riba."
(Kanz al-Ummal)
 The Prophet said: "The person who serves as an agent to bid up prices in open
auctions is a cursed taker of riba." (Kanz al-Ummal)

Note: The first three headings clearly indicate the types of ahadith they contain. The fourth
heading includes those ahadith which portrait riba as one of the major sins and also those

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ahadith, which do not fit to any other category, but are important to general understanding of
the concept.

TYPES OF RIBA
According to some ahadith, the prophet Muhammad said there are either 70, 72, or 73
varieties (depending on the ahadith) of riba. Most Islamic jurists (Fuqaha) describe several
different kinds of riba. There are only two major forms Riba that are going to be discussed
and explained ahead.

Many orthodox scholars agree and state riba al-jahiliya, riba an-nasiya, riba ad-duyun, riba al-
Quran, riba al-qardh are all names for one of the two types of riba. The second type being
riba al-fadl. So going by that those two major types will be explained ahead:

Types of Riba

Types of Sub-type of
Description Description
riba riba

Increase (interest) on the principal

Unjustified increment in
Riba Qard sum of the loan is agreed upon at the
money
point of contract
Riba lent whether in kind or
Duyun cash
Increase levied on the borrower for
over and above the Riba
late repayment or failure to repay the
principal amount. Jahiliyyah
financial loan

Occurs in trading and Riba Fadl Due to unequal amount/quantity

exchange transactions,
in which unequal
Riba exchange of certain
Buyu` commodities Riba
Due to extension of time of delivery
(gold, silver, dates, etc.) Nasi`ah
of same kind and same
basis.

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Riba an Nasiyah
In Arabic it is ( ‫ )ربا النسيئة‬and used for a type of riba that exists in, or results from, a sale
transaction (ba’i or bay‘) which unduly benefits one the counterparties in the form of a
surplus or extra amount due to delay of delivery of his side of the transaction. More
specifically, riba al-nasi’ah arises in loan transactions (on the basis of future repayment of
more than the principal) as well as sale transactions (on the basis of deferred price).

An example of loan-based riba al-nasi’ah would be a loan with $1,000 principal on which
$1,200 is to be paid next year. An example of sale-based riba al-nasi’ah is a sale of 100 kg of
dates to be paid back with 120 kg six month later.

This type or riba is clearly forbidden in Qur’an. It existed in the pre-Islamic era in the
Arabian Peninsula, and thus was known as riba al-jahiliyah (riba of the era of ignorance).

Ahadith about Riba an Nasiyah:

 From Usama ibn Zayd: The Prophet said: "There is no riba except in Nasiyah [waiting]."
(Bukhari, Kitab al-Buyu', Bab Bay' al-dinari bi al-dinar nasa’an; also Muslim and
Musnad Ahmad) "There is no riba in hand-to-hand [spot] transactions." (Muslim, Kitab
al-Musaqat, Bah bay'i al-ta'ami mithlan bi mithlin; also in Nasa'i)
 From Ibn Mas'ud: The Prophet, said: "Even when interest is much, it is bound to end up
into paltriness." (Ibn Majah, Kitab al-Tijarat, Bab al-taghlizi fi al-riba; also, in Musnad
Ahmad)
 From Anas ibn Malik: The Prophet, said: "When one of you grants a loan and the
borrower offers him a dish, he should not accept it; and if the borrower offers a ride on
an animal, he should not ride, unless the two of them have been previously accustomed to
exchanging such favours mutually." (Sunan al-Bayhaqi, Kitab al-Buyu', Bab kulli qardin
jarra manfa'atan fa huwa riban)
 From Anas ibn Malik: The Prophet said: "If a man extends a loan to someone, he should
not accept a gift." (Mishkat, on the authority of Bukhara's Tarikh and Ibn Taymiyyah's al-
Muntaqa)
 From Abu Burdah ibn Abi Musa: I came to Madinah and met 'Abdallah ibn Salam who
said, "You live in a country where riba is rampant; hence if anyone owes you something
and presents you with a load of hay, or a load of barley, or a rope of straw, do not accept
it for it is riba." (Mishkat, reported on the authority of Bukhari)

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 Fadalah ibn 'Ubayd said that "The benefit derived from any loan is one of the different
aspects of riba." (Sunan al-Bayhaqi) This hadith is mawquf implying that it is not
necessarily from the Prophet; it could be an explanation provided by Fadalah himself, a
companion of the Prophet.

