RIBA

01 . De finition of Riba ?

The word “Riba” means excess, increase or addition, which correctly interpreted
according to Shariah terminology, implies any excess compensation without due
consideration.
Riba may be defined as any excess paid and received over and above the
principal, as a condition of loan for which no recompense or exchange value is
paid or received, and which tends to increase with the passage of time and is not
related with business result.
Interest originates from the latin word “Intiesed”.
Any pre-obligated addition to loan-principal is interest i.e. Riba Nasia. Islamic Shariah
prohibits interest on loan but permits rent on lease and also profit (ribh) on sales purchases.

It may be noted that interest is invariably associated with loan, in whatever form it may be
expressed.

02 . Types of Riba ?

There are two types of Riba:

(a) Riba An Nasiah
(b) Riba Al Fadl

(a) Riba An Nasiah is defined as excess, which results from predetermined interest
which a lender receives over an above the principal (Ras ul Maal)
(b) Riba Al Fadl is defined as excess compensation without any consideration
resulting from sale of goods. Riba Al-Fadl actually means that excess which is
taken in exchange of specific homogenous commodities and encountered in their
hand to hand purchase and sale. Gold, Silver, Dates, Wheat, Salt & Barley are
the six commodities can only be bought & sold in equal quantities and on spot.

03 . C hara cte ristic s of R iba ?

 Origin of Riba is unlawful contracts

 Riba Nasiah is related with Quard (Loan) or Dayn (Debt)
 Riba is the excess over and above the principal of loan or debtor on counter value.
 Riba Nasiah is charged or paid only as a condition of loan or time and no
recompense, price or exchange value is paid for the excess or Riba.
 Riba Nasiah is related with time and becomes doubled, redoubled and multiplied
with the passage of time
 Riba is not related with the result of business.

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04. Prohibition of Riba in Islam:
 Quranic injunctions:
(a) Sura Ar-Rum: Verse 39 (615 A.D.)
(b) Sura An-Nisa: Verse 160-161 (625-627 A.D.)
(c) Sura Ale-Imran: Verse 130 (631 A.D.)
(d) Sura Al-Bakara: Verse 275-279 (632-633 A.D.)

05. Riba in the Holy Quran:

Meaning of Riba:
Dictionary Meaning: In Arabic Riba means increase, excess, expansion, addition etc.
Technical Meaning: It means Interest/ Usury/Sud etc.

1st Revelation :
Su'ratur Rum : Verses 39, 5th year of Nabuwah, 615 A.D
" And whatever Riba you give so that it may increase in the wealth of the people, it
does not increase with Allah; but that which you give in Zakat seeking Allah's
countenance, then those they shall have increase”
2ND Revelation:
Su'ratun Nisa: Verses 160-61, Around Battle of Uhud
"For the inequity of the Jews we made unlawful for them certain (foods) goods and
where some of which had been lawful for them; And that they hindered many
from Allah's Way; And they took Riba, though they were forbidden; and that
they devoured men's substance wrongfully; we have prepared for the
disbelievers among them a grievous punishment."
3rd Revelation:
Su'rah Ale Imran : Verses 130-134 After Battle of Uhud.
"O you who believe! Eat not Riba doubled and multiplied; but fear Allah that you may
(really) prosper. And fear the fire, which is prepared for those who reject faith; And
obey Allah and the Messenger; That ye may obtain mercy. Be quick in the race for
forgiveness from your lord; And for a garden whose width Is that (of the whole)
of the heavens And of the earth, prepared for the righteous, - Those who spend
(freely), Where in prosperity, Or in adversity; who restrain anger, And pardon
(all) men;- For Allah loves those who do good.”

4t" Revelation:
Su'ratul Baqarah : Verses 275-281 : After conquest of Makkah
"Those who eat Riba will not stand except like the standing of a person whom the
Shaitan by his touch has driven to madness/insanity. That is because they say "Bai
is like Riba", but Allah has permitted Bai and forbidden Riba. Hence whosoever
receives this admonition from his lord and stops eating Riba may keep his previous
gain; his case is for Allah (to judge) . But whoever reverts to it, they are the
companions of the fire, they shall abide therein (forever)."

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 06. Riba in Hadith:
(a) From Jabir (R): The Prophet (SM), may cursed the receiver and the
payer of interest, the one who records it and the two witnesses to the transaction and
said, “They are all alike [in guilt].” (Muslim, kitab al Musaqat Bab la’ni akili ar riba wa
mu’kilihi; also in Tirmidhi and Musnad Ahmed)
(b) The Prophet (SM) said, “Sell gold in exchange of equivalent gold, sell
silver in exchange of equivalent silver, sell dates in equivalent dates, sell wheat in
exchange of equivalent wheat, sell salt in exchange of equivalent salt, sell barley in
exchange of equivalent barley, but if a person transacts in excess, it will be usury (riba).
However, sell gold for silver anyway you please on the condition it is hand to hand
(spot) and sell barley for date anyway you please on the condition it is hand to hand
(spot).

