Riba

• What is Riba?
• Riba in Qur’an
• Riba in Hadith
• Riba: Classification / Nature & types
• The laws of Riba al Fadl
• Riba according to Shariah Court, Pakistan
 WHAT IS RIBA?
• Riba means any excess compensation over
and above the principal which is without due
consideration. It’s a premium paid to the
lender in return for his waiting as a condition
for the loan. In the words of Prophet (SAWW)
“Every loan that draws interest is Riba”.
 Wisdom behind prohibition of Riba

• To prevent individual gains that cause loss to

the whole community. Bank caters loans only
to rich sector. Entire capital is utilized for the
benefit of few. Community gets poorer.
 RIBA IN QUR’AN
• “That which you give as interest to increase the people’s wealth increases
not with God; but that which you give in charity, seeking the goodwill of God,
multiplies manifold”. (Surah Rome, Verse 39)
• “And for their taking interest even though it was forbidden for them, and
their wrongful appropriation of other people’s property. We have prepared
for those among them who reject faith a grievous punishment”. (Surah al-
Nisa, Verse 161)
• “Believer’s! Do not swallow riba, doubled and redoubled, and be mindful of
Allah so that you may attain true success” (Al Imran, Ayat 130)  
• O those who believe fear Allah and give up what still remains of the Riba if
you are believers. But if you do 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. (Verses of Surah Al Baqarah: 278 to
279)
 RIBA IN HADITH

• From Hazrat Abu Hurayrah (RA):

The Prophet, peace be on him, said:
“Riba has seventy segments, the least serious being equivalent to a man
committing adultery with his own mother”. (Ibn Majah)
 
• The Holy Prophet (peace be upon him) said “Gold for gold silver for silver,
wheat for wheat, barely for barley, dates for dates and salt for salt like, equal
for equal, and hand to hand; if the commodities differ, then you may sell as
you wish, provided that the exchange is hand-to-hand”. (Sahi Muslim).

• From Farwell Pilgrimage Address of Holy Prophet (peace be upon him): “Riba
is forbidden and you will be entitled to recover your principal amount ……
Allah has decreed that there should be no Riba and I am remitting the
amount of Riba which my uncle Abbas has to receive”.
 
 Continued….
• From Hazrat Jabir Ibn-e-Abdullah (RA): The Prophet may peace be on him,
cursed the receiver and the payer of interest, the one who records it and the
witnesses to the transaction and said; “They are all alike (in guilt)”. (Muslim,
Tirmidhi and Musnad Ahmed)

• From Hazrat Amir bin Al Aas (RA): “When interest based dealing becomes
common among people, they will start facing draught and shortage of food.
And when bribery becomes norm among people they will live under
constant fear of their enemy”.

• From Hazrat Abu Hurayrah (RA): The Prophet peace be on him, said: “There
will certainly come a time for man kind when every one will take Riba and if
he does not do so, its dust will reach him. “(Abu Dawud, Ibn Majah).
 RIBA: NATURE & TYPES
CLASSIFICATION OF RIBA
Riba is mainly divided into two types:
• Riba-un-Nasiya or Riba-al-Jahiliya or Riba Al Quran
• Riba-al-Fadl or Riba-al-Bai or Riba al Hadith
• Actually Riba an Nasiyah applied in loan transactions
where extra amount is not allowed on principal amount
while Riba al Fadl applied in barter trade or commodities
exchange or sale transaction in more simplified form
where getting benefit of quality premium is not allowed.
 1. Riba-un-Nasiyah or Riba-al-Jahiliya
• Riba Al-Nasiyah refers to loan transactions. This is also termed as Riba
Al-Qur’an. Interest in all modern banking transactions falls under Riba
Al-Nasiyah, about prohibition of which there is consensus of Ummah.
 
