Dr.

Mufti Muhammad Wasie Fasih Butt

•Shariah Board Member- Zarai Taraqiati Bank Ltd (ZTBL)
•Shariah Adviosr: Atlas Asset Management Ltd (AAML)
•Director _ Alhmad Shariah Advisory Services Pvt Ltd
 Riba- A Shariah Term
Derivation from Quran & Sunnah
 Riba-ul-Quran – Excess over principal
ِ ِ‫الرَب إِن ُكنتم ُّم ْؤ‬
ِ ِ ‫اّلل و اذرواْ ما ب ِقي‬ ِ َّ
.‫ي‬
‫ا‬ ‫ن‬ ‫م‬ ُ ‫آمنُواْ اتَّ ُقواْ ها ا ُ ا ا ا ا ه ا‬
‫ن‬‫م‬ ‫ين ا‬
‫اَي أايُّ اها الذ ا‬
. ‫وُ أ ْام اوالِ ُُ ْم اا تاْْلِ ُُو ان اواا تُْْلا ُُو ان‬ُ‫ر‬ ‫م‬ُُ ‫ل‬
‫ا‬ ‫ف‬
‫ا‬ ‫م‬ ‫ت‬
ُ ‫ب‬ ‫ت‬
ُ ‫ن‬ِ‫إ‬‫و‬ ِ ِ‫اّلل ورسول‬
‫ه‬ ِ‫ب ِمن ه‬
ٍ ‫ر‬‫ِب‬ِ ْ‫فاِإن ََّّل تا ْفعلُواْ فاأْ اذنُوا‬
ُ ُ ْ ْ ْ ‫ا‬ ُ ‫ْ ا اا‬ ‫ه‬ ‫ا‬ ‫ْ ا‬
.‫ص َّدقُواْ اخ ْْيٌ لَّ ُُ ْم إِن ُكنتُ ْم تا ْعلا ُُو ان‬‫ت‬
‫ا‬ ‫ان‬
‫أ‬‫و‬ ٍ‫وإِن اكا ان ذُو ُعسرٍة فا نا ِْرةٌ إِ اَل ميسر‬
‫ة‬
‫اْ ا ا ا ا‬ ‫ا‬ ‫ْا‬ ‫ا‬

O you who believe, fear Allah and give up what still remains of
riba, if you are believers. But if you do not (give it up), then
listen to the declaration of war from Allah and His Messenger.
However, If you repent, yours is your principal. Neither
wrong, nor be wronged . If the debtor is unable to pay, wait
for a better time. If you give up the loan as a charity, it
would be better for you, if you only knew.” (Quran 2:277-279)
 Riba-ul-Quran- Return Over Loan
ِ‫الش ْيطاا ُن ِم ان املا ه‬
‫س‬ َّ ُ‫وم الَّ ِذي ياتا اخبَّطُه‬ ُ ‫ا ا‬‫ق‬
ُ ‫ي‬ ‫ا‬ ُ ‫ك‬
‫ا‬ َّ
‫ا‬ ِ‫إ‬ ‫ن‬
‫ا‬ ‫و‬ ‫وم‬‫ق‬ُ ‫ي‬
ُ ‫ها ا‬ ‫ا‬
‫ا‬ ‫َب‬ ِ
‫الر‬ ‫ن‬
‫ا‬ ‫و‬ ‫ل‬
ُ ‫ك‬
ُ ْ‫َي‬ ‫ين‬
‫ِ ا ِا‬
ِ َّ‫ال‬
‫ذ‬
ِ‫اّللُ البا ْي اع او اح َّرام ه‬ ِ ِ َّ
ِ‫ك ِباَّنُ ْم قاالُواْ إ ََّّناا البا ْي ُع مثْ ُل ه‬
ُ‫الراَب فا اُن اجاءه‬ ِ ‫ه‬ ‫اح َّل‬
‫ا‬ ‫الراَب اوأ‬
ِ ِ ِ ‫ا‬ ‫ذال‬
‫ك‬ ِ ‫ل‬
‫ا‬‫ُو‬
‫أ‬ ‫ف‬
‫ا‬ ‫اد‬ ‫ع‬ ‫ن‬ ‫م‬ ‫و‬ ‫اّلل‬ ‫َل‬‫ا‬ ِ
‫ام ْو ه ه ا ا ا ُ ا ا ا ْ ُ ُ ِ ه ا ا ْ ا ا ْ ا‬
‫ئ‬ ‫إ‬ ‫ه‬ ‫ر‬ ‫ام‬
‫أ‬ ‫و‬ ‫ف‬‫ا‬ ‫ل‬
‫ا‬ ‫س‬ ‫ا‬ ‫م‬ ‫ه‬‫ل‬
‫ا‬ ‫ف‬
‫ا‬ ‫ى‬ ‫ه‬ ‫انت‬‫ا‬‫ف‬ ‫ه‬ ِ
‫ب‬‫ر‬
َّ ‫ن‬ ‫م‬ ٌ‫ة‬ ْ
‫ا‬ ‫ع‬
‫اب النَّا ِر ُه ْم فِ ايها اخال ُدو ان‬ ُ ‫اص اح‬ ْ‫أ‬
“Those who charge riba are in the same position as those
controlled by the devil's influence. This is because they
claim that riba is the same as trade. However, Allah
permits trade, and prohibits riba. Thus, whoever heeds
this commandment from his Lord, and refrains from riba,
he may keep his past earnings, and his judgment rests with
Allah. As for those who persist in riba, they incur Hell,
wherein they abide forever.” (Quran 2:275)
 Differences b/w Commodity & Currency
Liquid/Currency Asset /Commodity
 Same characteristics  Various Characteristics
 No intrinsic utility  Intrinsic utility
 Only a medium of Exchange  Various purposes & uses
 No different qualities  Different qualities
 Same units have same value  Same items have diff value

