Distribution Of Wealth

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  • There is no concept of Ribba in the economic philosophy of Islam. Ribba is considered a curse in the society because of the ills it encourages (read from the slide) Deceit and fraud prospers in the world of trade and business because of Ribba. Islam on the other hand encourages highest moral ethics such as universal brotherhood, collective welfare and prosperity, social justice. Due to these reasons Islam renders Ribba as absolutely haram and strictly prohibits all types of interest based transactions.
  • The distribution of wealth is the most important and controversial subjects concerning the economic life of man which has given birth to global revolutions and has affected every sphere of human activity from international politics down to individual life. For many a centuries now this question has been the center of fervent debates, oral and written and also of armed conflicts. The fact is that whatever has been said on the subject without seeking guidance from Divine Revelation and relying merely on human reason has had the inevitable result of creating a lot of confusion. Therefore in understanding the model of wealth distribution we must look at the guidance given to us in the holy Quran and Sunnah. These sources of guidance have laid down two basic principles on which the Islamic model of distribution of wealth are based. The first principle is around the importance of Economic Goals in man’s life and the second principle is based around the understanding of the real nature of wealth and property.
  • Islam is opposed to monasticism. It approves of the economic progress of man and considers lawful or righteous livelihood an obligation. Many misunderstandings about Islamic economics arise from the confusion between considering economics as the ultimate goal of life and considering it a necessity in order to have a prosperous life through lawful means. Common sense tells us that if an activity is lawful it does not make it the ultimate goal of Human life and center of thought and action.
  • This is what distinguishes Islamic point of view of wealth from that of the materialistic point of views of Capitalism and Socialism. Capitalism gives man the unconditional and absolute right of property over his wealth which allows him to employ it as he likes. What are the commandments of God on use of wealth?
  • Allah may command that man give a specified part of his wealth to another man and this command must be obeyed because Allah has done good to you so He may command you to do good to others_ “do good as Allah has done good to you” Allah has every right to forbid you to use wealth in a particular way because He cannot allow you to use wealth in a way which is likely to produce collective ills or to spread disorder on earth. Quran in the chapter “Light” substituted the term “ the property of Allah” for the expression “ Our possessions” thus striking a blow at the very root of Capitalism which recognizes an individual as the owner of his wealth. At the same time by adding the qualification “what Allah has bestowed upon you” it has cut the roots of Socialism as well which denies the Man’s right to private property. This leads us to the basic difference between Capitalism, Socialism and Islam…(next slide)
  • Allah may command that man give a specified part of his wealth to another man and this command must be obeyed because Allah has done good to you so He may command you to do good to others_ “do good as Allah has done good to you” Allah has every right to forbid you to use wealth in a particular way because He cannot allow you to use wealth in a way which is likely to produce collective ills or to spread disorder on earth. Quran in the chapter “Light” substituted the term “ the property of Allah” for the expression “ Our possessions” thus striking a blow at the very root of Capitalism which recognizes an individual as the owner of his wealth. At the same time by adding the qualification “what Allah has bestowed upon you” it has cut the roots of Socialism as well which denies the Man’s right to private property. This leads us to the basic difference between Capitalism, Socialism and Islam…(next slide)
  • Definition of Riba The word “ Riba” means excess, increase or addition, which correctly interpreted according to Shariah terminology, implies any excess compensation without due consideration. Here consideration does not include time value of money. This definition of Riba is derived from the Quran and is unanimously accepted by all Islamic scholars.
  • Another verse of Quran which prohibits riba is in Surat Al- Baqarah, Ayat 276 The fact stated in this verse is a truism from a moral and spiritual as well from an economic and social viewpoint. For, although wealth apparently multiplies through interest and shrinks as a result of charity, in actual fact the opposite is the case. By God’s decree, the law of nature is such that interest not only serves as a strain on moral and spiritual well- being and social and economic growth, it also causes actual regression and decline. Charity, however leads to the growth and expansion of man’s moral and spiritual qualities and to the growth of human society and economic. Charity here includes such acts as lending money to people with stipulation that they should return it if they can, and at their convenience). The second verse is from Surah-e Al Imran, Ayat 130. The major cause of setback suffered at Uhud was that precisely at the moment of their victory the Muslims succumbed to the desire for wordily possessions, and and turned to collecting booty rather than completing their task of crushing the enemy. Hence God thought fit to raise a barrier against this excessive adoration of money, and to urge them to give up usury which keeps man constantly absorbed in considering ways and means of amassing wealth and generally whets his appetite for money.