Interpretations about Riba an Nasiyah:

 Imam Abu Bakr Hassas Razi has outlined a complete and prohibiting legal definition of
Riba An Nasiyah in the following words: “That kind of loan where specified repayment
period and an amount in excess of capital is predetermined.”
 One of the ahadith quoted by Ali ibn at Talib (RAA) has defined Riba An Nasiyah in
similar words. The Holy Prophet said: “Every loan that draws interest is Riba.”
 The famous Sahabi Fazala Bin Obaid has also defined Riba in similar words: “Every
loan that draws profit is one of the forms of Riba”

Quranic verses about Riba an Nasiyah:

 We read in Surah al Rum: 39 to the effect: “That which you lay out for increase through
the property of (other) people, will have no increase with Allah; but that which you lay
out for charity seeking the countenance of Allah (will increase); it is these who will get a
recompense multiplied”.
 “For the iniquity of the Jews We made unlawful for them certain (foods) good and
wholesome which had been lawful for them in that the hindered man from Allah's way
that they took usury, though they were forbidden; and that they devoured men's subtonic
wrongfully; We have prepared. For those who reject faith a grievous punishment.
“(Surah al-Nisa', verse 161)
 Ali ‘Imran: 130 reads to the effect: “O you who believe! Devour not usury doubled and
multiplied; but fear Allah; that you may (really) prosper.”
 We read in al Baqarah: 275-281 to the effect: "Those who devour usury will not stand
except as stands one whom the evil one b-v his touch has driven to madness. That is
because they say: 'Trade is like usury, but Allah has permitted trade and forbidden usury.
Those who after receiving direction from their Lord, desist, shall be pardoned for the
past," their case is for Allah (to judge); but those who repeat (the offence) are
companions" of the fire: they will abide therein (forever). Allah will deprive usury of all
blessings, but will give increase for deeds of charity: for He loves not creatures
ungrateful and wicked. Those who believe, and do establish regular prayers and regular
charity, will have their reward with their Lord: on them shall be no fear, nor shall they

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grieve. O you who believe! Fear Allah and give lip what remains of your demand for
usury if you are indeed believers', If you do if not, take notice of war from Allah and His
Messenger: but if you turn back, you shall have your capital sums: deal not unjustly, and
you shall not be dealt with unjustly. If the debtor is in a difficulty, grant him time till it is
easy for him to repay. But if you remit it by way of charity, that is' best for you if you only
knew. And fear the Day when you shall be brought back to Allah. Then shall be every
soul be paid what it earned, and none shall be dealt with unjustly."

Riba Al Fadl
The concept of Riba al-fadl refers to exchange or sale transactions in trade which effectively
result in the charging of ‘interest’ through the exchange of the same commodity, but of a
different quality or quantity.

An example would be: ‘A’ may give ‘B’ ten tons of hay now in exchange for ‘B’ giving ‘A’
eleven tons when the harvest has been completed. In order to avoid Riba-al-fadl goods should
be exchanged in equal quantities at the same time.

Ahadith about Riba ul Fadl

 Abu Saeed Khudri said that once companion Bilal brought to the Prophet some good
quality dates. The Prophet inquired as to where he got those dates. Bilal replied that
he had some low-quality dates. which he had exchanged in 2:1 ratio for high quality
ones in order to present the latter to the Prophet. Upon hearing this, the Prophet said:
"Oh no! Oh no! That is riba. That is exactly riba. Do not do it again. If you want to
do such an exchange, first sell your dates (for money or another commodity) and then
buy other ones." (Bukhari 2145)
 The Prophet said: "While exchanging gold for gold, silver for silver, wheat for wheat,
barley for barley, dates for dates and salt for salt, exchange like for like (in equal
measure) and exchange at spot. Whosoever paid more than what he received or
demanded more than what he gave, verily he dealt in riba. Both the payee and the
receiver are equal in violating the Law of God." (Muslim 2971)
 The Prophet said: "While exchanging gold for gold, silver for silver, wheat for wheat,
barley for barley, dates for dates and salt for salt, exchange like for like (in equal
measure). Whosoever gave more or took more, verily he made a riba deal. However,
you are permitted to exchange gold for silver, wheat for dates, or barley for dates as