Conclusion Conclusion
 Can only be exchanged with same units  Can be sold or exchanged at different
 Any excess in case of exchange of currency units
or loan is for nothing  Any excess in case of exchange or sale is
 Can not be treated as a Commodity [i.e., for its utility or quality
can not be sold out]  Can also be treated as a Currency [i,e.,
item of exchange like gold & wheat]
 Profit on exchange of  Profit of asset-based
liquidity is Haram transaction is Halal
Riba-ul-Hadith –
Increase in Exchange of Commodity
ِْ ‫ب ِْبل َذ َه‬
‫ب‬ ُْ ‫اّلل صلى هللا عليه وسلم " ال َذ َه‬ َِْ ‫ول‬
ُْ ‫ال َر ُس‬َْ َ‫ال ق‬َْ َ‫ ق‬،‫َب َسعِيدْ اْلُد ِر ِي‬ ْ ِ‫َعنْ أ‬
ْ‫لا ِبِِثْل‬
ْ ‫شعِ ْيُ ِبلشَعِ ِْي َوالتَم ُْر ِبلتَمْ ِْر َوال ِمل ُْح ِبل ِمل ِْح ِمث‬ َ ‫ض ْةُ ِبل ِف‬
َْ ‫ض ِْة َوال ُرْب ِبل ُِْب َوال‬ َ ‫َوال ِف‬
. " ْ‫اآلخ ُْذ َوال ُمع ِطي فِ ِْيه َس َواء‬ ِ ْ‫ي ادا بِيدْ فَمنْ ز ْاد أَ ِْو استَ ز ْاد فَ َقدْ أَرب‬
َ ََ ََ َ َ َ

