ISB540 - RIBA
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  • there is a mistake on the second stage of riba, which is verse 161, not the 61. thank you
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  • 1. ISLAMIC BUSINESS TRANSACTION  CHAPTER THREE RIBA MAHYUDDIN KHALID  emkay@salam.uitm.edu.my
  • 2. CONTENT  INTRODUCTIONINTRODUCTION  DEFINITION  CATEGORIES OF RIBADEFINITION  ISLAMIC RULINGS ON RIBA IN TRADE  THE RATIONALE BEHIND THE PROHIBITION OF RIBACATEGORIES EVIDENCESRATIONALE 2
  • 3. INTRODUCTION  Riba was gradually prohibited through 4 stages in 4 differentINTRODUCTION verses in the Quran  Practice of giving and taking riba has been widely practice inDEFINITION Arab society and regarded as part and parcel of the business societyCATEGORIES  To eliminate something that have been accustomed for so long is not an easy task  This approach also adopted in the prohibition of liquor EVIDENCES  Arab society had been given ample time to gradually adjust themselvesRATIONALE 3
  • 4. RIBA IN THE QURANINTRODUCTIONDEFINITIONCATEGORIES Stages Of Moral Legal Al-Bay’ as the Riba & the Prohibition of alternative to Prohibition denounciation Jews Riba Riba of Riba Of Riba In (An-Nisa : 61) (Ali-Imran: (Al-Baqarah: (Al-Rum : 39) EVIDENCES The Quran 130-132) 275-281)RATIONALE 4
  • 5. PROHIBITION OF RIBA STAGES VERSESINTRODUCTION 1stDEFINITIONCATEGORIES 2nd EVIDENCESRATIONALE 5
  • 6. PROHIBITION OF RIBA STAGES VERSESINTRODUCTION 3rdDEFINITION 4thCATEGORIES EVIDENCESRATIONALE 6
  • 7. DEFINITION  Literally:INTRODUCTION  Riba is an Arabic word, derived from the verb raba that literally means „to grow‟ or „expand‟ or „increase‟ or „inflate‟ or „excess‟  Excess quantity, addition, an increase of a thing over and aboveDEFINITION its original size or amount  It is generally translated into English as “usury” or “interest”, but inCATEGORIES fact it has a much broader sense in the Shari`ah.  Riba in the Shari`ah, technically refers to the „premium‟ that must be paid by the borrower to the lender along with the principal EVIDENCES amount as a condition for the loan or for an extension in its maturity.RATIONALE  In fiqh terminology, riba means an increase in one of two homogeneous equivalents being exchanged without this increase being accompanied by a return.  Technically (2 definition depending on the nature of transaction):  Trade Transaction  Loan Transaction 7
  • 8. DEFINITION  Definition 1:INTRODUCTION  Trade transaction:  Unlawful gain derived from the quantitative inequality of theDEFINITION counter-values in any transaction purporting to effect the exchange of 2 or more species which belong to the sameCATEGORIES genus(category) and are governed by the same efficient cause(illah)  Definition 2: EVIDENCES  Loan transaction:RATIONALE  A predetermined excess or surplus over and above the loan received by the creditor conditionally in relation to a specified period 8
  • 9. CATEGORIES OF RIBA  Debt RibaINTRODUCTION  Riba Qardh  Riba JahiliyyahDEFINITION  Trade Riba  Riba al-FadlCATEGORIES  Riba al-Nasiah EVIDENCESRATIONALE 9
  • 10. DEBT RIBA  Riba QardhINTRODUCTION  Any predetermined benefit for the owner of debt stated in the contract, which the debtor need to fulfilDEFINITION  E.g.: interest stated in loan contract  Riba JahiliyyahCATEGORIES  The surplus or excess payment above the original debt as a penalty to the debtor due to his inability to service the loan EVIDENCES repayment within the stipulated time  Real and primary form of ribaRATIONALE  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  E.g.: interest in credit card transactions due to the delay in the repayment 10
  • 11. TRADE RIBA  Riba al-FadlINTRODUCTION  Any additional quantity or inequality in the exchange of goods from the similar type of the ribawi itemsDEFINITION  (Quantity Factor)  Riba al-NasiahCATEGORIES  Any delay in the exchange of the ribawi items from the same type and category EVIDENCES  (Time Factor)RATIONALE 11
  • 12. EVIDENCE  Al-QuranINTRODUCTION  Al-Baqarah: 275DEFINITIONCATEGORIES EVIDENCESRATIONALE 12
  • 13. EVIDENCE  Hadith:INTRODUCTION  From Jabir: The Prophet saw cursed the receiver and the payer of usury, the one who records it and the two witnessesDEFINITION to the transaction and said: “They are all alike (in guilt and sin).CATEGORIES  From Abi Said al-Khudri: The Prophet saw said: gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt, like for like, and hand to hand. EVIDENCES Whoever pays more or takes more has indulged in riba. Take taker and the giver are alike (in guilt).RATIONALE 13
  • 14. RIBAWI ITEMS  Commodity Money/ Currency:INTRODUCTION  Gold  SilverDEFINITION  Currency  Foodstuff:CATEGORIES  Wheat  Barley EVIDENCES  Dates  SaltRATIONALE 14
  • 15. RIBAWI ITEMINTRODUCTIONDEFINITIONCATEGORIES EVIDENCESRATIONALE  (1) Prompt delivery (time)  (2) Prompt delivery with the equivalent quantity 15
  • 16. ISLAMIC RULINGS ON RIBA IN TRADE Category Type Exchange Quantity ItemsINTRODUCTION 1 Same Same Spot Equal in Regardless of Gold with Gold, category type exchange quantity quality Wheat with WheatDEFINITIONCATEGORIES 2 Same Different Spot Inequality Equality is not a God with Silver category type exchange is condition Wheat with Rice permitted Salt with Dates EVIDENCESRATIONALE 3 Different Different Delayed is Inequality Time and Gold with Wheat category type permitted is Quantity Factor RM with Dates permitted is not a condition 16