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you wish (in equal or unequal measures) provided that, such an exchange is at spot."
(Tirmizi 1161)
 The Prophet said: "Do not exchange gold for gold except it is like for like (in equal
measure) and do not increase one over the other; do not exchange silver for silver
except when it is like for like (in equal measure) and do not increase one over the
other. Furthermore, do not exchange a commodity in hand with the one not in
hand."(Muslim and Bukhari)
 Two traders asked the Prophet about their mutual barter trade. He said: "If it is at
spot, it is all right. But if it involves loaning then it is not permissible." (See Shafi
1996 p.90)
 The Prophet said to companion Jabir b. Abdullah: "In a credit transaction, it is not
permissible to take two animals for one. However, if it is a hand to hand (spot)
transaction, such an exchange is acceptable." (Tirmizi)
 The Prophet prohibited trading of animals for animals on credit. (Tirmizi 1158)
 Ibne Umar used to sell camels for dinars (gold coins) but used to receive payments in
dirhams (silver coins). He asked the Prophet about the legitimacy of his act. The
Prophet said that it was all-right to take dirhams (instead of dinars) provided that, the
count of dirhams had been according to the then prevailing exchange rate and you had
settled the accounts before leaving the market. (Nasaee 4506)
 Abdullah Ibne Amr states that the Prophet directed him to arrange a good number of
camels for an expeditionary force. Abdullah did but could not get the desired number
(with the cash at hand). Then the Prophet directed him to acquire more camels in
exchange of those young she-camels they were expecting to receive later in alms
(zakat proceeds). So, Abdullah acquired additional camels at the rate of one camel at
hand for two camels to be paid later. (Abu Daud 2913)

Riba al Fadl actually means that excess which is taken in exchange of specific homogenous
commodities and encountered in their hand-to-hand purchase and sale as explained in the
famous hadith: The Prophet (Allah bless him and give him peace) said, “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, but if a person
transacts in excess, it will be usury (Riba). However, sell gold for silver anyway you please

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on the condition it is hand-to-hand (spot) and sell barley for dates anyway you please on the
condition it is hand-to-hand (spot)” this hadith states flowing commodities:

 Gold
 Silver
 Dates
 Wheat
 Salt
 Barley

In order to answer the question, which other commodities should be included, some fiqhs
hold that the characteristics which are common amongst these items can be used as basis
(illat) for Riba Al Fadl. An illat is the attribute of an event that entails a particular divine
ruling in all cases possessing that attribute; it is the basis for applying analogy. Ribawi goods
are therefore, goods that exhibit one of the efficient causes occasioning applications of Riba
rules. Various schools define these causes differently:

Imam Abu Hanifa

Imam Abu Hanifa sees only two common characteristics, namely:

1. Weight

2. Volume

Meaning all these six goods are sold by either weight or volume. Therefore all those
commodities which have weight or volume and are being exchanged with the same
commodity will fall under the rules of Riba al Fadl.

Imam Shafi’i
The two characteristics observed by Imam Shafi’i are:

1. Medium of Exchange

2. Edible

Therefore, this law will apply on everything edible or having the natural ability of becoming
a

medium of exchange (currency).

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Imam Maalik
Imam Maalik identified the following two characteristics:

1) Eatables and

2) Preservable

Imam Ahmad Bin Hanbal

Three citations have been related to him:

1) First citation conforms to the opinion of Imam Abu Hanifa.

2) Second citation conforms to the opinion of Imam Shafai.

3) Third citation includes three characteristics at the same time namely edible, weight and
volume.

Different views on Riba

Let’s have look at the different views of various school of thoughts and mindsets about the
very critical topic of Riba:

Liberal View:
Liberal view often starts with pointing out open contradiction in faith and practice of Muslim
masses. According to this view, presently a majority of Muslims considers bank interest as
riba, yet it deals with bank interest one way or the other. It is so because bank interest is
inevitable for

the functioning of modern financial system. Therefore, to relieve Muslim masses from the
guilt of conscience, proponents of liberal view recommend a lenient treatment for bank
interest.

All the Muslims of the world condemn it (riba) and yet almost the entire Muslim world
indulges in the practice which they consider to be rib. One of the reasons appears to be that
the condemnation of riba hits thousands of monetary, financial, fiscal and economic activities
yet the alternative methods that are suggested or prescribed for carrying on these activities do
not adequately meet the requirements of the existing condition. The Muslims of the world are
thus placed in a sadly embarrassing situation. (Ahmed 1995, p.7)

Liberal view that equates riba with usury only is based on two different pieces of juridical
reasoning; how it is decided whether a word in Quran refers to its lexical or terminological

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meanings, and how it is decided whether a new act or issue, about which Quran and Hadith
are silent, is licit or illicit

Regarding the first point there is a common rule in Arabic as well as in English language that
when 'al' equivalent to 'the' comes as a pre-fix of a common noun, it becomes a proper noun.
Such a proper noun always refers to its terminological meanings that may be different from
its lexical meanings. With regard to permissibility and non-permissibility of a new act, the
principle is that if such an act adds to the overall welfare of society and does not contradict
any other settled act or issue in Quran and hadith, then it should be deemed permissible.
Otherwise, if either or both conditions are not met, it should be declared non-permissible.