“Gold is to be paid for by gold, silver by silver, wheat by

wheat, barley by barley, dates by dates, salt by salt, like by
like, payment being made hand to hand. He who made an
addition to it, or asked for an addition, in fact dealt in
usury. The receiver and the giver are equally guilty.” ( Sahih
Muslim 1: 584 e)
 Comprehensive Definition
by the Supreme Court of Pakistan
 242. Any additional amount over the principal in a contract of loan or
debt is the riba prohibited by the Holy Qur'an in several verses.
 The Holy Prophet, Sall-Allahu alayhi wa sallam, has also termed the
following transactions as riba:
 (i) A transaction of money for money of the same denomination where
the quantity on both sides is not equal, either in a spot transaction or in
a transaction based on deferred payment.
 (ii) A barter transaction between two weighable or measurable
commodities of the same kind, where the quantity on both sides is not
equal, or where the delivery from any one side is deferred.
 (iii) A barter transaction between two different weighable or
measurable commodities where delivery from one side is deferred.
 244. Out of these four transactions, the last two ones, mentioned above as (ii)
and (iii) have not much relevance to the context of modern business, the barter
business being a rare phenomenon in the modern trade. However, the riba-al-
Qur'an, and transaction of money mentioned above as (i) are more relevant to
modern business.
Precise Definition
 The word “Riba” means excess, increase or addition.
 In Shariah, it is an agreed excess compensation
without due consideration.
 “Every loan that draws any benefit is Riba”. (Hadith)
 Riba-
Prohibition
 Holy Quran
‫ين ِم ْن ُه ْم اع اذاَب أالِيُا‬
‫ا‬ ِ
‫ر‬ ِ‫اِ ِل وأا ْعتا ْد اَ لِل اُاف‬
‫ا ا‬
ِ ‫َّاُ َِبلب‬
ِ ‫ن‬ ‫ال‬ ‫ال‬
‫ا‬ ‫و‬ ‫ام‬
‫أ‬ ‫م‬
‫ا ْ ْا‬ِ
‫ه‬ ِ‫الرَب وقا ْد َُّنُواْ اع ْنه وأا ْكل‬
ُ ِ
‫ُ ها ا‬ ‫م‬ ِ ‫وأا ْخ ِذ‬
‫ه‬ ‫ا‬
“That they [Jews] took riba, though they were
forbidden and that they devoured men’s substance
wrongfully – We have prepared for those among men
who reject faith a grievous punishment.” (Quran 4:161)