07. Views of other religions and scholars on Riba (Interest):

(a) Interest has been banned in the two books of Hazrat Musa (A)
which are considered as the scriptures of Jews. The 22 nd line of Exodus goes
as saying, “If you lend money to a poor man, don’t become money lenders
and don’t realize interest from him.”

(b) Similarly, in 23rd line of ancient scripture of the Jews entitled

“Deuteronomy” states, “You don’t lend money to your brother for interest – i.e.
interest on money, interest on foodstuff and interest on anything which is lent.”

(c) Hebrewism is known as Musaic or Jewism. Musaic laws or

commands of Musa are the basis of Hebrewism. Interest was totally prohibited
in Musaic law. This rule was exclusively practiced by the Jews. In this
ideology, there are clear directions on interest as other aspects of economies.

(d) One Jew couldn’t take interest by lending money form another.
But taking interest was in practice by lending money to the people of other
religions.

(e) Some writers quoted from the book, “Talmud” that the Hebrew
Prophets forbade interest not only from Jews but from all. (Eric Roll, A history
of Economic Thought: Page 48).

(f) Interest was prohibited from the beginning of the Christianity to

the advent of the Reform Movement and from the Church under Pope in Rome
to the division of other Churches. Christ said, “Lend hoping for nothing again.”
(Luke VI 35, Hanley: History of Economic Thought. 1964, Page 101).
(g) In Hinduism, usury business was restricted within the
“Baithayas”.
(h) “Birth of Money form Money” - Aristotle

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 SOCIO-ECONOMIC IMPACT OF RIBA

01.00 Social Impact of Riba:

01.01 Interest makes a man selfish and miser;
01.02 It creates hostile relation between the rich and the poor.
01.03 Moral decay spreads out in the society.

02.00 Economic Impact of Riba :

02.01 Impact on savings, Investments and Production
02.02 Interest hindrances the flow of savings and formation of capital.
02.03 Interest discourages the amount of Investment
02.04 Interest creates deficit of capital
02.05 Interest diverts investment into speculative sector.
02.06 Interest encourages artificial crisis in financial sector.
02.07 Interest reduces long term, risky but most desirable instruments
02.08 Interest creates idleness among the savers.
02.09 Interest is against the efficient distribution of capital
02.10 Interest increases the price level.
02.11 Interest decreases the demand for goods.
02.12 Interest induces to destroy wealth.

03.00 Impact of interest on distribution:

03.01 Interest increases unemployment.
03.02 Interest increases exploitation of labour
03.03 Interest creates monopolistic opportunity for the capitalist.
03.04 Interest impose unnecessary burden on organization.
03.05 Interest deprives land from its due share
03.06 Interest reduces income of the depositors
03.07 Interest Concentrates wealth in the few hand through public finance.
03.08 Interest reduces the number of entrepreneurs and rich.

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 Difference between Interest & Profit
Interest
1 Interest in forbidden.
2 Interest is prefixed rate of return on
loan.
3 Interest bears no risk of loss.
4 Interest is prefixed, certain and
interest rate never becomes zero.
5 Interest can be compounded in
loan transactions and recovered
accordingly.
6 No effort is required to be given for
earning interest.
7 There are two parties in loan
transactions – one is lender & the
other is borrower.
8 No commodity or price of
commodity is linked with interest
transactions.
9 There is no exchange of
commodity for interest.
Profit
1 Profit is permissible.
2 Profit is the end result of business
(Buying & selling of commodities,
renting assets, giving services etc.)
3 There is risk of loss in profit earning.
4 Profit is not fixed & uncertain. Profit
can be high or low or even negative.
5 Profit can be charged on
commodities once only.
6 Capital, time & labor are required for
earning profit.
7 There requires three parties in
earning profit viz buyer, seller & the
producer.
8 Commodity or price of commodities
is essential for earning profit.
9 Profit is the exchange for
commodity.

W ha t i s L oa n ?
Loan is present transfer of certain number or quantity of fungibles against promise of future retransfer,
of such fungibles with or without any addition. Hence, loan involves (i) fungible items of income or
wealth (ii) fixed obligation of the borrower and (iii) credit transactions.

Distinction between fungibles and non-fungibles

Fungibles (n. pl.) are movable effects which are invariably consumed by use, and which are estimated
by weight, number and measure. Thus fungibles do not have repetitive use. Examples are money,
petrol etc.
Non-fungibles are the reverse of fungibles.
Examples are cars, machineries etc.

Fungibles cannot give any service to the transferee (borrower) if ownership is not transferred to him.

Non-fungibles can give service to the transferee (lessee) though the ownership in not transferred to him.
Hence fungibles are loanable and non-fungibles are leaseable.
Fungibles Non-Fungibles
Loanable / Qardable but not leasable Leaseable i.e. Ijarah with rent Ariyya on Gratis