  • Another verse of Quran which prohibits riba is in Surat Al- Baqarah, Ayat 276 The fact stated in this verse is a truism from a moral and spiritual as well from an economic and social viewpoint. For, although wealth apparently multiplies through interest and shrinks as a result of charity, in actual fact the opposite is the case. By God’s decree, the law of nature is such that interest not only serves as a strain on moral and spiritual well- being and social and economic growth, it also causes actual regression and decline. Charity, however leads to the growth and expansion of man’s moral and spiritual qualities and to the growth of human society and economic. Charity here includes such acts as lending money to people with stipulation that they should return it if they can, and at their convenience). The second verse is from Surah-e Al Imran, Ayat 130. The major cause of setback suffered at Uhud was that precisely at the moment of their victory the Muslims succumbed to the desire for wordily possessions, and and turned to collecting booty rather than completing their task of crushing the enemy. Hence God thought fit to raise a barrier against this excessive adoration of money, and to urge them to give up usury which keeps man constantly absorbed in considering ways and means of amassing wealth and generally whets his appetite for money.
  • Another verse of Quran which prohibits riba is in Surat Al- Baqarah, Ayat 276 The fact stated in this verse is a truism from a moral and spiritual as well from an economic and social viewpoint. For, although wealth apparently multiplies through interest and shrinks as a result of charity, in actual fact the opposite is the case. By God’s decree, the law of nature is such that interest not only serves as a strain on moral and spiritual well- being and social and economic growth, it also causes actual regression and decline. Charity, however leads to the growth and expansion of man’s moral and spiritual qualities and to the growth of human society and economic. Charity here includes such acts as lending money to people with stipulation that they should return it if they can, and at their convenience). The second verse is from Surah-e Al Imran, Ayat 130. The major cause of setback suffered at Uhud was that precisely at the moment of their victory the Muslims succumbed to the desire for wordily possessions, and and turned to collecting booty rather than completing their task of crushing the enemy. Hence God thought fit to raise a barrier against this excessive adoration of money, and to urge them to give up usury which keeps man constantly absorbed in considering ways and means of amassing wealth and generally whets his appetite for money.
  • There are two types of Riba, identified to date by Islamic scholars namely ‘Riba an Nasiyah’ and ‘Riba al Fadl’. ‘ Riba an Nasiyah’ is defined as excess, which results from predetermined interest (sood) which a lender receives over and above the principle (Raise ul Maal.) ‘ Riba al Fadl’ is defined as excess compensation without any consideration resulting from a sale of goods. During the dark ages only the first form (Riba an Nasiyah) was considered to be Riba. However the Prophet Muhammad (P.B.U.H) also classified the second form (Riba al Fadl) as Riba. The two types will be covered in greater detail later.
  • Riba-un Nasiyah is the real and primary form of riba. Since the verses of Quran has directly rendered this type of riba as haram, it is called Riba al Quran. Similarly since only this type was considered riba in the dark ages, it has earned the name of Riba al Jahiliya. 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.”
  • These two hadiths also give the same definition of riba that the loans which charge fixed profits are riba. Riba al Nasiah refers to the addition of the premium which is paid to the lender in return for his waiting as a condition for the loan and is technically the same as interest. The prohibition of Riba an Nasiyah is one of those issues which have been confirmed in the revealed laws of all Prophets (AS). Some of the old testaments has rendered riba as haram (See Exodus 22:25, Leviticus 25:35-36, Deutronomy 23:20, Psalms 15:5, Proverbs 28:8, Nahmia 5:7 and Ezakhiel 18:8,13,17 & 22:12). The Quran Karim has also stated the prohibition of Riba in various verses, has warned those who persist in practicing it of a war which is certain to be declared on them by Allah Himself and His messenger and has seriously threatened those engaged as writer, witness and dealer in riba transactions. These verses and ahadith will be discussed at length in a separate chapter called “The prohibition of riba in the light of Quran and hadith ”.
  • According to the this definition of Riba an Nasiyah, the giving and taking of every excess amount in exchange of a loan at an agreed rate is included in interest irrelevant whether at a high or low rate. It has been proven through ahadith that Prophet (SAW) paid an excess at the loan repayment time but since this excess was not paid through an agreed rate, it cannot be called interest. This clarifies that the word “draws” in the hadith definition “The loan that draws interest is riba.” has been used to highlight the giving and taking of excess amount through an agreed rate in the loan contract. Due to this, Imam Abu Bakr Hasas has added the word “condition” to the definition.
  • The second classification of riba is Riba al Fadl. Since the prohibition of this riba has been established on sunnah, it is also called Riba al Hadith. Riba al Fadl actually means that excess which is taken in exchange of specific commodities, which are homogenous. But what are those like commodities? A complete legal definition is differentiated in every fiqh.
