1. The Concepts Of
Interest, Usury And Riba
Introduction
Definition of riba
The prohibition of riba
Types and classifications of riba
The differences between riba and profit
Conclusion
2. INTRODUCTION
Interest in the modern financial world is
commonplace.
It is a staple feature of capitalist system that
values profits above everything else, via
competition rather than co-operation.
Despite the amount of wealth that the
Western economic system has created, there
are major concerns over the huge disparities
that have developed between rich and poor.
3. THE MEANING OF RIBA
Riba has been extracted from Raba. It
means addition, increase. So, riba literally
means to increase, to grow to rise, to add, to
swell. It is, however, not every increase or
growth which has been prohibited by Islam
4. THE MEANING OF RIBA
In the Shari’ah, “riba” technically refers to the
premium that must be paid by the borrower to the
lender along with the principal amount as a
condition for the loan or for an extension in its
maturity.
In this sense riba has the same meaning as interest
in accordance with the consensus of all jurists
without any exception.
So the Holy Qur’an and the Hadith do not make any
such difference between usury and interest. Interest
and usury both are taken as synonymous for the
Arabic word riba.
5. PROHIBITION OF RIBA IN THE
HOLY QURAN
In several verses of the Holy Qur’an,
Allah(swt) has mentioned the consequences
of riba.
The Qur’an did not declare the prohibition of
riba in the early stage of revelation, rather we
find that the complete prohibition of interest
came sequentially.
6. “Those who devour usury will not stand except as stands
one whom the evil one by his touch hath driven to
madness. That is because they say: ‘Trade is like usury.’
But Allah 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
Allah (to judge). But those who repeat (the offence) are
companions of the fire, they will abide therein (forever)”
(2:275)
“That they took riba (usury), through they were forbidden
and that they devoured men’s substance wrongfully –
We have prepared for those among men who reject faith
a grievous punishment.” (4:161)
7. PROHIBITION OF RIBA IN THE
HADITH
Jabir reported: The Prophet (saw), cursed the
receiver and the payer of interest, the one who
records it (the contract) and the two witnesses to the
transaction and said, “they are all alike (in guilt).”
Abu Hurayrah (ra) narrated that the Prophet (saw)
said: “”God would not allow four persons to enter
paradise or to taste its blessings: he who drinks
wine, he who takes riba, he who usurps an orphan’s
property without right and he who is undutiful to his
parents.”
8. TYPES OF RIBA
RIBA AL- NASI’AH
The term nasi’ah means to postpone or to wait and
it refers to the time period that is allowed for the
borrower to repay the loan in return for the addition
of the premium.
Hence it refers to the interest on loans. The
prohibition of riba al nasi’ah essentially implies that
the fixing in advance of a positive return on a loan
as a reward for waiting is not permitted by the
Shari’ah[i][14].
9. TYPES OF RIBA
RIBA AL-FADL
Riba al-fadl is the excess over and above the loan
paid in kind. It lies in the payment of an addition by
the debtor to the creditor in exchange of
commodities of the same kind.
It is related that Abu Said al-Khurdi said: “the
Prophet Muhammad (saw) has said that gold in
return for gold, silver for silver, wheat for wheat,
barley for barley, dates for dates and salt for salt,
can be traded if and only if they are in the same
quantity and that is should be hand to hand. If
someone gives more or takes, then he is engaged in
riba and accordingly has committed a sin.”
10. TYPES OF RIBA
Riba al-Qard
The term qard means to borrow;
Riba qard refers to a benefit or profit which creditor
has to pay along with the amount of loan because of
duration (late payment).
The benefit/ profit can be a cash or an usufruct
(manfa’ah/ benefit from object).
Any attempt to get profit from loan contract is
considered ‘akl riba’ (taking interest) as in maxim of
fiqh: “Kull qard jarra naf’an fahuwa riba”, which
means: All loans lead to a benefit are riba (i.e.
interest).
Riba al-qard is a part of riba al-nasiah. (riba a-duyun)
11. TYPES OF RIBA
Riba al-Yad
The term yad means hand.
Riba yad refers to a benefit derived from the duration
between delivery and acceptance of contracted item and
price.