In fact, the pre-fix 'al' comes before the word 'riba' in all relevant verses of Quran except in
the first one quoted in, al-Room 30:39. Therefore, liberal view refers to its terminological
meanings only. Then, according to their research, at the time of revelation of Quran, money
was borrowed mainly for bare consumption needs and, on such loans, a high rate of interest
used to be charged keeping in view the degree of severity of borrower-needs. In case of non-
payment on a due date, interest used to be doubled and tripled to penalize defaulters. In
Islamic literature such an interest is known as riba of old times, whereas in current
terminology, it is called usury. Liberal view gets further support from one of the verses of
Quran (Aale-Imran 3: 30) in which riba on top of riba or compound riba has been prohibited
categorically. They, therefore, conclude that riba refers to usury only.

According to liberal view, bank interest is different from riba of old times because it is
charged mostly on productive loans and its rate is determined entirely by supply and demand
forces at the market place. Its rate remains almost same for all borrowers irrespective of the
purpose for which they borrow and irrespective of the degree of severity of their immediate
needs. They further argue that interest-based financial intermediation has been instrumental

for economic growth since its inception. Therefore, Muslim scholars should legitimize bank
interest even if it comes under the purview of real riba in strict legal sense.

There are three main objections on this viewpoint. One, the verse of Quran in which the word
'riba' is not preceded by 'al' (al-Room 30:39) does not support this meaning. Furthermore, the
text of two other verses (al-Baqarah 2:278-9) clearly refers to riba in the sense of its lexical
meanings that is every contractual increase on loaned capital. Two, according to some other
researches, lending and borrowing for business purposes was quite known at that time.14
Therefore, bank interest should not be permitted under the pretext of being a new

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phenomenon. Furthermore, some serious side effects like short termism, income inequality,
and possibility of debt deflation and financial fragility have been pointed out. Even Western
economists have discussed the last two at length. The debt -deflation theory by Fisher
(1933), the financial instability hypothesis by Minsky (1980, 1986 and 1992), and a business
cycle model of financial crises by Wolfson (1994) illustrates the destabilizing nature of
interest-based financing. Therefore, if an alternative riba-free scheme of financial
intermediation can be figured out, which is quite possible, then interest-based intermediation
need not be decreed permissible in Islamic law under the proviso of inevitability. Three, riba
as usury becomes a relative concept that is hard to distinguish from interest unanimously

Mainstream View:
Mainstream view is that riba refers to both usury and bank interest. Riba in barter trade of six
commodities, gold, silver, wheat, barley, dates and salt is also considered prohibited.
Furthermore, a majority of jurists supports extension of riba in barter trade to other
commodities, though they differ among themselves as to what those commodities should be.
On the basis of the characteristic of gold and silver as commodity, it has been generally
concluded that all commodities used as money enter the sweep of riba al-fadl. With respect to
the other four items, there is a difference of opinion. According to one opinion it has been
argued that since all four commodities are sold by weight or measure, therefore, all items,
which are saleable (by weight or measure), would be subject to riba al-fadl. A second opinion
is that since all four items are edible, riba al-fadl should be involved in all commodities,
which have the characteristic of edibility. A third opinion is that since these items are
necessary for subsistence and are storable, therefore all items that sustain life and are storable
are subject to riba al-fadl… A fourth but perhaps the most plausible explanation seems to be
that all the six commodities were used as money in and around Madina (city of the Prophet),
particularly among the Bedouins, and therefore, riba al-fadl would be involved in the
exchange of any goods against cash or any commodity which is used as money." (Chapra
1984 p.7)

However, mainstream jurists attach a secondary status to riba in barter trade without
distinguishing much between barter trade at spot and barter trade with a time lag. That is why
in recent experimentation of riba-free system the main emphasis has been on abolition of
bank interest. So far, twelve alternative modes of bank financing have been proposed. These
are lending against a service charge, qarz-e-hasna (lending without any interest or other
charge), mark-up arrangement, leasing, hire purchase agreement, purchasing of trade bills,

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buy-back arrangement, partnership (musharaka), trusteeship (mudharaba), equity

participation and rent sharing. Khan (1991) explains each of them in detail. Out of them,
however, interest-free banks have mostly relied upon mark-up and buy-back arrangements for
advancement of their funds.