  • This hadith enumerates 6 different commodities, which can only be bought and sold in equal quantities and on spot. An unequal sale or a deferred sale of these commodities will constitute Riba. These six commodities in fiqh terminology are called “Amwal-e-Ribawiya”. The question arises that ‘Does this hadith apply only to the items mentioned in it?’ Scholars such as Taoos and Qatada hold that Riba al Fadl includes these specified types only, however a majority of Islamic scholars believe that some other commodities should also be included. In order to answer the question, which other commodities should be included, some fiqhs have specified which characteristics are common amongst these items and can be used as a 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 application of riba rules. Various schools define these causes differently :
  • These two hadiths also mentions that these specific quantities cannot be transacted in two forms: One is the deferred sale The other is spot sale of unequal amounts .
  • Imam Abu Hanifa Imam Abu Hanifa sees only two common characteristics namely: Weight 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 The two characteristics observed by Imam Shafi are Medium of Exchange or Eatable Therefore this law will apply on everything edible or having the natural ability of becoming a medium of exchange (currency).
  • Imam Maalik identified the following two characteristics: Eatables and Preservable
  • Three citations have been related to Imam Ahmad bin hanbal: First citation conforms to the opinion of Imam Abu Hanifa. Second citation conforms to the opinion of Imam Shafai. Third citation includes three characteristics at the same time namely edible, weight and volume.
  • After a detailed study of the above schools of thought, it has been declared by Islamic scholars that if a commodity bears both of the two characteristics namely; it has weight and can be used as a medium of exchange, then the following two kinds of transactions are not allowed when the same goods are being exchanged:
  • After a detailed study of the above schools of thought, it has been declared by Islamic scholars that if a commodity bears both of the two characteristics namely; it has weight and can be used as a medium of exchange, then the following two kinds of transactions are not allowed when the same goods are being exchanged:
  • After a detailed study of the above schools of thought, it has been declared by Islamic scholars that if a commodity bears both of the two characteristics namely; it has weight and can be used as a medium of exchange, then the following two kinds of transactions are not allowed when the same goods are being exchanged:
  • After a detailed study of the above schools of thought, it has been declared by Islamic scholars that if a commodity bears both of the two characteristics namely; it has weight and can be used as a medium of exchange, then the following two kinds of transactions are not allowed when the same goods are being exchanged:
  • After a detailed study of the above schools of thought, it has been declared by Islamic scholars that if a commodity bears both of the two characteristics namely; it has weight and can be used as a medium of exchange, then the following two kinds of transactions are not allowed when the same goods are being exchanged:
  • After a detailed study of the above schools of thought, it has been declared by Islamic scholars that if a commodity bears both of the two characteristics namely; it has weight and can be used as a medium of exchange, then the following two kinds of transactions are not allowed when the same goods are being exchanged:
  • After a detailed study of the above schools of thought, it has been declared by Islamic scholars that if a commodity bears both of the two characteristics namely; it has weight and can be used as a medium of exchange, then the following two kinds of transactions are not allowed when the same goods are being exchanged:
  • “ O believers, take not doubled and redoubled interest and fear God so that you may prosper”(Surah Al-Imran, verses 130-1). By mentioning the practice of doubling and redoubling it was condemned and declared unlawful in view of its adverse impact on the community and the selfishness it bred. It does not mean that if there is no doubling or redoubling i.e. if it is simple interest then it is lawful. In Surah Baqarah and Surah Nissa the prohibition of interest in its entirety and in absolute terms is clearly mentioned whether or not there is doubling or redoubling. The words doubled and redoubled interest have been used to highlight the shameful aspect of compound interest and not to limit the scope of Riba only to compound interest. This is similar to Allah’s command that do not bargain on my orders for paltry gains in this world. The reason for mentioning paltry gains is that no matter how big a gain you may feel you will be getting it will still be paltry in context with Allah’s orders. It does not mean that if you feel the gain is paltry then do not do if and that if you feel the gain is large go ahead and do it.
  • This verse demands that you give up Riba and directs that only the principal amount be paid back to you and nothing in excess
  • This verse explains that any excess on principal no matter how insignificant is cruel according to Quran. Therefore any amount in excess of the principal fixed in the contract of a loan is called Riba an Nisiah. If simple interest is accepted it can again be used to give additional loan which will give simple interest but it will have the same impact as that of compound interest.
  • The present day banking system which has given interest the moral and legal license is the backbone of the prevalent capitalism. When Muslim countries became subjugated to west in economic field it resulted in, on one hand increasing progress of west in trade and industry and on the other the shattering condition of the Muslim states. Some noted westernized Muslims felt that interest based banking is inevitable when it comes to trade and industry not only on national level but also on international level. This prompted them to say that only usury is haram and not commercial interest because rendering commercial interest haram would pose irresolvable problems to their way up to industrialization and economic progress. They included only usury in the term Riba as categorically prohibited in Quran and freed commercial interest from it calling it totally different from the western concept of interest. Therefore it was concluded the prohibition of Riba was restricted to usury while commercial interest was perfectly Islamic.