In money exchange (e.g. RM to USD), the delivery of
money from money changer to a buyer shall take place at
the same time and place (same majlis) where the money
changer accepted the buyer’s money.
In cash and carry contract, the seller has to surrendered
the contracted item whereby he holds the payment from
buyer.
Delay in surrendering the contracted item or the payment,
in cash contract, from any side of the parties involved, is
prohibited because that party can access to the benefit of
received item but not the other party.
12. One of the presumptions of the theory of interest is that
MONEY HAS BEEN TREATED AS A COMMODITY
If one can lease his property and charge a rent against it,
he can also lend his money and claim interest thereupon
•
If merchant can sell a commodity for a price higher than
his cost, he can also sell his money for a higher price
than its face value
•
ISLAMIC PRINCIPLES
DO NOT SUBSCRIBE TO THIS
The Nature of Money
13. In Islam, MONEY and COMMODITY
have different characteristics and uses
14. COMMODITY
MONEY
Commodity sold or
purchased are identified to a
particular unit
Money cannot be pin-pointed
in a tansaction of exchange
•
A commodity can be of
different qualities
Money has no quality except
as a measure of value and
medium of exchange
- all same denomination money
equals 100% to each other
•
has intrinsic utility
- can be utilized directly without
exchanging it for some other thing
has no intrinsic utility
- cannot be utilized in direct
fulfilment of human needs
- can only be used for acquiring
some goods & services
•
15. Islamic alternatives to interest Rates
Trading as a way to avoid interest.
Trading through various types of contracts
such as sale and purchase contracts,
partnership contracts, leasing and so on.
16. The differences between interest and
trade
Firstly:
In trade the purchaser and the vendor exchange on
the basis of equality. For the purchaser derives profit
from that which he purchased from vendor, while the
latter gets profits in consideration of the labour and
time.
In interest the creditor get for himself a definite
amount of money for his loan but all that the debtor
is certain of is the time to use the money. During this
time period it is not always possible for debtor to
make a profit.
17. Secondly:
From the point of view of trade, the moment a
commodity is exchanged for its price, the
transaction come to an end.
But in the case of interest, the debtors
actually spends the amount borrowed from
the creditor and has to return the same
amount with an addition by way of interest.
18. DIFFERENCE BETWEEN PROFIT
AND INTEREST (1)
The settlement of profit between the buyer and the
seller is made on equal terms. The buyer
purchases the article he needs and the seller gets
profit for the time, labour and brains he employs in
providing that article to the buyers.
In the case of interest, obviously the debtors
cannot settle the transaction on equal terms with
the creditor because of his weaker position.
As far as the money lender is concerned, he gets
that fixed sum of interest which he considers as
his profit.
19. If the debtors spends the borrowed money in
fulfilling his personal needs, the time factor
definitely does not bring any profit at all.
And if he invests that money in trade, commerce,
industry, agriculture, then there are equal chances
of profit or loss.
Thus lending money at interest might bring a
guaranteed and fixed profit to one party and loss
to the other, or a guaranteed and fixed profit to
one party and an uncertain and indefinite profit to
the other.
20. DIFFERENCE BETWEEN PROFIT
AND INTEREST (2)
The trade charges his profit, however high it may
be, once and for all, but money lender goes on
charging interest over and over again and goes on
increasing with the passage of time.
The profit which the debtor make on money of the
creditors, however, large it may, has after all its
own limits, but there is no limit to the interest the
creditor may charge on his money.
He may, as something actually happens, receive
all the earning of the debtor, may even deprives
him of all the means of livelihood or of the articles
of his personal use and still might have the same
amount of debt against him that was at the time of
borrowing.
21. DIFFERENCE BETWEEN PROFIT
AND INTEREST (3)
The transaction in trade comes to an end as soon
as the article and its price change hands. After
this the buyer is not required to return anything to
the seller.
As regards the rent of furniture, house, land, the
lent thing is not itself spent up but it returned to the
owner after the term.
But in the case of the principle the debtor has to
spend it first and the reproduce it and return it, to
the creditor along with the interest. Thus the
debtor runs a double risk, he has to reproduce the
principle and also to produce its interest.