ٍ ِ‫أاث‬
. ‫يم‬ ُّ ‫اّللُ اا ُُِي‬
‫ب ُك َّل اك َّفا ٍر‬ ِ ‫الص ادقا‬
‫ات او ه‬ ِ‫اّللُ ه‬
َّ ‫الراَب اويُ ْرِِب‬ ‫َياْ اح ُق ه‬
“Allah condemns riba, and blesses charities” (Quran 2:276)
 Holy Quran
‫اّللا لا اعلَّ ُُ ْم تُ ْفلِ ُحو ان واتقوا النار‬
‫اع افة اواتَّ ُقواْ ه‬
‫ضا‬ ‫ض اعافا ُّم ا‬ ِ‫آمنُواْ اا اَتْ ُكلُواْ ه‬
ْ ‫الراَب أا‬ ‫ين ا‬
‫ا‬
ِ َّ‫َي أايُّها ال‬
‫ذ‬ ‫ا ا‬
‫اليت أعدت للُافرين‬
“O you who believe, do not eat up the amounts acquired through
Riba(interest), doubled and multiplied. Fear Allah, so that you may be
successful,. and fear the Fire that has been prepared for the
disbelievers.”(Quran 3:130 & 131)
ْ‫مْمنْ َزَكاة‬ َِ ‫ند‬
ِ ُ‫ْاّللْوماْآتَيْت‬ ِ
‫وْع‬ ‫ب‬
‫ر‬ ‫ْي‬ ‫ل‬‫ف‬ ْ ِْ
‫َاس‬ ‫ن‬ ‫ْال‬ ‫ال‬ِ ‫و‬ ‫َم‬
‫أ‬ ْ ِ
‫ِْف‬ ‫و‬ ‫ب‬‫ي‬ ِ
‫ْل‬ ‫ب‬ِ
‫نْر‬ ِ
‫مْم‬
َ َ َِ ُ َ َ َ ِ ِ َ َُ َ ‫ا‬ ُ‫َوَماْآتَي ت‬
‫ْه ُمْاملضع ُْفو َْن‬
ُ ‫ك‬
َ ‫ئ‬َ‫ل‬‫ُو‬
‫أ‬ ‫ف‬
َ ْ ‫ْاّلل‬
َ ‫ه‬
َ ‫ج‬ ‫ْو‬
َ ‫ن‬َ ‫و‬ ‫يد‬
ُ ِ
‫ر‬ ُ‫ت‬
ُ
“The riba that is practiced to increase some people's
wealth, does not gain anything at Allah. But if people
give to charity, seeking Allah’s pleasure, these are the
ones who receive their reward many fold.”(Quran 30:39)
 Hadith
‫ فاانْطالا ْقناا اح َّّت أاتا ْي ناا اعلاى اَّنا ٍر ِم ْن‬،‫ض ُم اق َّد اس ٍة‬ٍ ‫ فاأا ْخ ار اج ِاِن إِ اَل أ ْار‬،‫ي أاتا يا ِاِن‬ ِ ْ ‫ت اللَّْي لاةا ار ُجلا‬ُ ‫ ر اَأاي‬
ْ
‫َّه ِر‬ ِ
‫الر ُج ُل الَّذي ِِف الن ا‬ َّ ‫ فاأاقْ با ال‬،ٌ‫ي يا اديْ ِه ِح اج اارة‬
‫ا‬ ْ ‫َّه ِر ار ُج ٌل اب‬
ْ ‫ او اعلاى او اس ِط الن‬،‫ادٍم فِ ِيه ار ُج ٌل قاائِ ٌم‬
‫اء‬ ‫ج‬ ‫ا‬ ُ َّ
‫ل‬ ‫ك‬
ُ ‫ل‬ ‫ع‬ ‫ج‬ ‫ف‬
‫ا‬ ، ‫ن‬
‫ا‬ ‫ا‬‫ك‬‫ا‬ ‫ث‬
ُ ‫ي‬ ‫ح‬ ‫َّه‬
ُ ‫د‬ ‫ر‬ ‫ف‬
‫ا‬ ِ ِ‫الرجل ِِبج ٍر ِِف ف‬
‫يه‬ َّ ‫ى‬ ‫م‬‫ر‬ ‫ج‬ ‫ر‬ ‫َي‬
ْ ‫ا‬ ‫ن‬
ْ ‫ا‬‫أ‬ ‫ل‬ ‫ج‬ ‫الر‬
َّ ‫اد‬
‫ا‬ ‫ار‬‫أ‬ ‫ا‬ ‫ذ‬
‫ا‬ ِ‫فا‬
‫إ‬
‫ا‬ ‫ا‬ ‫ا‬ ‫ا‬ ‫ا‬ ‫ا‬ ْ ‫ا‬ ‫ا‬ ‫ا‬ ‫ا‬ ُ
ُ ِ ٍ ِ ِ ُِ ِ ‫ا‬ ‫ا‬ ‫ا‬ ُ ُ ‫ا‬ ِ
‫َّه ِر آكِ ُل‬ ‫ا‬ ‫الن‬ ‫ِف‬ ِ ‫ه‬ ‫ت‬ ‫اي‬
‫أ‬
ُ ‫ا ْا‬‫ر‬ ‫ي‬ ِ
‫ذ‬ َّ
‫ل‬ ‫ا‬ ‫ال‬
‫ا‬ ‫ق‬‫ا‬ ‫ف‬
‫ا‬ ‫ا‬ ‫ذ‬
‫ا‬ ‫ه‬ ‫ا‬
‫ُ ا ا‬‫م‬ ‫ْت‬ ‫ل‬ ‫ق‬
ُ ‫ا‬‫ف‬ ، ‫ن‬
‫ا‬ ‫ا‬ ‫ك‬
‫ا‬ ‫ا‬ ُ ‫ك‬‫ا‬ ‫ع‬ ‫ج‬
‫ا ا اْ ُ ا‬ ‫ْي‬‫ا‬‫ف‬ ،‫ر‬ ‫ج‬ ‫ِب‬ ‫يه‬ ‫ف‬ ‫ِف‬ ‫ى‬ ‫م‬
‫لا ُ ا اا‬
‫ر‬ ‫ج‬ ‫ر‬ ‫خ‬ْ ‫ي‬
ِ‫ه‬
." ‫الراَب‬
 "This night I dreamt that two men came and took me to a Holy
land whence we proceeded on till we reached a river of blood,
where a man was standing, and on its bank was standing another
man with stones in his hands. The man in the middle of the river
tried to come out, but the other threw a stone in his mouth and
forced him to go back to his original place. So, whenever he tried
to come out, the other man would throw a stone in his mouth
and force him to go back to his former place. I asked, 'Who is