Riba-un-Nasiyah or Riba-al-Jahiliya
• - “that kind of loan where specified repayment period and an amount
in excess of capital is predetermined” (Imam Abu Bakr Al Jassas Razi)
• - “all loans that draw interest is riba” (Hadith quoted by Ali ibn Talib)
• - “the loan that draws profit is one of the forms of riba” (definition
from Sahabi Fazala Bin Obaid)
• Real and primary form of Riba
• 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
 2. Riba Al-Fadl:
• The Concept of Riba Al- Fadl refers to sale transactions. This is also termed as
Riba Al-Hadith. Quality premium in exchange of low quality with better quality
goods (Riba Al-Fadl) is prohibited e.g. in exchange of dates for dates, wheat for
wheat, ettc.
• Excess taken in exchange of specific commodities which are homogenous
• Legal definition differs in every fiqh/Islamic Jurisprudence.
• Hadith prohibiting Riba-al-Fadl
– Selling gold in exchange of gold
– Selling silver in exchange of silver
– Selling dates in exchange of dates
– Selling wheat in exchange of wheat
– Selling salt in exchange of salt
– Selling barley in exchange of barley
– if a person transacts in excess, it will be riba.
However sell gold for silver any way you please on the condition it is hand-to-hand (spot
sales) and sell barley for date any way you please on the condition it is hand-to-hand
(spot sales)
 THE LAWS OF RIBA AL FADL
First law
• Exchange of any of the six commodities with itself but
differing in quality, is allowed only under certain conditions
Conditions of exchange
• Any difference in value/quality should be ignored
• The commodities should be exchanged in equal amounts
(equal weight and volume).
• 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.
 THE LAWS OF RIBA AL FADL
Second law
• Exchange of any of the six commodities with
one another is allowed in unequal amounts
but the payment should not be deferred
– Provided that the general conditions of a sale
contract are fulfilled
 Types of Interest
• TYPES OF RIBA
– Tijarti Sood(Commercial interest)
• interest paid on loan taken for productive and
profitable purpose
– Sarfi Sood (Usury)
• interest paid on loan taken for personal need and
expenses
 Types of Interest
• Simple interest is calculated on the principal,
or original, amount of a loan.
• Compound interest is calculated on the
principal amount and also on the accumulated
interest of previous periods, and can thus be
regarded as “interest on interest.”
  Simple Interest payable at the end of each year is shown in the table
below.

Year Opening Balance (P) Interest at 5% (I) Closing Balance (P+I)

1 $10,000.00 $500.00 $10,500.00

2 $10,000.00 $500.00 $10,500.00

3 $10,000.00 $500.00 $10,500.00

Total Interest   $1,500.00  

 Compound Interest payable at the end of each year is shown in the table
below.

Year Opening Balance (P) Interest at 5% (I) Closing Balance (P+I)

1 $10,000.00 $500.00 $10,500.00

2 $10,500.00 $525.00 $11,025.00

3 $11,025.00 $551.25 $11,576.25

Total Interest   $1,576.25  

 Arguments to Justify Commercial Interest
• Q-1: 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.
• Answer: 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.
 
• Q-2: It was not in the prevalent modern shape in the those days.
• Answer: 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.
 
• Q-3: The Commercial interest was not in vogue in Arab
• Answer: History shows that it was in vogue.
 
• Q-4: Doctrine of necessity and wisdom requires to allow it
• Answer:
(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.
 RIBA: ACCORDING TO SHARIAH COURT, PAKISTAN
The SAB of the Supreme Court of Pakistan declared:
1. All prevailing form of interest, either in banking transactions or in
private transactions, fall within the definition or Riba.
2.Any interest stipulated in government borrowings acquired from domestic
or a foreign source is Riba and clearly prohibited by the Holy Qur’an.
3.The present financial system, based on interest, is against the injunctions
of Islam as laid down in the Holy Qur’an and Sunnah and in order to bring
it in conformity with Shariah it has to be subjected to radical changes.
 
• Federal Shariah Court says “Riba-Al Nasiya includes all kinds of interest
irrespective of the fact whether the interest is, or is not added to the
principal sum after fixed periods and whether the sum lent is for
production or consumption purpose”.