  • This verse is taken from Surah-e Al Baqarah, Ayat 275. This verse was revealed in reply to the argument that if profit on the money invested in a business enterprise is permissible, why should the profit accruing on loan money be deemed unlawful? The verse differentiates between the profit one gains on investment in commercial enterprise from the profit on trade by saying that no enterprise paying fixed interest is immune from risk. Then what is the justification for the fact that out of all the people in the business world, the financier alone should be considered entitled to a profit at a fixed rate in all circumstances.
  • This verse is taken from Surah-e Al Baqarah, Ayat 275. This verse was revealed in reply to the argument that if profit on the money invested in a business enterprise is permissible, why should the profit accruing on loan money be deemed unlawful? The verse differentiates between the profit one gains on investment in commercial enterprise from the profit on trade by saying that no enterprise paying fixed interest is immune from risk. Then what is the justification for the fact that out of all the people in the business world, the financier alone should be considered entitled to a profit at a fixed rate in all circumstances.
  • This verse is taken from Surah-e Al Baqarah, Ayat 275. This verse was revealed in reply to the argument that if profit on the money invested in a business enterprise is permissible, why should the profit accruing on loan money be deemed unlawful? The verse differentiates between the profit one gains on investment in commercial enterprise from the profit on trade by saying that no enterprise paying fixed interest is immune from risk. Then what is the justification for the fact that out of all the people in the business world, the financier alone should be considered entitled to a profit at a fixed rate in all circumstances.
  • This argument is of superficial nature. Mutual consent is not the criteria to render anything permissible. Would the act of adultery be allowed if the condition of mutual consent is fulfilled. Similarly there are several business transactions that are invalid despite mutual consent.. Mutual consent is present in gambling too but still it is prohibited.. Therefore mutual consent is not the criteria for a transaction or an act to be legal rather it is the approval of Shariah that is required.
  • Distribution Of Wealth

    1. 2. ISLAMIC BANKING TRAINER MANUAL RIBA MODULE “ O, God increase my knowledge”
    2. 3. ISLAMIC BANKING <ul><li>ECONOMIC PHILOSOPHY OF ISLAM </li></ul><ul><ul><li>no concept of Riba because it encourages </li></ul></ul><ul><ul><ul><li>concentration of wealth in few hands </li></ul></ul></ul><ul><ul><ul><li>creation of monopolies </li></ul></ul></ul><ul><ul><ul><li>greed and selfishness leading to injustice and oppression </li></ul></ul></ul>
    3. 4. ISLAMIC BANKING <ul><li>ISLAMIC MODEL OF DISTRIBUTION OF WEALTH </li></ul><ul><ul><ul><li>Based on two underlying principles </li></ul></ul></ul><ul><ul><ul><ul><li>Importance of economic goals </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Real nature of wealth and property </li></ul></ul></ul></ul>
    4. 5. ISLAMIC BANKING <ul><li>ISLAMIC MODEL OF DISTRIBUTION OF WEALTH </li></ul><ul><ul><ul><li>economic activities of man are lawful, meritorious and at times obligatory and necessary </li></ul></ul></ul><ul><ul><ul><li>however economic activity is not the basic problem and therefore economic progress is not the be-all and end-all of human existence </li></ul></ul></ul>
    5. 6. ISLAMIC BANKING <ul><li>IMPORTANCE OF ECONOMIC GOALS </li></ul><ul><ul><ul><li>according to materialistic economics </li></ul></ul></ul><ul><ul><ul><ul><li>Livelihood is the fundamental problem of man and economic development is the ultimate goal of human life </li></ul></ul></ul></ul><ul><ul><ul><li>according to Islamic economics </li></ul></ul></ul><ul><ul><ul><ul><li>Livelihood may be necessary and indispensable but cannot be the true purpose of human life </li></ul></ul></ul></ul>