this?' I was told, 'The person in the river was a Riba-eater.“(Sahih al-
Bukhari 2085)
 Hadith
‫س الَِّيت اح َّرام‬
ِ ‫ اوقا ْت ُل النَّ ْف‬،‫الس ْح ُر‬ َِّ ‫شر ُك َِب‬
ِ ‫ و‬،‫ّلل‬ ِ ‫ال " ال‬
‫ه‬ ‫ا‬ ‫ا‬‫ق‬ ‫ن‬
َّ ‫ه‬ ‫ا‬‫م‬ ‫و‬ ، َِّ ‫ول‬
‫اّلل‬ ‫ قاالُوا اَي ار ُس ا‬." ‫ات‬ ِ ‫الس ْبع الُْوبِاق‬ َّ ‫اجتانِبُوا‬ "
ِ ‫ات الُْ ْؤِمنا‬ ِ ‫ف الُْ ْحصنا‬ ‫ه‬ ‫ا‬ ْ ُ ‫ا‬ ‫ا‬ ِ ِ ُ ‫ا‬ ْ
ِ ‫الز ْح‬ ِ‫ اوأا ْك ُل ه‬،‫اّللُ إِاَّ َِب ْْلا ِهق‬
‫ات‬ ُ ‫ اوقا ْذ ُ ُ ا‬،‫ف‬ ‫ اِوالت ِا‬،‫ اوأا ْك ُل امال الْيات ِيم‬،‫الراَب‬
َّ ‫َّوِهّل يا ْوام‬ َّ
." ‫الْغاافالات‬
The Prophet said, "Avoid the seven great destructive sins." The
companion asked: What are they? "He said:
 "To join others in worship along with allah,
 To practice sorcery,
 To kill the life which allah has forbidden except for a just cause,
(according to islamic law),
 To eat up riba
 To eat up an orphan's wealth,
 To give back to the enemy and fleeing from the battlefield at the
time of fighting,
 And to accuse, chaste women, who never even think of anything
touching chastity and are good believers. (Sahih al-Bukhari 2766)
 Hadith
ِ ‫الرَب وموكِلاه واكاتِبه و اش‬
‫اه اديْ ِه‬ ِ ‫ل‬ِ
‫آك‬ ‫لم‬ ‫وس‬ ‫عليه‬ ‫هللا‬ ‫صلى‬ َِّ ‫ول‬
‫اّلل‬ ‫ قا ا‬،‫اع ْن اجابِ ٍر‬
ُ ‫ال لا اع ان ار ُس‬
‫ا ها ا ُ ُ ا اُ ا‬
. ٌ‫ال ُه ْم اس اواء‬
‫اوقا ا‬
 Hazrat Jabir Ibn-e-Abdullah has reported the Prophet to
have cursed those:
o who charge interest,
o those who pay it,
o those who write documents pertaining thereto,
o those who keep the accounts of such matters
o those who sign as witness.
He said that they are all equal in this crime. (Sahih Muslim 1598)
Does ONLY ISLAM prohibits
Interest?
Riba – Prohibition in the Bible
 Exo 22:25 If thou lend money to any of my people that is poor by
thee, thou shalt not be to him as an usurer, neither shalt thou lay
upon him usury.
 Lev 25:36 Take thou no usury of him, or increase: but fear thy
God; that thy brother may live with thee.
 Lev 25:37 Thou shalt not give him thy money upon usury, nor
lend him thy victuals for increase.
 Deu 23:19 Thou shalt not lend upon usury to thy brother; usury
of money, usury of victuals, usury of any thing that is lent upon
usury.
 Deu 23:20 Unto a stranger thou mayest lend upon usury; but
unto thy brother thou shalt not lend upon usury…
Riba – Prohibition in the Bible
 Neh 5:7-10 Then I consulted with myself, and I rebuked the nobles, and the
rulers, and said unto them, Ye exact usury, every one of his brother. And I set a
great assembly against them. … I likewise, and my brethren, and my servants,
might exact of them money and corn: I pray you, let us leave off this usury.
