RIBA

Introduction
 Prohibition of Riba and Gharar are core concepts of Islamic economic
and financial law. All transactions and contracts must be free from
elements of Riba and Gharar apart from other Shari’ah prohibitions.

 Understanding of Riba and Gharar and their modern application is

crucial and fundamental for understanding of Islamic financial system.
Riba in Quran
First Revelation: Second Revelation:
“And whatever Riba you give so that it “O those who believe, Do not eat up Riba,
may increase in the wealth of the doubled and redoubled, and be mindful of
people, it does not increase with Allah; Allah so that you may attain true success”.
but that which you give in charity, (Al’ Imran: 130)
seeking the goodwill of God, multiplies
manifold.”
(Al Rum, Verse 39)
Riba in Quran
Third Revelation:
“Those who take Riba (usury or interest) will not stand but as stands the one
whom the demon has driven crazy by his touch…”.
“…Allah destroys Riba and nourishes charities. And Allah does not like any
sinful disbeliever…”.
“… O those who believe, fear Allah and give up what still remains of the riba
if you are believers. But if you don not, then listen to the declaration of
war from Allah and His Messenger. And if you repent, yours is your
principal. Neither you wrong, nor be wronged”. (Al Baqarah: 275-281)
Riba in Hadith
1. From Jabir:
The Prophet, may peace be upon him, cursed the receiver and the payer of
interest, the one who records the transaction and the two witnesses to the
transaction and said: "They are all alike [in guilt]” (Muslim, Kitab al-Musaqat, also in
Tirmidhi and Musnad Ahmad).
Riba in Hadith
2. From Abdullah ibn Hanzalah:
The Prophet, peace be upon him, said: "A dirham of riba which a man receives
knowingly is worse than committing adultery thirty-six times" (Mishkat al-
Masabih)

3. From Abu Hurayrah:

The Prophet, peace be upon him, said: "On the night of Ascension I came upon
people whose stomachs were like houses with snakes visible from the outside. I
asked Gabriel who they were. He replied that they were people who had received
interest” (Ibn Majah, also in Musnad Ahmed)
 Classification of Riba
Riba is mainly of two types:

1. Riba al Nasiah or Riba al Jahilyya or Riba al Quran

2. Riba al fadhl or Riba al Bai or Riba al Hadith
Riba al Nasiah
Definition of Riba-al-Nasiah from Hadith:

It is reported from Hazrat Ali (RA) that the Holy Prophet ‫ص لىهللا عليه وسلم‬
has said:

“Every loan that derives any benefit (to the creditor) is Riba”

“kind of loan where specified repayment period and an amount in

excess of capital is predetermined”. (Imam Abu Bakr Hassas Razi)
 Riba al Nasiah …contd
 It had different forms in the days of Jahiliyya:
a) Claiming an increased amount over the principal with a clearly
stipulated condition.
b) Charging a monthly return from debtor while keeping principal
amount remain till the day of maturity.
c) By selling a commodity for a price payable at a future specific date,
and increase the amount payment upon extension in maturity.
Riba al Nasiah …contd
Examples
 Return on Conventional Bank Deposits
 Conventional Bank TDRs
 Conventional Bank OD limits
 Annuities
 Prize Bonds
 Coupons
 etc
 Riba Al Fadl
Definition of Riba-al-Fadl from Hadith:

“Any excess taken in exchange of specific commodities which

are homoge nous”.

For example:
10 kg wheat with 15 kg wheat
05 grams gold with 06 grams
Riba Al fadl …contd.
Hadith prohibiting Riba-al-Fadl

Ubadah Ibn Al Samit narrated that the Holy Prophet (SA) said Gold for
gold, silver for silver, wheat for wheat, barley for barley, dates for dates,
and salt for salt - equal for equal and hand to hand; if the commodities
differ, then you may sell as you wish, provided that the exchange is hand
to hand. (Muslim)
Riba Al fadl …contd.
 Under Riba al-fadl, the Holy Prophet, sall-Allahu alayhi wa sallam, has
identified six specific commodities i.e.
– Gold
– Silver
– Dates
– Salt
– Wheat
– Barley
 Riba Al fadl …contd. (summarized)
 If the transacted commodities are of
same nature then:
 Spot delivery – immediate delivery of
both commodities
 Same quantity on both sides
 Like exchange of wheat with wheat
 If the transacted commodities are of
different nature then:
 Spot delivery – immediate delivery
of both commodities
 But the quantity may differ
 Like exchange of wheat with barley
Riba Al fadl …contd.
Imam Abu Hanifa sees two common characteristics in these six
commodities namely:
1) Weight or Volume
2) Exchange between similar commodities
Meaning all these six goods are sold by either weight or volume.
Therefore all those commodities, which are measured through either the
unit of weight or the unit of volume and are exchanged against similar
commodities will fall under the rules of Riba al Fadl.
For Example: 08 kg raisins with 10 kg raisins
50 kg rice with 60 kg rice
 Arguments in favor of Riba (common myt
h) & their rebuttal...
A: It was not in the prevalent modern shape in those days.

Ans:
When some thing is prohibited, it is not directed to a particular form of it
but it covers every form which comes in its general sense, e.g. gambling
and pork, liquor and adultery are as Haram as they were in Jahiliya.
Arguments in favor of Riba (common myt
h) & their rebuttal...
B: Doctrine of necessity and wisdom requires to allow it.
Ans:
1) It does not, it is not at all a necessity in Shari’ah. And from economic
point of view also the modern interest has brought more problems to the
humanity than the premature forms of usury.
2) Necessity is acceptable where there is no alternative.
Arguments in favor of Riba (common myt
h) & their rebuttal...

C: Both parties agree on interest then why it is not permissible.

Ans:
Only agreement is not sufficient e.g. adultery is not permissible in any
condition.
Arguments in favor of Riba (common myt
h) & their rebuttal...
D: Prohibited thing is interest and what commercial banks charge is “Mark-
up”.
Ans:
This is only change of name, not change of nature.
Any Questions??