    6. 7. ISLAMIC BANKING <ul><li>REAL NATURE OF WEALTH AND PROPERTY </li></ul><ul><ul><ul><li>wealth in all its possible forms is created by Allah </li></ul></ul></ul><ul><ul><ul><li>therefore wealth is the property of Allah </li></ul></ul></ul><ul><ul><ul><li>the right of property which accrues to man is delegated to him by Allah </li></ul></ul></ul><ul><ul><ul><li>therefore Allah has the right to demand that man subordinate his use of wealth to the commandments of Allah </li></ul></ul></ul>
    7. 8. ISLAMIC BANKING <ul><li>REAL NATURE OF WEALTH AND PROPERTY </li></ul><ul><ul><ul><li>whatever wealth man possesses has been received from Allah </li></ul></ul></ul><ul><ul><ul><li>it should be used in such a way that it ensures success in the world hereafter </li></ul></ul></ul><ul><ul><ul><li>since wealth has been received from Allah it’s use by Man should also be subject to the commandment of Allah </li></ul></ul></ul>
    8. 9. ISLAMIC BANKING <ul><li>REAL NATURE OF WEALTH AND PROPERTY </li></ul><ul><ul><ul><li>Allah may command man to give a specified part of his wealth to another man. </li></ul></ul></ul><ul><ul><ul><li>Allah may forbid use of wealth in a particular way </li></ul></ul></ul>
    9. 10. Hud 87
    10. 11. OBJECTIVES OF DISTRIBUTION OF WEALTH <ul><li>  </li></ul><ul><li>Establishment of a practicable Economic system </li></ul><ul><li>Islam accepts the following thing within a certain limits: </li></ul><ul><li>laws of demand and supply </li></ul><ul><li>motive of personal profit </li></ul><ul><li>market forces </li></ul><ul><li>natural relation of employer and employee </li></ul>
    11. 12. 2. Enabling every one to get what is rightfully due to him:- A: Elementary level of deserving wealth: Factors of production B: Secondary level of deserving wealth: poor In the second verse:
    12. 13. 3 Eradicating the Concentration of Wealth through: Prohibition of hoarding, interest, gambling, speculation, Uqood Fasidah, and Gharar Holy Quran Says in Al Hashr 7:
    13. 14. <ul><li>The Factor of Production in Conventional System </li></ul><ul><li>Capitalism has four factors of production </li></ul><ul><ul><ul><li>1. Capital - the produced means of production&quot; </li></ul></ul></ul><ul><ul><ul><li>Compensation: Interest </li></ul></ul></ul><ul><ul><ul><li>2. Land -'natural resources'' (that is to say, those things which are being used as means of production without having previously undergone any process of human production). Compensation: : Rentals </li></ul></ul></ul><ul><ul><ul><li>3. Labour -that is to say, any exertion on the part of man. </li></ul></ul></ul><ul><ul><ul><ul><ul><li>Compensation: Wages </li></ul></ul></ul></ul></ul><ul><ul><li>4. Entrepreneur, or Organization - the fourth factor which brings together the other three factors, exploits them and bears the risk of profit and loss in production. </li></ul></ul><ul><li>Compensation: Profit </li></ul>
    14. 15. The Factors of Production In Islam <ul><ul><ul><li>1. Capital —That is, those means of production which cannot be used in the process of production until and unless during this process they are either wholly consumed or completely altered in form, and which, therefore, cannot be let or leased (for example, liquid money or food stuffs etc.) </li></ul></ul></ul><ul><ul><ul><li>Compensation: Profit </li></ul></ul></ul>
    15. 16. <ul><ul><ul><li>2. Land —that is, those means of production which are so used in the process of production that their original and external form remains unaltered, and which can hence be let or leased (for example, lands, houses, machines etc.). </li></ul></ul></ul><ul><ul><ul><ul><ul><li>Compensation: Rentals </li></ul></ul></ul></ul></ul><ul><ul><ul><li>3. Labour -that is, human exertion, whether of the bodily organs or of the mind or of the heart. This exertion thus includes organization and planning too. </li></ul></ul></ul><ul><ul><ul><ul><ul><li>Compensation: Wages </li></ul></ul></ul></ul></ul>
    16. 17. ISLAMIC BANKING <ul><li>DIFFERENCE BETWEEN CAPITALISM, SOCIALISM AND ISLAM </li></ul><ul><ul><ul><li>CAPATILISM affirms an absolute and unconditional right to private property </li></ul></ul></ul><ul><ul><ul><li>SOCIALISM totally denies the right to private property </li></ul></ul></ul><ul><ul><ul><li>ISLAM admits the right to private property but does not consider it to be an absolute and unconditional right which can be used to cause disorder on earth </li></ul></ul></ul>