 Psa 15:1-4 LORD, who shall abide in thy tabernacle? who shall dwell in thy holy
hill?... He that putteth not out his money to usury, nor taketh reward against the
innocent. He that doeth these things shall never be moved.
 Pro 28:8 He that by usury and unjust gain increaseth his substance, he shall
gather it for him that will pity the poor.
 Eze 18:8 He that hath not given forth upon usury, neither hath taken any
increase, that hath withdrawn his hand from iniquity, hath executed true
judgment between man and man
 Eze 18:13 Hath given forth upon usury, and hath taken increase: shall he then
live? he shall not live: he hath done all these abominations; he shall surely die; his
blood shall be upon him.
THE RATIONALE BEHIND
PROHIBITION OF RIBA (INTEREST)
 Riba is a cause of injustice and exploitation
 It is unjust for lenders to guarantee return with no
involvement in risk.
 Because riba entails taking advantage of a man’s
inferior economic position it breeds hatred,
jealousy and ill-will towards the rich
 Riba leads to the creation of materialistic society
 In Islam, incurring debt is discouraged. The
Prophet (pbuh) refused to offer salat-ul janazah of
a person who died indebted.
 On the other hand, permitting riba enables lending
to become a viable business. Banks exploit man’s
inherent greed to spend beyond their means by
offering credit
Riba discourage productive work
 Managerial and entrepreneurial skills along with the
productive use of money are the essential factors in
converting it into capital. The lenders of the money have
no input in the conversion process.
Riba impedes healthy economic development
 Riba generates negative effects on production since
it is security oriented rather than growth oriented.
 Lending is confined to established businesses with
known creditworthiness and adequate security
(collateral), not profitability. Banks are not willing
to experiment new and unproven methods of
production, especially for small-scale enterprises
and agriculture
Riba increases the disparities in income and wealth
 The rich (the lender) take advantage of the need of
the poor (the borrower) for money by charging
interest, which adds to the burden of the borrower.
As a result, the rich becomes richer and the poor
becomes poorer.
 Lacking collateral and established economic
standing, poorer segments of the economy are at an
economic disadvantage when competing for credit
to finance economic activities.
Riba discourages partnership
 A loan provides a fixed return to the lender
regardless of the outcome of the borrower’s course
of action. From an Islamic point of view, it is much
fairer to share in the profits and the losses.
Consensus of Shariah Scholars

