Chapter two:RIBA (USURY) AND GHARAR (RISK)

Riba
Riba in its simplest terms is any excess or premium charged on money lent .The Quran’s and
Shari’a’s banning of usury and other forms of economic transaction which are not productive or
to give
unfair advantage to one party at the expense of the other. The history of insurance as it
developed in the Arab world has traditionally been limited to joint sharing of common risk. This is
a slight deviation from common interest to a particular interest groups .

Usury (riba) in the Shari’a

Modern definitions
At the root of the anti-insurance argument is the Islamic objection to riba,lending at interest.
The literal translation of the Arabic verb riba is derived from the Arabic root raba and means
‘increase’and refers to the practice of lending money at an exorbitant (and therefore unlawfully
high) rate of interest. The noun riba literally means surplus excess. As a technical term, riba
means usury and interest, any unjustifiable increase in capital for which no compensation is
given.
Traditional usage
In the pre-Islamic era riba – as it was then practised – was generally held to be the increase of
money in consideration for an extension of the term of maturity of a loan.

Quranic injunctions concerning riba

Those who devour usury will not stand except as stands one whom the
Evil one by touch hath driven to madness. That is because, they said,
trade is like usury; but God hath permitted trade, and forbidden usury.
Those who after receiving direction from their Lord, desist, shall be
pardoned for the past, their case is for God to judge; but those who repeat
the offence are companions of the fire: they will abide therein for ever
The first express prohibition which mentions riba and bans it for the first time is:
‘Oh ye who believe! Devour not usury, doubled and multiplied; But fear God;
that ye may really prosper’(3:130)

The Prophet’s sayings on Riba

There are aconsiderable number of Hadiths which deal with this subject, but the most
famous and generally accepted is:
Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for
dates and salt for salt, the like for the like, hand to hand [yad-in-bi-yad,
i.e. immediate sale]. But if the kinds differ, then sell as you may like it
from hand to hand.(Bukhari and Muslim (repr.)
 In the jurists ,There are two types of sales usury:
1 :Increase Usury (riba al-fadl), which occurs when there is a transaction where items of the same
kind of commodity capable of riba (mal ribawi) are exchanged or either of them carries an
increase over the other, this increase is considered riba
2 :Delayed Payment Usury (riba an Nasi’ah), a form of sale usury that occurs if
there is a sale where both items are properties subject to usury (mal ribawi)
but only one of the items is received at the time and place of the sale and
the other item is received at a later date. . Equality of exchange of
both items does not hold here, as there is a time difference in their
Institute of slamic banking given:
Mudaraba (trust financing)
Murabaha (cost-plus financing)
Ijara (leasing)
Ijara wa Iktina (lease purchase)
Qard Hassan (interest-free loan)
Christian and Islamic views on usury in medieval time
Christian and Islamic viewpoints on usury is that both prohibited usury outright.
the lender and the borrower with no one party being allowed to acquire extra advantage at the
expense of the other. Both rejected deferment as a justification for the payment of interest,
the fact that the positions of the two religions were almost identical on usury.
Gharar
The prohibition of risk (gharar) is the second major element in the Islamic law
of contracts. To avoid unfair dealing resulting from an ambiguous understanding
of the rights and duties, not just of the parties involved, but also of the object of
the contract .the Shari’a requires a clear and certain determination of the rights and
obligations of each party to the contract. Many Muslim jurists have defined
gharar, some treating it more strictly than others.A general definition was offered by the Hanbali
jurist Ibn Taymiyya, who defined gharar as something of unknown outcome or result.
Not being expressly mentioned or forbidden as such in the Quran, gharar is not as strongly and as
strictly prohibited as riba. ‘And eat not up your property among yourselves in vanity’(2:188).
However, prohibition of gharar is expressly mentioned in the Sunna .
Need (haja) and necessity (darura) In Islamic law
The Shari’a expressly delivers Muslims from hardship as shown by the following
verses of the Quran:
Allah desireth for you ease; He desireth not hardship for you.
(2:185)
Allah would make the burden light for you, for man was created weak.
Summary of financial activities proscribed by Islam
1-Riba (charging interest)
2-Gharar(uncertainty)
3-Maisir (gambling)