    17. 18. ISLAMIC BANKING <ul><li>RIBA </li></ul><ul><ul><li>Riba means excess, increase or addition </li></ul></ul><ul><ul><li>Riba in banking implies any excess compensation without due consideration </li></ul></ul>
    18. 19. First Revelation about Riba <ul><ul><li>“ That which you give as interest to increase the peoples' wealth increases not with God; but that which you give in charity, seeking the goodwill of God, multiplies manifold.” ( Surah Rome, Verse 39 ) </li></ul></ul>
    19. 20. Second Revelation <ul><ul><li>“ And for their taking interest even though it was forbidden for them, and their wrongful appropriation of other peoples' property. We have prepared for those among them who reject faith a grievous punishment ” (Surah al-Nisa', verse 161 ) </li></ul></ul>
    20. 21. Third Revelation <ul><ul><li>“ Believers! Do not swallow riba, doubled and redoubled, and be mindful of Allah so that you may attain true success” ( Al Imran, Ayat 130) </li></ul></ul>
    21. 22. Fourth Revelation Surah Al Baqarah Verses 274-281
    22. 23. Those who spend their wealth night and day, secretly and openly, they have their reward with their Lord, and there is no fear for them, nor shall they grieve. Those who take riba (usury or interest) will not stand but as stands the one whom the demon has driven crazy by his touch. That is because they have said: Trading is but like riba . So, whoever receives an advice from his Lord and stops, he is allowed what has passed, and his matter is upto Allah. And the ones who revert back, those are the people of Fire. There they remain forever. Allah destroys riba and nourishes charities. And Allah does not like any sinful disbeliever. Surely, those who believe and do good deeds, establish Salah and Zakah have their reward with their Lord, and there is no fear for them,nor shall they grieve. 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. And if there be one in misery, then deferment till ease. And that you leave it as alms is far better for you, if you really know. And be fearful of a day when you shall be returned to Allah, then everybody shall be paid, in full, what he has earned. And they shall not be wronged. (Verses of Surah Al Baqarah: 274-281)
    23. 24. Prohibition of Riba in Hadith
    24. 29. The prohibition of Interest is not limited to Islam, but it is shared by Judaism and Christianity. Some of the old testaments have rendered riba as haram (See Exodus 22:25, Leviticus 25:35-36, Deutronomy 23:20, Psalms 15:5, Proverbs 28:8, Nehemiah 5:7 and Ezakhiel 18:8,13,17 & 22:12). Agibi Bank was established circa 700 B.C. in Babylonian and functioned exclusively on equity basis.
    25. 30. ISLAMIC BANKING <ul><li>CLASSIFICATION OF RIBA </li></ul><ul><ul><li>Riba-un-Nasiyah or Riba-al-Jahiliya </li></ul></ul><ul><ul><li>Riba-al-Fadl or Riba-al-Bai </li></ul></ul>
    26. 31. ISLAMIC BANKING <ul><li>CLASSIFICATION OF RIBA </li></ul><ul><ul><li>Riba-un-Nasiyah or Riba-al-Jahiliya </li></ul></ul><ul><ul><ul><li>“ that kind of loan where specified repayment period and an amount in excess of capital is predetermined” ( Imam Abu Bakr Hassas Razi) </li></ul></ul></ul>
    27. 32. ISLAMIC BANKING <ul><li>CLASSIFICATION OF RIBA </li></ul><ul><ul><li>Riba-un-Nasiyah or Riba-al-Jahiliya </li></ul></ul><ul><ul><ul><li>“ all loans that draw interest is riba” (Hadith quoted by Ali ibn Talib) </li></ul></ul></ul><ul><ul><ul><li>“ the loan that draws profit is one of the forms of riba” (definition from Sahabi Fazala Bin Obaid) </li></ul></ul></ul>
    28. 33. ISLAMIC BANKING <ul><li>CLASSIFICATION OF RIBA </li></ul><ul><ul><li>Riba-un-Nasiyah or Riba-al-Jahiliya </li></ul></ul><ul><ul><ul><li>real and primary form of riba </li></ul></ul></ul><ul><ul><ul><li>premium paid to the lender in return for his waiting </li></ul></ul></ul><ul><ul><ul><li>giving or taking of every excess amount in exchange of a loan at an agreed rate irrespective of whether it is low or high </li></ul></ul></ul>
    29. 34. ISLAMIC BANKING <ul><li>CLASSIFICATION OF RIBA </li></ul><ul><ul><li>Riba-al-Fadl </li></ul></ul><ul><ul><ul><li>excess taken in exchange of specific commodities which are homogeneous </li></ul></ul></ul><ul><ul><ul><li>legal definition defers in every fiqh </li></ul></ul></ul>