Riba Interest
Judgment In The Shariah Appellate
Bench Of The Supreme Court, 1999

“245. In the light of the detailed discussion above, there is no difference

between different types of loan, so far as the prohibition of riba is
concerned. It also does not make any difference whether the additional
amount stipulated over the principal loan or debt is small or large. It is,
therefore, held that all the prevailing forms of interest, either in the
banking transactions or in private transactions do fall within the
definition of "riba." Similarly, any interest stipulated in the government
borrowings, acquired from domestic or foreign sources, is riba and
clearly prohibited by the Holy Qur'an.”
The Council of the International Islamic Fiqh
Academy (IIFA), of the. Organization of Islamic
Cooperation (OIC)

“Any increase or interest on a debt which has matured,

in return for an extension of the maturity date, in case
the borrower is unable to pay and the increase (or the
interest) on the loan at the inception of its agreement;
are both forms of usury which is prohibited under
shariah”
1st Argument
➢ Quran says :
‫اّللا لا اعلَّ ُُ ْم تُ ْفلِ ُحو ان واتقوا‬
‫اع افة اواتَّ ُقواْ ه‬
‫ا‬ ‫ض‬‫ا‬ ‫م‬
ُّ ‫افا‬‫ع‬ ‫ض‬
ْ ‫ا‬
‫أ‬
‫ها ا‬ ‫َب‬ِ
‫الر‬ ‫ا‬
ْ‫و‬ُ‫ل‬ ‫ك‬
ُ ْ
‫َت‬
‫ا‬ ‫ا‬
‫ا‬ ‫ا‬
ْ‫و‬ ‫ن‬ ‫آم‬ ‫ين‬‫ذ‬ِ
ُ ‫اَي أايُّ اها الَّ ا ا‬
‫النار اليت أعدت للُافرين‬
“O you who believe, do not eat up the amounts acquired through
Riba(interest), doubled and multiplied. Fear Allah, so that you may be
successful,. and fear the Fire that has been prepared for the
disbelievers.”(Quran 3:130 & 131)
➢ Thus, if the rate of interest is not excessive (e.g.
doubled) then it does not constitute riba and
therefore not prohibited
 Answer
 Verses of the Qur’an on the same subject matter
must be studied in relation to each other; e.g., Al-
Baqarah (2:278) – “O those who believe fear Allah
and give up whatever remains of riba, if you are
believers”
 Every amount, regardless of magnitude, over and
above principal is riba
 We must understand the Qur’an as a book of guidance
that directs us to the core of values; otherwise, Qur’an
will be misinterpreted. For example, verse 41 in Surat
Al-Baqarah (2:41) states “Do not sell My verses for a
little price”. Does this imply that one can sell verses
for a high price?
 2nd Argument
‫وسْأَم َوالِ ُُمْاا تاْْلِ ُُو ان اواا تُْْلا ُُو ان‬
ُ ُ
ُ‫ْر‬
ُ ‫م‬ ُ
ُ ‫ل‬
َ ‫ْف‬
َ ‫م‬ُ‫ت‬ْ‫ب‬ ‫نْت‬
ُ ِ‫إ‬‫ْو‬
َ
ِ
‫ه‬ ِ‫ْاّللْورسول‬
ُ َ َ
ِ ‫فَِإنْ ََّلْتَفعلُواْفَأ َذنُوا ِِْبرب ِْمن‬
َ َ َ
If you do not, then expect a war from Allah and His
Messenger. But if you repent, you may keep your capitals,
neither you do injustice nor injustice is done with you.
(Quran 2:279
It seems that basic Reason (ilat) of prohibition of riba is
‘Injustice’ as obvious from the quoted Ayat; then how riba
can be held Haram on Commercial level when it is evident
that there is no injustice to either party; particularly when
both parties are whole-heartedly agreeing to this
transaction
 ANSWER
 Islamic Law for prohibition of riba does not depend on
mutual agreement.
 Can bribe or fornication be allowed if these are
committed with mutual consent?
 Commercial Interest (riba) is detrimental not for the
parties but also for public and society due to the fact
that excess amount to be paid in form of riba is added
to the cost of production hence, it is in fact paid by
customer not by borrower.
Inflation justifies interest

 It is argued that a debt when repaid at a later

date may have lower purchasing power due to
persistent increase in the general prices of
goods and services (inflation). Hence, the
borrower, in essence, repays less, which would
be unfair to the lender if he is not compensated
for the loss of purchasing power.
 ANSWER
1. Actually, several studies have illustrated that
interest is one of the causes of inflation. A better
way to reduce inflation is to stop charging interest to
begin with
2. The presence of inflation will result in the decline
in the purchasing power of lender’s money whether
it is given to the borrower or not.
3. The factors that lead to inflation are beyond the
borrower’s control, so why the borrower should be
held responsible
4. Even if indexation is allowed there is no perfect
index to fully and fairly capture the loss of the value.
Time Value of Money
 Sacrificing present consumption for future
consumption must be compensated.
 Answer
 Islam does not permit the reward for time but allows
reward for efforts and risk-taking activity in business.
Because money in Islam is just a medium of exchange,
it cannot earn more money by itself
 Time value of money is recognized by Shari’a but only
on sales contracts not in debt contracts. There is a
great distinction in Shari’a between investment and
lending.
 Nevertheless, when the buyer in a deferred-payment
sale decides to defer his payment beyond the due date
for payment, neither he nor the seller is allowed to
increase the price. Price is now in the nature of debt
and a debt cannot be replaced by a higher or lower
debt.
Basic Difference between Islamic and
Conventional Modes of Finance
Conventional

money
Bank Client

money + money (interest)

Basic Difference between Islamic and
Conventional Modes of Finance
Islamic

Bank Goods & Client

Services

money
 Distinguishing Features

Conventional Banking Islamic Banking

- Conventional banking - Islamic banking prices

prices money. goods and services which
creates real wealth in the
society leading to economic
well-being.
- Is based on fixed - Is based on profit
return on both Sides of sharing on deposits side,
the balance sheet. and on profit on assets
side.
 Distinguishing Features
Conventional Banking Islamic Banking

- Does not involve itself - Actively participates in

in trade and business trade and production.