  • 17. ISLAMIC RULINGS ON RIBA IN TRADE Category Type Exchange Quantity ItemsINTRODUCTION 4 Ribawi Items and Non- Delayed is Inequality is Time and RM with vehiclesDEFINITION Ribawi Items permitted permitted Quantity UD with furniture Factor is not aCATEGORIES condition EVIDENCES 5 Between 2 Non- Delayed is Inequality is Time and Bricks with Sands Ribawi Items permitted permitted Quantity Cloth with Patrols’ Factor is not aRATIONALE condition 17
  • 18. THE RATIONAL BEHIND THE PROHIBITION OF RIBA  Barter system is not so favourable from the Shariah point of view.INTRODUCTION  The impact of riba is on the society at large compared to other crimes prescribed in hudud which impact are restricted to only a few of people.DEFINITION  It is a clear burden on the borrower. In any circumstances, he is obliged to repay the principal and interest charge (Money renting).CATEGORIES Money and time cannot grow by themselves.  Riba is the main pushing factor for the people with surplus of money to lend their money out to the deficit units in the economy. EVIDENCES However, it could render to exploitation of deficit units by the surplus units.RATIONALE  To prevent any form of injustice, exploitation and manipulation among the parties.  The inflexibility of interest charge results in loss and unemployment in comparison with the profit-and-loss sharing system.  Security oriented vs Growth oriented. Interest-based system is not for the poor parties with poor creditworthiness. 18
  • 19. THE RATIONAL BEHIND THE PROHIBITION OF RIBA  Inequality in loan distribution makes the rich becomes richerINTRODUCTION and the poor becomes poorer.  Interest-based system impends the innovations amongst the small-scale enterprises particularly.DEFINITION  Wealth creation and transfer: Riba activities do not create a new stock of wealth.CATEGORIES  Borrowers are not exposed to any risk (except credit risk - does not commensurate the profit made). EVIDENCES  Money is considered as commodity is an interest-based system and subject to the law of demand and supply (Allowing speculation on money).RATIONALE  Interest is a component of costs in an interest-based system.  Case Studies:  Bank interest  Riba al-fadl  Similarities between trade and riba 19
  • 20. CASE 1  Charging Interest In The Banking SectorINTRODUCTION  Prohibition of riba would safeguard the interest of both financial institution and customer  In case of money deposits in savings accounts or fixed deposits, theDEFINITION interest is unfair because of:  Banks:CATEGORIES  Conventional Bank: Obliged to pay interest to the depositor which is more than the principal amount deposited  Islamic Banks: Profit would be given to the depositor only if bank EVIDENCES make profit. If they are making losses, they are not compelled to pay any amount of profit  Customers:RATIONALE  Conventional Bank: Customers would be deprived from the high profit gained by bank even though they are guaranteed some form of fixed income (interest), it is rather small compared to the huge profit gained by the banks.  Islamic Bank: If bank making huge profits for a certain period, depositor would be given a fair share of profit based on agreed proportion 20
  • 21. CASE 2  Prohibition of Riba al-FadlINTRODUCTION  To ban any form of unfair trade practices from the business society – unfair practice in barter transactionDEFINITION  The Prophet saw was actually trying to discourage barter trading and gradually eliminate barter system while suggesting a better and just monetary system using currencyCATEGORIES  The answer to the question:  Why any trader would like to trade 2 similar commodity of EVIDENCES different quality without having gain from the differences in quantity?  No sensible trader would like to trade at loss, they would avoidRATIONALE any involvement of barter trading that might lead to either the practice of riba or trade at loss.  Islam suggested fairer alternative – utilize currency as a medium of exchange that could facilitate a proper flow of trade and accurate market value. This would avoid injustice due to inability to determine fair value for the exchange in barter trade. 21
  • 22. CASE 3  Why Riba is Mentioned Together With Trade In The QuranINTRODUCTION  Difficulties in distinguishing between these 2 concepts. SimilarityDEFINITION Both seems to gain something extra from the original principal – through interest and profit Trade RibaCATEGORIES In trading, buyer will gain and retain In riba based transaction, debtor will not something in possession in return for retain anything from the creditor even EVIDENCES profit achieved by the seller. though he gets to utilize money in the first place. He is required to pay back more than principle. No value added inRATIONALE riba based transaction. In trade, traders always exposed to the In riba based transaction, the creditor concept of profit and loss. always gain at the expense of the debtor at all cost. It is confirmed gain on the part of creditor Trading is win-win situation. Interest always win-lose situation or lose-lose situation 22
  • 23. END OF CHAPTERINTRODUCTIONDEFINITIONCATEGORIES EVIDENCES RATIONALE 23