    30. 35. ISLAMIC BANKING <ul><li>CLASSIFICATION OF RIBA </li></ul><ul><ul><li>Hadith prohibiting Riba-al-Fadl </li></ul></ul><ul><ul><ul><li>‘sell gold in exchange of equivalent gold </li></ul></ul></ul><ul><ul><ul><li>sell silver in exchange of equivalent silver </li></ul></ul></ul><ul><ul><ul><li>sell dates in exchange of equivalent dates </li></ul></ul></ul><ul><ul><ul><li>sell wheat in exchange of equivalent wheat </li></ul></ul></ul><ul><ul><ul><li>sell salt in exchange of equivalent salt </li></ul></ul></ul><ul><ul><ul><li>sell barley in exchange of equivalent barley </li></ul></ul></ul>
    31. 36. ISLAMIC BANKING <ul><ul><ul><li>sell barley in exchange of equivalent barley but if a person transacts in excess, it will be riba. </li></ul></ul></ul><ul><ul><ul><li>However sell gold for silver anyway you please on the condition it is hand-to-hand(spot sales) and sell barley for date anyway you please on the condition it is hand-to-hand(spot sales) </li></ul></ul></ul><ul><li>CLASSIFICATION OF RIBA </li></ul><ul><ul><li>Hadith prohibiting Riba-al-Fadl </li></ul></ul>
    32. 37. ISLAMIC BANKING <ul><li>CLASSIFICATION OF RIBA </li></ul><ul><ul><li>Imam Abu Hanifa on Riba-al-Fadl </li></ul></ul><ul><ul><ul><li>commodities must have two common characteristics </li></ul></ul></ul><ul><ul><ul><ul><li>Weight </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Volume </li></ul></ul></ul></ul><ul><ul><ul><li>includes all commodities having weight or volume and are being exchanged </li></ul></ul></ul>
    33. 38. ISLAMIC BANKING <ul><li>CLASSIFICATION OF RIBA </li></ul><ul><ul><li>Imam Shafi on Riba-al-Fadl </li></ul></ul><ul><ul><ul><li>commodities must have two common characteristics </li></ul></ul></ul><ul><ul><ul><ul><li>be a medium of exchange </li></ul></ul></ul></ul><ul><ul><ul><ul><li>be edible </li></ul></ul></ul></ul><ul><ul><ul><li>includes all commodities that are edible or can be used as a medium of exchange(currency) </li></ul></ul></ul>
    34. 39. ISLAMIC BANKING <ul><li>CLASSIFICATION OF RIBA </li></ul><ul><ul><li>Imam Maalik on Riba-al-Fadl </li></ul></ul><ul><ul><ul><li>commodities must have two common characteristics </li></ul></ul></ul><ul><ul><ul><ul><li>can be preserved </li></ul></ul></ul></ul><ul><ul><ul><ul><li>be edible </li></ul></ul></ul></ul><ul><ul><ul><li>includes all commodities that are edible and can be preserved </li></ul></ul></ul>
    35. 40. ISLAMIC BANKING <ul><li>CLASSIFICATION OF RIBA </li></ul><ul><ul><li>Imam Ahmad Bin Hanbal on Riba-al-Fadl </li></ul></ul><ul><ul><ul><li>first citation conforms to the opinion of Imam Abu Hanifa </li></ul></ul></ul><ul><ul><ul><li>second citation conforms to the opinion of Imam Shafi </li></ul></ul></ul><ul><ul><ul><li>third citation includes three characteristics at the same time i.e. edible, weight and volume </li></ul></ul></ul>
    36. 41. ISLAMIC BANKING <ul><li>CLASSIFICATION OF RIBA </li></ul><ul><ul><li>Present day Islamic scholars on Riba-al-Fadl </li></ul></ul><ul><ul><ul><li>if two characteristics i.e. weight and use as medium of exchange is present then the following transactions are not allowed </li></ul></ul></ul><ul><ul><ul><ul><li>a deferred sale of goods having weight and homogeneous nature </li></ul></ul></ul></ul><ul><ul><ul><ul><li>a sale of unequal goods having weight and homogeneous nature </li></ul></ul></ul></ul>
    37. 42. ISLAMIC BANKING <ul><li>THE LAWS OF RIBA AL FADL </li></ul><ul><ul><li>First law </li></ul></ul><ul><ul><ul><li>Exchange of any of the six commodities with itself but differing in quality, is allowed only under certain conditions </li></ul></ul></ul>
    38. 43. ISLAMIC BANKING <ul><li>THE LAWS OF RIBA AL FADL </li></ul><ul><ul><li>First Law </li></ul></ul><ul><ul><ul><li>CONDITIONS OF EXCHANGE </li></ul></ul></ul><ul><ul><ul><li>Any difference in value/quality should be ignored </li></ul></ul></ul><ul><ul><ul><li>The commodities should be exchanged in equal amounts (equal weight and volume). </li></ul></ul></ul><ul><ul><ul><li>No of direct exchange of commodities of the same kind </li></ul></ul></ul><ul><ul><ul><li>A person should sell his commodity against cash at the market value and buy someone else’s commodity in exchange of cash proceeds at the market value. </li></ul></ul></ul>
    39. 44. ISLAMIC BANKING <ul><li>THE LAWS OF RIBA AL FADL </li></ul><ul><ul><li>Second law </li></ul></ul><ul><ul><ul><li>Exchange of a product with its raw material is allowed under certain conditions </li></ul></ul></ul>