Under mark-up arrangement, a borrower identifies the equipment or commodity he wants to

buy, and then the bank buys that commodity for the borrower from a seller on cash price and
charges the borrower a higher credit price that includes a time-related mark-up on top of cash
price. Under buyback arrangement, a borrower first sells any of his commodities or
equipment to bank on cash price and at the same time buys it back from the bank on credit
price that includes a time-related mark-up on top of cash price. Another feature of current
interest-free system is that development of capital markets is over emphasized under the plea
that trading in these markets resembles with trading in commodity markets.

There are three main criticisms on this definition. First, the two interest free alternatives
mark-up and buy-back, so far predominantly used by interest free banking, are objectionable
from juridical point of view. No doubt, early jurists unanimously believe in permissibility of
credit sale and have no objection on discrepancy between cash and credit price as well but
none of them has approved linking of credit price with time like interest. Sarakasi, a well-
known eleventh century jurist, proves the permissibility of credit sale directly from Quran by
counter argument and clearly acknowledges that a credit price is usually higher than cash
price.

Proof that selling for credit is an absolute feature of trade is found in His statement, may He
be exalted, 'unless it be local trade that ye are conducting amongst you.' This shows that trade
can also be long distant, and this latter type of trade cannot come about except selling on
credit. (Udovitch 1970 p. 79; al-Baqarah 2:282)

Yet, Siddiqi, a pioneer of current interest-free banking, opposes credit sale and buy-back
arrangement.

I would prefer that Bai-Moajjal (a variant of mark-up and buy-back arrangement) be

removed from the list of permissible methods altogether. Even if we concede its
permissibility in legal form we have the over-riding legal maxim that anything leading to
something prohibited stands prohibited. It will be advisable to apply this maxim in order to
save interest free banking from being sabotaged from within. (Khan 1991 p. 65)

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Similarly, Usmani (1999) and Kuran (1986) find little difference between the prevailing
mark-up and buy-back arrangements, and interest-based lending.

Second criticism is that over-emphasis on liquidity of financial assets in context of an

interest-free financial system is ill founded. There is not a single verse of Quran or a single
hadith that specifically permits trading of financial assets. Rather it should be banned because
it negates the very logic of prohibition of interest; to make users and providers of funds for a
project to share actual outcomes of the project. Third criticism is that it leaves out an
important component of real riba, riba in barter loans, as explained later in this paper.

Conservative View:
Conservative view propels mainly from the third kind of ahadith that talk about implicit riba.
The argument is that since God has forbidden a lender (mostly a rich person before the dawn
of modern banking) from taking a ride or accepting a meal or a gift, of whatever meager
value it may be, from a borrower (mostly a poor person at that time), therefore rich
industrialists and landlords should also be debarred from appropriating big margins of profit
and residual income (surplus value) in an Islamic framework. Haque (1993, p. 937) says that
riba in loans is the domain of money lenders and hoarders of commodities who charge
against time whereas, riba of excess is the domain of landlords, merchants, speculators and
middlemen who give less in exchange of what they get. Ibn al-Arabi, a well-known scholar
of the Middle Ages, defines riba as "all excess over what is justified by the counter value."
Chapra (1984, p.1) rephrases it as "riba represents, in the Islamic value system, a prominent
source of unjustified advantage" and Ali (1946) as "profiteering of all kinds, but excluding
economic credit, the creature of modern banking and finance." According to proponents of
conservative view, only their definition of riba can promise a just and equitable social and
economic system, which is the ultimate goal of Islamic economics

There are three main objections on this viewpoint. One, ahadith go against this view. Two,
Prophet’s refusal to fix prices or to ban hoarding of non-food items, while responding to a
complaint of people of Medina lodged against profiteering of city-traders, also foils this view.
Three, riba as an unjustified advantage becomes a somewhat subjective phenomenon that
cannot be settled once for ever

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References

 https://en.wikipedia.org/wiki/Riba#Riba_al-fadl
 https://www.pide.org.pk/pdf/psde%2018AGM/A%20Broader%20Definition%20Of
%20Riba.pdf
 https://nscpolteksby.ac.id/ebook/files/Ebook/Accounting/Ethica%20Handbook%20of
%20Islamic%20Finance/15.%20RIBA%20AND%20ITS%20TYPES.pdf
 https://www.maybank2u.com.my/iwov-resources/islamic-my/document/my/en/
islamic/scoe/knowledge-centre/research-paper/riba-and-its-prohibition.pdf
 https://www.cimaglobal.com/Qualifications/Islamic-finance-qualifications/Islamic-
finance-resources/Glossary-A-Z/Riba-al-fadl/
 https://fincyclopedia.net/islamic-finance/r/riba-al-nasiah

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