- Depositors get a fixed - Profit is shared with the

rate regardless of the depositor, higher the
bank’s profitability, thus bank’s profit, higher the
insulating them from depositors income.
the bank’s true
performance.
 PRODUCT TREE

Islamic Banking Modes

Partnership Based Trade Based Rental Based

Modes Modes Modes

▪Murabaha
▪Musharaka (Cost Plus Profit Sale) ▪Ijarah
(Joint Venture Profit Sharing ) ▪Musawama ( Leasing )

▪Mudaraba (Bargain sale ) ▪Diminishing

( Trustee Profit Sharing) ▪Salam Musharaka
(Commodity Sale)
( Transfer of Ownership)
▪Istisna
(Sale on Order)
 Comparison Between
Conventional Lease & Islamic IJARA
DIFFERENCES BETWEEN
Ijarah & Conventional Lease

Conventional
Ijarah Lease

If the asset goes under Total Loss with out any negligence of customer and
Insurance Company pays off the claim less than the cost, loss will be suffered
by the bank. Bank has to return total security deposit to the customer.
section # 2.5.9.2

While in conventional Lease Bank deducts

such loss from the security deposit of the customer.
DIFFERENCES BETWEEN
Ijarah & Conventional Lease

Conventional
Ijarah Lease

Bank can not charge any rent against the asset if it is not in a
workable condition with out any negligence of customer.
Section: 2.5.14.3

While in Conventional Lease rental remains

continue despite of the asset is unworkable situation.
DIFFERENCES BETWEEN
Ijarah & Conventional Lease

Conventional
Ijarah Lease
In case if the asset is on booking, after arrival customer refuses
to take the asset on Ijarah, then bank can not charge profit of
the booking period.
Section: 2.5.2.2

While in Conventional Lease Bank has already charged

profit of the booking period in rentals of booking period.
DIFFERENCES BETWEEN
Ijarah & Conventional Lease
Conventional
Ijarah Lease

In case of Late Payment Islamic Bank’s income does not increase.

Section: 2.5.12.2

While in the Conventional Lease Bank’s income

increases due to late payments from the customers.
DIFFERENCES BETWEEN
Ijarah & Conventional Lease

Conventional
Ijarah Lease

No rental is due for the period between

the contract date and the date of actual delivery,
Section # 2.5.5.3

While in Conventional Lease , installments start from

the day of fund Disbursement
 Comparison Between

Murabaha Financing &Term Financing

DIFFERENCES BETWEEN
Murabaha Financing &Term Financing

Murabaha Term
Financing Financing

IB’s possession of the goods should be Ascertained before

its sale to the customer by way of Murabaha.
Page#09. para#04

While in conventional term financing, conventional

bank simply lend the interest based loan without
acquiring possession of required goods
DIFFERENCES BETWEEN
Murabaha Financing &Term Financing

Murabaha Term
Financing Financing

it is necessary that the IB must have assumed the risks of Ownership

before selling the commodities to the customer. Page#08

while in conventional term financing, conventional

bank does not bear any risk on the loss of the funds
DIFFERENCES BETWEEN
Murabaha Financing &Term Financing

Murabaha Term
Financing Financing

The amount charged due to late payment or default by the client

cannot be taken as an Income of the Bank rather it shall be used
for charitable purposes Page#09. para#08

While Conventional Bank’s income

increases due to late payments from the customers.
DIFFERENCES BETWEEN
Murabaha Financing &Term Financing

Murabaha Term
Financing Financing

A Murabaha contract cannot be rolled over because the goods

once sold by the Bank become property of the client and,
hence, cannot be resold. Page#06

Conventional Bank advances loans on roll over basis.

DIFFERENCES BETWEEN
Murabaha Financing &Term Financing

Murabaha Term
Financing Financing

Once the Murabaha transaction has been executed,

the selling price determined cannot be changed
Page#09. para#07

Mark up rates may vary with the fluctuation of

KIBOR