    40. 45. ISLAMIC BANKING <ul><li>THE LAWS OF RIBA AL FADL </li></ul><ul><ul><li>Second law </li></ul></ul><ul><ul><ul><li>Exchange of a product with its raw material is allowed under certain conditions </li></ul></ul></ul>
    41. 46. ISLAMIC BANKING <ul><li>THE LAWS OF RIBA AL FADL </li></ul><ul><ul><li>Second Law </li></ul></ul><ul><ul><ul><li>CONDITIONS OF EXCHANGE </li></ul></ul></ul><ul><ul><ul><li>If the characteristics of the product has been totally changed by the industry, then different amounts can be exchanged. </li></ul></ul></ul><ul><ul><ul><li>If little difference has been made </li></ul></ul></ul><ul><ul><ul><ul><li>either the exchange should be in equal weights </li></ul></ul></ul></ul><ul><ul><ul><ul><li>or one of the commodities should be sold in the market and the cash proceeds used to buy the then one. </li></ul></ul></ul></ul>
    42. 47. ISLAMIC BANKING <ul><li>THE LAWS OF RIBA AL FADL </li></ul><ul><ul><li>Third Law </li></ul></ul><ul><ul><ul><li>Exchange of any of the six commodities with one another is allowed in unequal amounts but the payment should not be deferred </li></ul></ul></ul><ul><ul><ul><ul><li>Provided that the general conditions of a sale contract are fulfilled </li></ul></ul></ul></ul>
    43. 48. ISLAMIC BANKING <ul><li>TYPES OF RIBA </li></ul><ul><ul><li>Riba al Nasiah is classified in two types: </li></ul></ul><ul><ul><ul><li>Sood-e-Mufrad( Simple Interest) </li></ul></ul></ul><ul><ul><ul><ul><li>interest calculated only on the initial investment </li></ul></ul></ul></ul><ul><ul><ul><li>Sood-e-Murakkab(Compound Interest) </li></ul></ul></ul><ul><ul><ul><ul><li>reinvestment of each interest payment on money invested to earn more interest </li></ul></ul></ul></ul>
    44. 49. ISLAMIC BANKING <ul><li>TYPES OF RIBA </li></ul><ul><ul><li>Quranic verses on absolute prohibition of Riba: </li></ul></ul><ul><ul><ul><li>“ O believers fear God and give up the interest that remains outstanding (i.e. whether it is simple interest or multiplied interest) if you are believers” (Surah Al-Baqrah, verse 278) </li></ul></ul></ul>
    45. 50. ISLAMIC BANKING <ul><li>TYPES OF RIBA </li></ul><ul><ul><li>Quranic verses on absolute prohibition of Riba: </li></ul></ul><ul><ul><ul><li>“ If you do not do so then be sure of being at war with God and His Messenger. But if you repent, you can have your principal( only not any kind of interest or premium). Neither should you commit injustice nor should you be subjected to it” (Surah Al-Baqrah, verse 278) </li></ul></ul></ul>
    46. 51. ISLAMIC BANKING <ul><li>TYPES OF RIBA </li></ul><ul><ul><li>Tijarti Sood(Commercial interest) </li></ul></ul><ul><ul><ul><li>interest paid on loan taken for productive and profitable purpose </li></ul></ul></ul><ul><ul><li>Sarfi Sood (Usury) </li></ul></ul><ul><ul><ul><li>interest paid on loan taken for personal need and expenses </li></ul></ul></ul>
    47. 52. Arguments given to Justify Commercial Interest a: Commercial Interest is charged from wealthy persons whereas usury is charged from the poor. It does not exploit the poor while consumption interest or usury exploit the poor. Ans. Validity of a transaction is not based on the financial status of a party, like sale, leasing etc. Law does not differentiate between poor and wealthy in crimes like bribery, theft etc. Further, Commercial Interest also exploit the poor.
    48. 53. b: 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 now as they were in Jahiliyyah
    49. 54. c: The Commercial interest was not in vogue in Arab Ans . History shows that it was in vogue. d: Doctrine of necessity and wisdom requires to allow it Ans . (i) It does not, it is not at all a necessity in Shariah. Even from economic point of view, the modern interest has brought more harm to the humanity than the premature forms of usury. (ii) The Principles of Shariah are binding, even though their wisdom is not visible in a particular transaction. They are based on Illat.
    50. 55. ISLAMIC BANKING
    51. 56. An Nur 33
    52. 57. Yaseen 71
    53. 58. Az Zukhruf 32
    54. 59. Al Ma’arij 24-25
    55. 60. Al An’aam 141
    56. 62. Al Hashr 7

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